A Guide to Growing your Average Order Value - A Price led Merchandising Segmentation Strategy

The goal of the retail merchandising activity is to support a retail strategy that generates value for the customers. The selection of the merchandise and the type of goods are the key of the retail strategies. According to author Michael Levy in Retailing Management, the decision to carry particular merchandise is tactical rather than strategic.

A merchandising philosophy that combines Levy’s retail strategies (such as store location, systems technology, or customer relationship strategy) with tactical decisions (such as the type of merchandise) contributes to a customer’s overall brand loyalty.

It’s good to differentiate the two types of strategies:

Retail Strategy 
It’s howthe retailer plans to accomplish its objectives, such as planning for and directing the business processes involved in satisfying wants and needs and creating customer value, by selling goods to customers for a profit.

Merchandising Strategy
It involves the tactics (or business processes) that contribute to the sale of goods to the customer for profit. It includes the variety of merchandise available for sale in store or online and how the retailer advertises and displays that merchandise to stimulate interest and create a customer experience. It helps create customer value by making the shopper journey efficient, unique, and memorable.

In the offline retail, the overabundance of merchandise shown serves to give a sense of choice to customers. To date it’s so uneconomical as to represent a serious problem of business sustainability, especially considering that digital can offer a much more efficient alternative. 

Considering the fact that by 2050 there will be about 2.5 billion more people living in cities than today, it’ll generate an high demand for housing and commercial surfaces with a consequent transformation of physical stores.

It’s therefore likely that sales outlets will increasingly evolve towards a format as a showroom: places in which to celebrate the brand through engaging experiences and show a limited selection of products; they could also become a sort of “service centers” where people can carry out various activities related to the company’s offer (this part is extracted by an interesting book I read this holiday — Giuseppe Stigliano thanks for writing it).

Photo by Parker Burchfieldon Unsplash

The concept of “overabundance” is also reported sometimes online, for the same reasons and all the products are left on the e-commerce, as long as there are stocks in the warehouse.

If you carefully examine the users behavior data, for real, you can extract some useful information and you could think of cutting a large part of the online catalog, not searched anymore, unseen and above all not purchased. In this way, you can think to optimize it by country too.

This would lead to an costs optimization of technical maintenance and servers too, which with high traffic level and a very wide merchandising could be taken into consideration.

But the most important aspect is certainly the revenues: unsold and unseen products would make room for others that, with the appropriate merchandising strategies, could bring greater economic results.

Example of merchandising priced strategy

Photo by Artem Beliaikin from Pexels

I just rolled out a simple dashboard which once connected to your Google Analytics account shows some interesting information. This dashboard represents the first kick-off to an MVP product: bring the complex data analysis for everyone.
I mean for complex data the same as shown on a Business Intelligence, that needs to be read by a data scientist or some industry experts.

I started with market research and some surveys to my potential audience and finally this phase, I rolled out a simple Data Studio Dashboardcalled “Dashboard Intelligence”. 

Through this dashboard, you can examine your online business analyzing the main KPI of products, customers and marketing campaigns.

So, if are you’re interested in using it,please go to this following link and sign up to request your access, completely free!

Click here to request the beta access

Let’s start

Assuming that you run a sell-out analysis in the last 12 months, excluding the seasonal ones, and you found that your most sold products that make your business profitable are X.

It’s possible to understand from the Google Analytics data where and how to give greater availability of warehouse or instead decrease them, thus optimizing the spaces according to the forecast sales based on statistical data.

Creating a strategy based on price to better understand which products can have the greatest effect on the conversion rate and have a wiser use of merchandising in techniques applied to market strategy.

I assume that downstream of our merchandising analysis, X SKUs make up the bulk of the turnover. You could think of organizing the merchandising as follows, but you should take present that the percentages are not shown because they should be applied in different way case by case:

% LOW PRICE — Upselling

% LOW MID PRICE — Promotions

% MID PRICE — Crosselling

% MID HIGH PRICE — Fashionable items

% —  LOW PRICE — Upselling

Selling your client a bigger, better or more expensive version of what they originally wanted.

What to do

I can use 20% of our catalog to implement Upselling strategies, on multiple channels. 

E-commerce: put these products in a dedicated section in the cart page;Remarketing: generate a custom audience you can promote upselling products in your dynamic ads;Mail: use Autopilot, or some other marketing automation product, for creating different automation and triggers to engage inactive customers or do some other interesting stuff.

A few weeks ago, I checked into a hotel on my holiday trip. As we were checking in, the woman at reception offered me an upsell:would you like to add two beach towels for all the period  — normally $69 — for “just” half price?
I accepted without hesitation, and I was happy to do so.

Upselling isn’t just a sales tactic; it’s a customer happiness tactic that can help you build deeper relationships with customers by delivering more value.

Example of Upselling through popup — Sumo

% — MID LOW — Promotions

It’s a good driver to acquire new customers.

Engage more users using discounted and offers through landing pages or first sign up to new users, to manage all the demographic and behavioral data to segment the audience in the right way.

Programmatic: promote to the audience has never been in touch with your brands and sent the traffic directly to the product page. Promise a gift to acquire the customer by the registration form;Feed: promote through Google Shopping, for example (to the new potential audience) discounted and limited promotion products. Drive the traffic to the product page or a landing, created ad hoc.

% — MID — Crosselling

Selling additional items to your client, usually related to the product.

The aspect of cross-selling is mandatory for e-commerce, looking at this statistic:

Source Groove

Neil Patel (a famous marketer) found that it’s 68% less expensive to cross and upsell to existing customersthan to try to convince new customers to purchase our products.

What to do

One of the most powerful biological driving forces for humans is the herd instinct. Though this was biologically designed to improve our survival rate, in modern times it has morphed into a peculiar strain of FOMO (fear of missing out). If everyone else has a fidget spinner, then you need a fidget spinner too. 

Offer small additions to purchase (via pop-up) as soon as the product is placed in the cart. Make sure that it’s related and relevant.Offer smaller-priced items at the cart through a pop-up or dedicated section under the cart resume.At the checkout, offer products that have also been purchased by others using contextual photos embedding Instagram feed (social proof).Screenshot from Instagram

% —  MID HIGH PRICE — Fashionable items 

The most desirable products bought by the most loyal customers.

Generally, they are never discounted because are the brand’s top products and becoming the most desirable from the customers. 

Source Forbes

What to do

- Ecommerce: show a carousel, in featured positions, possibly through a machine-learning algorithm to perform better;

- Ecommerce:create “immersive” product page to explain the best product qualities, such as materials, performance, etc;

- Email:drive best products qualities through marketing automation campaigns to loyal customers and more inclined to buy;

- Influencer: drive more traffic using VIP which sponsors these top product’s brandTest the e-commerce pricing strategy

it’s important now to measure and test the success of the changes you make to your online store’s pricing strategy. Ideally, every change should be tested and validated with an analytics tool. 
Pricing Analytics tools (or Price Optimisation Tools) can analyze your historical data and support you by making recommendations to increase or decrease specific prices in order to either increase profitability or drive revenues. If you try to search on Google you should find some really interesting.
These products can analyze if your ‘Summer Sale’ (where you implemented a pricing strategy) increased your conversion rate, or if the newer products in your online store are generating more profit than older products.

Extra content

I suggest reading this following article of McKinsey Digital that really well explain the importance of integration of analytics and other digital solutions, as a new mindset for the online merchant businesses.

https://www.mckinsey.com/industries/retail/our-insights/how-analytics-and-digital-will-drive-next-generation-retail-merchandising

Thank you for reading, feedbacks and claps 👏 are really appreciated.

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