The new merchandising strategy
How to program your merchandising from product pyramid to product portfolio
Merchandising revolves around three questions: who to sell to, where to sell, and how to market the products.
Never simple at the best of times, merchandising finds itself in need of the new strategy. Products are discovered, considered and consumed together with everything else in culture: content, entertainment, experiences, events, services. To master the new merchandising strategy, retail brands need to first master product desirability and discoverability in the visual economy.
To be desirable, a product needs social and cultural capital. To be discoverable, a product needs to stand out in terms of design (brand codes, graphic design, visual language), zeitgeist (novelty, trends, emerging aesthetics), or wear (who wears it, how is it worn, where is it worn).
Hitmakers: How Brands Influence Culture book launch is on December 9th in Paris, details below. Register here, pre-order the book and stop by! (And stay tuned for the launch events in London and New York)
Both product desirability and discoverability are a matter of merchandising programming. A merchandising program ensures that the right products are marketed to the right people, in the right retail contexts. The contexts are not neutral. Where we buy something changes what we buy.
A considered merchandising program landed Miu Miu on Lyst #1 spot. Todd Snyder features his selects of other brands on his website, both lending them discoverability and providing his own products with a lifestyle context, rendering them more desirable.
There are iconic products that are immediately recognizable, like Alpha Industries MA-1, Birkenstocks, Levi’s 501s, Crocs, IKEA blue shopping bags, L.L.Bean tote, Rimowa luggage, Hermès Birkin. Others require a little push, that brands can achieve with external partners.
Just like an entertainment company pulls in the different external talent to deliver a movie or a TV show, retail brands can do the same: create a network of creative partners, guest designers, and/or designer-in-residence programs. Self-Portrait recently tapped Christopher Kane as its guest designer. Moncler Genius has always revolved around external talent model. Prada Invites is a series of creative projects organized around the brand’s foundational nylon fabric.
Beyond these examples, the core shift of the new merchandising program is from the simple product pyramid towards the product portfolio.
Product portfolio
In mature markets, product portfolios are a must-have. Mature markets have many different segments, which a single brand cannot successfully capture without diluting its offering. To avoid dilution, brands need to segment their product assortment for different audience markets, lifestyle scenarios and retail contexts. In a portfolio, products are diversified (so not too many people own the same thing), but belong to a single brand umbrella. This brand umbrella is held together by the brand promise and the brand’s aesthetic point of view.
Portfolios create product desirability and foster product discoverability, as it places products in a number of different retail/cultural contexts, from niche to mass.
Limited editions, capsules and one-offs often lure new customers in. Icons and classics are a constant draw to the new generations. Trend-driven assortment attracts trend-driven customer. Like Marvel Cinematic Universe, product universe has its heroes that can operate individually or together, as well as supporting characters.
Retailers with considered product portfolios have a clear knowledge of what percentage of revenue goes to icons, classics, hero products, capsules and limited editions, and the rest of the product portfolio. This allows them to plan their inventory, channel allocation, marketing and creative accordingly.
Thanks to context-sensitive product seeding and product modules tightly tailored to audience segments, portfolios are hard to imitate. Each product category in the portfolio focuses on a specific customer type and a wear scenario, and gives customers the superior selection of choices within that vertical. Because they limit the volume of offerings per vertical, portfolios reduce the number of options, preventing the choice overload.
Portfolios are also risk-friendly: if some products are underperforming, they can be quickly liquidated without jeopardizing the rest. Similarly, if there is an unexpected product hit, it can be quickly reordered and reinvested in.
Merchandising programs
Product portfolios are one of the three components of merchandising programs. The other two are retail contexts and audience segments.
Retail contexts are both channels and as areas of culture where a brand’s products will play in. Urban sport, food, fashion, workwear, travel, entertainment, music, etc. are examples. Retail connects all channels and subcultures into one universe. It specifies different channels and contexts the products will be seeded in, and how they will cross-amplify each other. This informs the assortment rollout calendar, drop cadence, and marketing amplification.
Audience segments vary in their financial return and cultural clout, and are assessed and prioritized based on their potential to grow retailer desirability and discoverability.
To select a merchandising program best suited to their brand and business, retailers first need to define their short- and long-term goals, the investment required to achieve these goals, and their expected return on investment. Then they should select the merchandising program best positioned to deliver on these ROIs.
A multi-component merchandising program informs:
- The impact that the selected merchandising strategy has on revenue
- Financial contributions from each of the product categories in the portfolio
- How retail contexts will be amplified through media
- Financial contribution and lifetime value of selected audience segments
Merchandising program also directs investments towards contexts and audiences where a product will generate the highest financial return. It defines the retail strategy. In retail contexts, product categories, and audience segments where brand is a leader, merchandising program will look different than in contexts, categories and segments where it is a runner up or a distant competitor.
Merchandising programs inform channel planning, commercial planning and marketing and creative planning, and puts a merchandising program front and center of all retail growth efforts.
If you liked this analysis, there is more on The Sociology of Business
