Friday, November 28, 2003

Struggling for shelf space Return on shelf space Think of shelf space as a valuable commodity that the proprietor (grocer, radio station owner, newspaper magnate) of each outlet manages. Every proprietor wants to maximize the return on the space he or she must maintain (rent, taxes, heating, stocking, handling cash, and so on). In the final analysis, only those products that make the most money per linear inch of shelf are the ones that he will continue to stock. How can he manage that space most effectively? In times gone by, the proprietor of a country store had to make, at best, intelligent guesses about which products to stock, and for how long. Increasingly, however, this process is becoming an exact science, in which each product must live up to its preset sales goals month-by-month, or risk losing its place on the shelf. Computers are to thank -- and to blame. Networked databases and smart cash registers make it so much easier to improve the ROI from each square foot of shelf -- or each product category on an electronic commerce storefront. Not only is getting enough shelf space critical, getting on the right shelves is vital. Think about the physical limitations of the retail store. For most products, getting placed at adult eye level is ideal(although Cocoa Puffs and Spongebob action figures may want to be sold at kids' eye level). Few people stoop low enough to look at items on the lowest shelves, and being located too high puts a product at a similar disadvantage. Marketers get around these limitations by setting up special in-aisle displays, self-standing display cases -- or even by supplying special appliances that preserve and show off products (such as soft drink coolers.) Next time you are in the supermarket, note all the supplementary shelving hardware added to supplement the basic grid. National product salespeople (think Miller Beer) spend time making sure that their products are displayed correctly and that rivals (think Bud and Coors) aren't poaching on their territories. Some authors visit bookstores and turn their books to face broad-side out, just to grab more shelf-space. In virtual spaces it's much the same. Getting your song played at 6 a.m. on a low-power AM station is like being on the bottom shelf. P.R. agents want their company or candidate mentioned on page one of the newspaper (except in the case of indictment or bankruptcy). Being buried in a rundown of regional business news on page D-34 isn't so good.  Similarly, cable TV channels strive to gain more attention through getting lower channel numbers. On an Internet search engine like Google, if your company (say, the Acme Breadmaker Company) turns up on page 12 of a search for "breadmaker" and page 8 of a search for "Acme", you might as well not be there. For that reason companies spend time and money to make sure that critical Web searches turn up their names on page one of a search. The odds against winning shelf space In the retail sector, the odds are stacked heavily against most new products even getting on shelves -- let alone getting to the best, most visible shelves. Studies show that four out of every five new products fail, no matter how well they're manufactured nor how useful they are. In many cases, the reason is simple: These products cannot get on prime time, high-quality shelves. Consider the numbers. The average supermarket carries only around 30,000 of the 100,000 branded grocery products now available in the US. And some 15,000 to 20,000 new products -- a lot more than ever before -- debut each year. The arithmetic is simple and startling: Most of those products have no chance at all of getting on your local supermarket's shelves. Why can't the people who manage your supermarket just keep adding new space, new shelves? Of course, this happens on occasion. But there are obvious limits. At some point, the market's return on new space begins to fall off rapidly. Moreover, if a retail store becomes too big, it becomes too hard for many customers to navigate. The worst danger: people start to have trouble finding the products they're most eager to purchase. Like other retailers, supermarkets and department stores constantly run up against these limitations. Most are just barely making a profit. Many fail at retailing because the margins have always been notoriously low and the competition generally fierce. Shelf space goes to the fittest To survive, most retailers pursue a delicate balance. They strive to avoid either offering too many products or offering too few. Video stores, for example, can't afford to keep on hand thousands of titles that no one ever rents. Music stores can't carry more than a few versions of Beethoven's Fifth Symphony or a few bins of folk albums or glam rock among the thousands of CD recordings available. Home improvement superstores can't possibly carry every kind of toilet fixture or grass seed on the market, not even the likes of gigantic Home Depot. The key is to make sure that the hottest products are always in stock -- and on prominent shelves. That's why, for example, several copies of the hottest new titles are always displayed at eye level at your video store, whereas many excellent foreign and independent films languish in a back corner, if anywhere. The stakes are high. With margins so slim, a few too many miscalculations can put retailers out of business. In the drug store sector, major chains crashed and burned because they expanded shelf space too rapidly. Pharmacy chains Walgreen's and RiteAid (both of which have been in Chapter 11), for example, pushed too hard to gain new territory for their superstores. They overlooked the natural limits to how much Tylenol and shampoo people can buy. They forgot that even the most skilled marketers can push only so far. If you add to all this the pressures from oligopolies and the excess slotting fees, Payola, and tthier equivalents, it's undertsandable that few new products survive, and that those few mostly come from big companies.   4:44:45 PM

comment []