TNS Retail & Shopper

Zero Based Retailing

February 22, 2009 - by Herb Sorensen, Ph.D., Global Scientific Director, TNS Retail and Shopper
E-Mail: herb.sorensen@tns-sorensen.com

For planning purposes, most countries, businesses and individuals take their current situation as some kind of baseline, upon which they build their planning for the future.  This is a seriously flawed approach, particularly when the enterprise is under severe stress.  Sometimes, for planning purposes, it is better to sweep all away (conceptually,) and begin anew from scratch.  This is the basic element of "zero based budgeting," the concept of starting with a zero budget, considering the mission and its scope, and then allocating exactly the right amount of resources (personnel, facilities, etc.) needed to accomplish the mission, without regard to past or present allocation of resources.

This tends to provide far more clarity as to what is needed in the budget, than attempting to roll-back costs, or estimate "needed" additions.  For example, if your revenues next year are going to be 60% of what they were this year, it is far more conceptually painful to decide how to cut 40% - and probably less efficient - than to take the small team of leaders that will be moving forward, and figuring out exactly what you need to build a business 60% of the size of the one you have.  Then you select from the resources at hand to staff and support that business.  Resources not selected are then jettisoned.

The purpose of this Views is not to weigh the merits of zero based budgeting, but rather to show how the concept of zero basing, can be helpful in understanding aspects of retailing.  Our zero base for retailing is the existence of merchandise in warehouses, and the existence of shoppers who want that merchandise.  The issue we address here is how to mix them together within the four walls of the store.  (We could leave the four walls out to make it even more interesting/complex.)  Our zero base approach is not to see how we might alter present practices, but rather to address the issue as if there were no present practices.  Starting from scratch, as it were.

The Perfect vs. The Ideal Store

Taking as a given the four walls of the store and a series of aisles, the question is, how to organize the merchandise in the store.  Most stores use some adaptation of what my mother called, "A place for everything, and everything in its place."  That is, whole categories will be placed up and down the aisles of the store.  In the early AlphaBeta supermarkets, the categories were laid out around the store in alphabetical order: apples, bakery and candy leading off the shopping trip.  We might represent such a layout, with the distinct colors representing the categories, as follows:

Now we perform a bit of a "thought" experiment.  Let's assume that all these categories are constituted from something like 40,000 distinct items (SKUs) and that the store and that there are something like a dozen of each of these individual items in the store.  This would mean that there is something like a half million individual packages in the store.

Suppose we pick up the box that is the store, and we shake it!  Side to side, up and down, round and round.  After a thorough shaking we should have those "perfectly" organized items totally randomized, something we might represent like this.

Now every item in the store will actually occur in a dozen different locations around the store.

Active vs. Passive Retailing

These two stores, the Perfect and the Ideal stores represent the extremes of two different philosophies of retailing.  The Perfect store is well suited to what we can refer to as the fishing mode of retailing, where the retailer organizes the merchandise like bait around the store, and the fish (shoppers) swim along and "strike" the bait that interests them.  This is essentially a passive mode of retailing.

The active retailer, on the other hand, is more of a hunter who stalks the prey (shoppers) with the merchandise.  In this model, the merchandise is scattered widely over the terrain where the prey is known to wander, and the retailer repeatedly shoots at the prey (makes offers.)  The Ideal store is ideal because no shopper can make their way through the store without having everything offered to them.

The active retailer is after the shopper, persistently making offers, while the passive retailer largely relies on the shopper to make the offers to themselves.

Obviously, stores are ordinarily a mix of perfect and ideal.  The primary store (the main aisle or gondola where the category is principally located - often center of store aisles) is typically organized in the perfect manner.  "A place for everything, and everything in its place."  On the other hand, the promotional store, the secondary store, is typically organized more along the ideal manner.  Here the merchandise is scattered hither, thither and yon, even if not totally randomly.

The bottom line here is that the promotional, ideal store, though only having a few percent of the total SKUs in the store, sells 20-40% of the dollar volume of represented categories.  The primary store, the perfect store, with well over 90% of items in the store, sells the rest.  "Hunting" shoppers is a lot more effective than "fishing" for shoppers.  Question: Why do brand suppliers focus most on how to manage the primary store?  The answer has a perverse logic, not well connected to profitability.

I realize that using zero based retailing to focus on active vs. passive retailing may strain the imagination of some.  But this is only one application of zero based retailing.  In reality, it is nothing more than a scientific evaluation of vital issues in retailing.

Deconstructing the Shopping Trip (so far!)

February 1, 2009 - by Herb Sorensen, Ph.D., Global Scientific Director, TNS Retail and Shopper E-Mail: herb.sorensen@tns-sorensen.com

A lot of the inadequacy seen in shopper research comes from an incomplete understanding of the basic components of the in-store trip. For this Views I will share the paradigm that has grown from our many years of observing, measuring shopping trips and, when useful, interviewing shoppers as they conduct their trips within the four walls of the store.

Overhead

Some portion of every shopping trip can reasonably be considered "overhead," because it does not directly contribute to purchasing behavior, the presumptive purpose of the trip - but not necessarily the only purpose.

First, there is the in-store preshop when the shopper first enters the store, and typically goes through an orientation phase, possibly obtaining a cart or basket, and otherwise orienting themselves before launching into the trip. This activity often occurs in an area we sometimes refer to as the "landing zone," the first point of pause within the store.

There may be other times in the trip which provide purchasing interludes - stop for a snack, social conversation with another shopper, visit to the restroom, etc. This type of overhead serves as punctuation for the trip.

Finally, there is the denouement of the trip when the shopper arrives at the check-stand to pay and exit. Even though purchases at the checkout are obviously of great significance to categories represented there, the shopping there differs qualitatively from the rest of the store. This combined with the fact that only a small share of the perhaps 80% of trips that pass through, actually buy something here, we ordinarily consider this portion of the trip as overhead. (The "80%" recognizes that not all who pass through the store, also pass through the checkstand.)

There is another complication to considering everything happening after arriving at the checkstand as overhead, and that is the increased focus on what is referred to as "the fifth wall." This is the wall beyond the checkout where there is often a customer service counter where a variety of purchases may occur, as well as banking, video rentals, or any number of other purchase opportunities that may represent significant profit opportunities for suppliers and retailers.

In the future, various technologies may obviate the checkout process nearly entirely, virtually eliminating the checkout "wall," so that the "fifth wall" may take on even more significance.

Search and Select

Purchase activity can be divided into search and selection, with search having two components, the first of which is cruising, which consists of a macro search for the area in the store where sought merchandise is located. This cruising typically constitutes something like 60% of the shoppers trip, and is discussed in the Wharton paper, The 'Traveling Salesman' Goes Shopping, by Fader, Bradlow and Hui.

Once the shopper has arrived in the general area of a purchase they stop cruising per se, and move to scanning the shelves in search of the category/subcategory where a selection of candidate items is displayed.

Once their focus is on their consideration set, there is less physical movement and the shopper zooms in on that set of items that will deliver their actual purchase, with a series of fixations that ultimately deliver the purchase (or not!)

The search and select paradigm highlights the twin barriers to purchase that retailers and their brand suppliers erect:

Where is the . . ?
Which one of these . . ?

The first of these plagues the shopper when store layout does not match the shopper's natural navigational practices and the second when it is unclear which of many options is the right one for the shopper.

This search and select outline describes the sales process from the shopper's point of view. Although distinctive from the shopper's view, the selling point of view overlays this quite well, beginning with the necessity of Reaching the shopper with the merchandise. This complements the shopper's search. But by focusing on getting product and shopper together by reaching the shopper, the perspective shifts the responsibility to the seller, instead of the buyer. There is genuine gold in that shift in perspective.

Once the merchandise reaches the shopper, (alternatively, the shopper visits the products,) two critical properties of the product must induce the sale: Stopping Power brings the shopper search to a halt (or slow.) This is the end of the cruising discussed above and the transition represented by the zoom to a consideration set. Where reach is something the retailer must provide, the product must speak for itself to stop the shopper and engage them in consideration.

However, the only purpose of consideration is to make the sale, a capability represented by Closing Power. Closing power is the single most important property any package/product can have, because no matter how much reaching and stopping occur, if no closing occurs, it is all to no avail. Remember, "close early and close often," and "The faster you close, the more you will sell!"

This brings us to the concept of Holding Power, which is the ability of a product to engage a shopper in a lengthy(?) conversation. Salesmen with pleasant conversational skills may be socially welcome, but unlikely to be competitive with real salesmen, who are always closers. Although some minimum holding power is prerequisite to selling, unless the product purchase has a heavy hedonic component (very unlikely,) seeking holding power in a product is more likely seeking to obfuscate the conversation with the shopper, the longer they are held, the less likely to close.

In the title here I included "so far!" because the schema or paradigm described here continues to evolve with advancing understanding. But unless you are well in advance, this wouldn't be a bad place to begin. :>)