Merchandising is a branch of marketing theory and practice concerned with maximizing product sales by designing, packaging, pricing, and displaying goods in a way that stimulates higher sales volume. The underlying assumption in merchandising is that consumers may have a general need for (or interest in) a certain class of product, and it is the merchandiser's task to present the product in a way that best captures consumers' attention and persuades them that the product will fulfill their needs and wants. Merchandising employs a wealth of theories about consumer behavior to accomplish this.
A particular merchandising campaign can involve myriad considerations, such as
Although they all revolve around these basic principles, several different definitions and uses of the term "merchandising" exist.
First, and most broadly, some view merchandising as an entire set of economic activities, conducted by firms that may be labeled merchandisers, extending from an initial product idea to a finished product on display in a store. In this sense, merchandising is the process of bringing products successfully to market, especially in retail settings. In order to complete this process, the merchandising function requires coordination of many areas of a business, including marketing, procurement, accounting, production, and warehousing/distribution. The entire process is guided by what the company perceives as a market need, and this need will dictate whether there is will be one uniform product or many variations, how it will look, whether it will be produced seasonally or year round, and so on.
Second, merchandising is sometimes seen as equivalent to retail trade, particularly for stores that sell a large volume of popular items (i.e., "mass merchandisers" such as Wal-Mart Stores, Inc.). This view emphasizes merchandising as a function of choosing product lines to carry that are likely to move quickly, organizing the store to maximize traffic past profitable lines, and maintaining visual displays and advertisements that turn traffic into sales.
A third and rather narrow notion of merchandising is the familiar practice of creating and marketing a product line centered around a popular theme (usually associated with a piece of intellectual property), such as a movie, a television show, a brand name, a corporate identity, a celebrity, or a fictitious character. This is often described as the merchandising side of the entertainment business, although non-entertainment companies also market these kinds of products.
A large body of theory and empirical evidence informs many merchandising decisions. The factors that must be considered when developing a merchandising plan span from market research to consumer behavior to competitive intelligence.
Product pricing is a good example of how many considerations can go into merchandising. Prices can be set in various ways to serve different objectives, with the ultimate goal usually being to maximize profitability. In a retail setting, this often means taking a slim profit on certain items while taking a generous profit on others. For instance, in a practice known as price signaling, many grocery stores consciously price certain common staple items, such as milk, at a very competitive low price. The reasoning, supported by empirical research, is that consumers see these staples as a bellwether for the overall value paradigm of that store. In other words, if the consumer sees that the price of milk is low, he or she tends to draw the conclusion that most things at the store are fairly priced. The retailer's hope, however, is that while the customer is there to get milk, he or she will also purchase any number of other items—which tend to be more prominently displayed—that carry a higher price margin. In contrast, even if a convenience store buys its milk at the same wholesale price as the grocery store, it generally doesn't need to practice the same type of price signaling. This is because its customers implicitly derive their value from convenience and are willing to pay more at the register for this convenience.
Another common application of merchandising theory is the practice known as cross-merchandising. This occurs when a manufacturer or retailer links the marketing of one product to the marketing of another. A simple yet powerful example is the use of food displays at grocery stores. Say a store wishes to promote the sales of deli cheeses, which carry an attractive profit margin. To improve the likelihood of selling cheese, the store may locate items consumed with cheese nearby, e.g., crackers and breads, and may even display them directly together or offer samples. All of these things tend to shore up sales. Another alternative frequently used in higher-end grocery stores is to display interesting facts or information pertaining to the product alongside it. The information may answer common questions about the product (e.g., to reduce uncertainty about buying or using it) or it might be something catchy to stimulate the shopper's interest. For example, the cheese stand might include creatively worded reviews and wine suggestions for each type of cheese (provided that the store stocks wines). If the cross-merchandising works, the customer will not only buy the cheese but also the crackers or wine.
Although these examples focus mostly on one factor at a time, usually merchandisers must plan the full array of options in a merchandising program. For instance, in addition to merely determining which products have cross-merchandising potential, the company may also decide whether the appropriate emphasis in the display is (1) price, e.g., using a large sign advertising the low price and a utilitarian display; (2) convenience, e.g., locating the items on the main aisle; or (3) luxury, e.g., emphasizing quality, status, mood, or enjoyable experience with a creative or elaborate display.
SEE ALSO : Marketing
Kunz, Grace I. Merchandising: Theory, Principles, and Practice. New York: Fairchild Books, 1998.