SHELF SPACE ALLOCATION: WILL PRODUCT PLACEMENT AFFECT SALES?

Lisa WilmerEconomics 366Final Project

December 17, 2013

WHY ORGANIC CHIPS?Work at WegmansCherry Hill7 years, 211 days

Nature’s Marketplacesell natural and organic products

Interesting to see if shelf placementwill affect sales of product

WHY ORGANIC CHIPS?Aisles have different number of shelvesDue to product sizeMost shelves between 5 and 8 levels

Use chip aisleMakes experiment less complicatedOnly six shelf levels

Easier to move chipsThan other productsSpices, tea, or vitamins

CLASSIFICATION OF SHELF LEVELS

Shelf levels classified into four categoriesTopEyeHandFeet

In this experimentAisle has six shelf levelsBroken down into these four categories

CLASSIFICATION OF SHELF LEVELS FOR EXPERIMENT-TOP LEVEL

Top level (6)Reserved for oversized itemsSales vary from high, low to averageItems placed here due to bag sizeNot consumer preferenceOr sales

CLASSIFICATION OF SHELF LEVELS FOR EXPERIMENT-EYE LEVEL

Eye level (4 and 5)Best location to place itemsMost likely to be seenand bought

Sales on this level highHighest selling chips placed here

CLASSIFICATION OF SHELF LEVELS FOR EXPERIMENT-HAND LEVEL

Hand level (2 and 3)Items that can be easily reachedBy average consumer

Sales vary from high to averageItems that can be reachedWithout much effort

CLASSIFICATION OF SHELF LEVELS FOR EXPERIMENT-FEET LEVEL

Feet level (1)Not easily reached by consumers

Sales tend to be lowSometimes averageHave to make effort to obtain these products

ORGANIZATION OF ORGANIC CHIPS IN TEST AISLE Test aisle in experimentNot organized in any specific wayExcept all large size items on top

Four items on topNot oversizedJust “cut in” wherever space available

Outside manufacturer’s productsOr vendorsAre at the feet levelNot eye level like most research suggests

ORGANIZATION OF ORGANIC CHIPS IN TEST AISLE Vendors often pay for shelf spaceCare where products are placedMake agreement with storePlace products at eye level

Get paid by how much they put outcommission

Why products so low?Possible reasons could beCharge a lot for prime shelf spaceVendor indifferent to where product is placedStore does not choose to lease this sectionMight not fill as often as store would like

Lose shelf space

ORGANIZATION OF ORGANIC CHIPS IN TEST AISLE Many items placed on Hand level Are cross-merchandised in gluten-free section

Cross-merchandisingProvides benefit of more consumersSeeing product

Crazy they would waste good shelf spaceTo merchandize duplicate productsWhen could offer more products

TYPES OF CONSUMERSEye level shopperBuys whatever can be seenNot take time looking for itemsDoes not care about price

All level shopperSurveys all shelf levelsTakes time to look for items“brand-loyal”

Care about priceLikes to compare prices to save money

WHAT IS KNOWN ABOUT SHELF SPACE ALLOCATION?Retailers try to allocate shelf space based on three elementsProfitabilityCustomer satisfactionCompetition

Since these elements often conflictCannot make sufficient decisionsQuicklyOften rely on computer programs to do this

WHAT IS KNOWN ABOUT SHELF SPACE ALLOCATION?Explains why consumers complainWhen decide to change product locations on shelves

At my jobHave changed aisles three times in seven years

Also eliminated departmentsTo expand other areascheese shop and gluten-free

International and tea sectionproducts mixed into regular aisles

WHAT IS KNOWN ABOUT SHELF SPACE ALLOCATION?Ron Curhan (1973)

Products classified into three categoriesUnresponsive, inelastic productsToothpaste

General use productsWhere point of diminishing returns occurs slowlycanned vegetables

Occasional purchase products“unlooked for” by mostSardines and nuts

Organic chips are general use productsNeither inelastic nor “unlooked for”

THE EXPERIMENT The experiment

Will be done in chip aisleOn small section

Six shelf levels in aisleOnly change two shelvesOne (feet level)Four (eye level)

THE EXPERIMENT

S M T W R F S1 2 1 2 1 2 12 1 2 1 2 1 2

Change shelf levels each day

Have observations for both shelf allocations

Within two weeksFor each day of the week

THE EXPERIMENT

Duration of experimentSix monthsEquivalent to one inventory period

Might be long time But can compare to last inventory period sales

WHAT CAN BE LEARNED FROM THIS EXPERIMENT?Experiment could produce results Help store management and product

merchandizersUnderstand how shelf space allocationImpacts sales

If significant increase in salesMove items that do not sell wellTo higher shelf levelTry to increase sales

Move items that sell wellNo matter where placedTo feet level shelf

WHAT CAN BE LEARNED FROM THIS EXPERIMENT?If significant increase in

salesWhen products moved To shelf four

Can be assumedAverage consumer is eye level

shopper

THE END