Study Says: Vendor Turf Fights Are Good For Retailers
Even though it may be inconvenient to shoppers, the optimal store layout should take in the price benefits that come from enabling manufacturers to compete on location in the store, according to a university study.
Probably the biggest surprise of the study is that the author, Yunchuan "Frank" Liu, a professor of business administration at the University of Illinois, agreed with the need to balance the interests of consumers and suppliers.
"Retailers face two different kinds of markets — the consumers who buy goods, and the manufacturers that supply goods," he said in a press release.
On the consumer side, the professor noted that with increased competition from online retailers, consumers can learn about price, quality and other product attributes from reviews and other information found on the internet. But they know virtually nothing about the unique "fit" of the product until they walk into a store and handle the product. He stated, "Since the consumer has to travel to the store and compare the products, that is to the local retailer’s advantage, because that’s something that online retailers can’t do."
Retailers can also benefit by making the physical act of shopping as convenient as possible through such steps as designing the layout of a store to facilitate the simultaneous inspection of products.
At the same time, stores must take advantage of vendor-on-vendor competition for floor space.
"Sometimes it’s not in retailers’ interests to make certain things convenient to consumers, because they have to consider the balance between the consumer market and the manufacturer market," Prof. Liu said. "By affecting consumers’ fit inspection processes, the retailer’s store layout design also influences pricing behaviors of upstream manufacturers."
Placement competition depends on the category. If the "fit" priority is very high, such as in toothbrushes, items should be grouped together in the same location, forcing the manufacturers to compete on price.
But in cases such as high-end furniture where consumers "have different tastes" and less price competition occurs, stores should have manufacturers compete for the best location in the store.
"In this case, if the retailer sells all of the products together, it doesn’t intensify the competition from the manufacturers," Prof. Liu said. "So the retailer should put the products in different locations so the manufacturers have to compete on the locations rather than on prices."
Discussion Questions
Should retailers rethink their strategies around awarding placement to vendors in the face of heightened competition from online retailers? Do you agree it is sometimes “not in retailers’ interests to make certain things convenient” for shoppers?
Retailers must decide if they are in the business of selling to consumers or selling retail space. Supplier payments may have an influence, but the retailer must focus on the consumer. Most suppliers would like to be the first consumers see or the last (checkout), but this is not best for an overall shopping experience.
No one wants to see motor oil before they see produce when entering a supermarket.
Sounds like retail is determined to use airline treatment of passengers as the ultimate customer service model. When you begin a discussion on service with “Even though it may be inconvenient to shoppers…” you can pretty well conclude it will go downhill from there.
First we have the apparently impenetrable morphic field that it’s always the price that reigns. Quality, value and uniqueness have been discarded.
But then we all know we’re here for the vendors. Customers are overrated. Who cares if they’re happy, having fun shopping, loving your store…or actually buying something?
Making things inconvenient is never a great idea. The issue lies with the definition of inconvenient.
Is it inconvenient to have milk in the back of the store? Perhaps, but by doing so the conventional wisdom was that shoppers would have to travel at least two aisles exposing them to other merchandise. This is one of the reasons destination departments in supermarkets have always been “distant” from the front door.
Is it inconvenient to periodically adjust the layout of merchandise in the store? Again, perhaps, but again it allows the retailer to expose the consumer to departments and items that they might not otherwise have passed by.
Retailers have always had to balance the needs of the consumers and their suppliers. In some instances not taking the funding from the supplier means the retailer cannot be price competitive for that category—something that isn’t good for them, their suppliers, or the customer. This balancing act is not likely to change with or without additional competition from online retailers.
There should not be any issues of balance between customers and manufacturers. Manufacturers supply and customers buy. The customer should not be asked to compromise. Making something less convenient is a compromise to always be avoided.
Wow, I completely disagree with these conclusions. Now I’m going to have to read the whole entire thing to figure out how he arrived here. It seems like the place where his logic goes awry is the idea that “fit priority” is something that can possibly be captured as some kind of mathematical value equation.
I’ve been using the concept that products whose attributes can be easily conveyed via information (which, by the way, can be digitized) are going to move easily to the online channel and therefore become easy to compare and subsequently risk commoditization. Another professor came up with that one, but I can’t remember his name.
I agree it’s very difficult to digitize the information about how hard or soft the cushions in a sofa are, or whether it will support your back well when you sit on it. I disagree that the “fit priority” for toothbrushes is high. When you buy a toothbrush, if bristle softness is important to you, you can’t get a sense for how soft or firm a certain brush’s bristles are either online or in the store – the packaging prevents it. In fact, you CAN’T get a good fit sense from a toothbrush no matter where you go. So as long as its other attributes can be easily conveyed, toothbrushes should be able to convert to an online-only sale, with no in-store “fit” required. How does that change the Professor’s findings? It would seem to argue that toothbrushes should be grouped by brand, organized by how well a supplier is willing to pay for placement, and customer convenience shoved to the wayside.
I agree with Frank Dell – what business are you really in, retailer? If all the money you make is in slotting fees, then why bother calling yourself a retailer – the only business you’re in is floor space. And any retailer who places customer convenience over manufacturer money – these days – is going to lose. Consumers understand the game, and they understand when you give them offers a manufacturer has paid for, especially when it’s glaringly obvious that the offer is completely irrelevant to that consumer. You think they don’t notice? You think they don’t care? Think again.
Get me a good price on a good seller, and it is my decision where to display it, not the vendor. There is a turf war in large chains, but not in mine anymore, which is actually good because I don’t have to listen to all the hoops I need to jump through just to make a couple of extra bucks.
Many of the big players require you to sell their product at break even in order to get a DEAL…. Kinda makes no sense, doesn’t it? Put the customer first in creating great values and you should do OK.
Retailers are in the business of understanding their customers and merchandising appropriately to them. Making things inconvenient is well, not on the agenda. Nor is encouraging competition between manufacturers. If the retailer did not have customers who were likely to buy from certain manufacturers, they would not buy the products. Then it is up to retailers to show the customer where to find it that makes sense for their business.
How can this thought, “not in retailers’ interests to make certain things convenient for shoppers” be good for the retailer?
I think the only takeaway from the above is that customers stop shopping at a retailer because the experience is inconvenient.
The whole idea of the store layout is making it easy for the customer to shop and spend their money in your store!
Sometimes the retailer may make adjustments to the merchandise flow to monetize the vendor relationship, but not at the expense of the customer.
Isn’t this the oldest trick in the book: “…to make certain things inconvenient for shoppers”? Retailers and CPG companies have been working on this for years. Yes, typically, we are talking more about entire categories, rather than individual suppliers or products. However, suppliers can definitely assist retailers in creating a more profitable traffic pattern inside the store. This also works for online stores, of course.
Collaboration to minimize the “browsing” spots in the store or on the web, and maximizing the “purchase” locations is key. There are great tools available today to help take out the emotion of this critical process.
I disagree—it is ALWAYS in the best interests of retailers to make shopping convenient for the shopper. Why? Because shoppers will simply go to another retailer who caters to their needs.
This analysis omits the retailer-retailer competition for shopping trips, which is of primary concern to stores.
When merchants put milk in the back of the grocery store way back when, it was the opposite of convenience, but it worked and worked for all categories. It still works! That was just good gut merchant instinct that somehow rarely upsets customers.
So to me, there’s much more involved than just convenience or price. Sometimes its about the latest and greatest product that a good merchant will know (or has the instinct to know—see Gladwell’s “Blink”) can ‘wow’ customers and create a buzz for the rest of the store. Or, it may be about a new, brand-right product that elevates the entire brand merely by its presence.
Merchandising and store layout is part art, part science, and you need both involved for any major decision. You know it freaks most operations people and numbers geeks out, but the simple truth is that not all results can be measured. Some initiatives, especially from the customer side, are purely emotional.
“Sometimes it’s not in retailers’ interests to make certain things convenient to consumers, because they have to consider the balance between the consumer market and the manufacturer market.” This reality, that manufactures are in fact, “customers” of the retailer has too long been ignored on the explicit side.
I’ve pointed out before the brand-on-brand mayhem in the store, which retailers “manage” for their own profit, not for the benefit of anyone else, certainly not the customers. This is the driving force behind trade dollars in one form or another being the #1 source of profits for retailers. See “Inside the Mind of the Shopper,” page 18.
Stores NOT driven by trade dollars can be massively more successful by focusing
ONLY on the customers’ convenience and their own margins on sales, making that their #1 source of profits. Fortunately or unfortunately, stores in this second category NEVER have a significant “long tail,” that is, lot’s of items that sell rarely or NEVER! That’s because they are not being paid to represent the manufacturer’s interest, but are taking their profits primarily from the shoppers, directly, rather than indirectly by dipping into suppliers’ profits.
I have believed for years that it is possible to have a long tail, harvesting supplier “profits” through the usual advertising and trade allowances, and, at the same time, optimize shoppers’ convenience. I believe there are a few retailers who ARE moving in this direction, but it could be done a lot more aggressively. Globally, trillions of dollars of sales are being left on the table because of a refusal to take the shopper seriously. You can’t do that unless you MEASURE them as assiduously as you do your suppliers.
Any shopping layout that purposely makes the store inconvenient for the customer is wrong!
Any initiative that doesn’t serve the customer also fails to serve the retailer and their suppliers.