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Merchandising

The practice of promoting products that are available for retail

What is Merchandising?

Merchandising is the practice of promoting products that are available for retail. It entails selecting promotional tools available to both the manufacturer and the retailer – dubbed as a promotional mix.

 

Merchandising

 

Merchandising strategies include personal selling, sale promotion, marketing strategies, creating coupons, and discounts. More broadly, merchandising may refer to in-store or on-store promotion other than personal selling meant to promote purchasing behavior.

Cycles of merchandising depend on culture and season and may accommodate seasonal holidays, school schedules, and weather patterns. With the advent of self-service, merchandising is now considered a scientific art, given that universal rules govern its activities, and customer behavior may be modified in predictable ways.

 

Summary

  • Merchandising is the process of promoting sales of goods and services to sustain and amplify customer activity within a retail environment.  
  • The fundamental concept of merchandising is to stimulate customers’ purchase behavior to reduce retail stores’ off-the-shelve products.
  • Merchandising companies are different from service companies, in that the former sells tangible goods to generate income, unlike the latter, which provides services.

 

How Merchandising Works

 

The Concept of Merchandising

The precise definition of merchandising depends on the specific context, but in reality, it involves stimulating interest and enticing customers to make purchases.

For example, at the marketing level, merchandising refers to the management of a product’s life cycles and ensuring the right resources – such as space, brand, and display – to sell another product.

Both retailers and manufacturers are interested in motivating purchase behavior. However, retailers are often more interested in increasing total sales turnover, unlike manufacturers whose intention is to depress competitors’ sales and stimulate their own brands.

The two conflicting aims are reflected in sales. For example, Brand A is a low-profit line for retailers who do not devote much shelf space to it. On the other hand, the manufacturer is likely to emphasize on shelf space.

In that regard, some manufacturers draw from the benefits of good retail presentation to employ merchandising representatives to help move the products off the shelves.

 

Merchandising and Sale Performance

Finding the gross value of all sales can show the company’s performance since retailers may or may not be producers of products they sell. This notion is particularly true where a retailer acts as the third party by linking sellers and buyers without taking part, as in the customer-to-customer market.

Another sector that merchandising is commonly applicable is the consignment sector. Retailers in this industry never purchase their inventory officially. The retail business serves as the legal re-seller of another entity’s merchandise even though the items are stored in its location.

In reality, retail companies are never legitimate producers, as the real owner who placed an item on consignment may claim it at will. The total value of merchandise sold via a customer-to-customer exchange site over a period is called the gross merchandise value. It measures business’ growth.

 

Retail Cycles in the U.S.

Retail sales in the U.S. have a clear annual cycle that starts at the onset of January. The significant surge of retail activities is due to merchandising activities associated with Valentine’s Day and St. Patrick’s Day products. Special discounts and sales during Presidents’ Day usually follow shortly after January.

Another major holiday that depletes inventories in the U.S. is Easter. Higher sales are promoted by the holiday, springtime, as well as the associated warmer weather.

The lines of products that realize most sales traffic at such time are clothing and tools appropriate for outdoor activities and the warmer weather. The products are in plenty and readily available during the mid-winter with high store traffic and total sales turnover.

The high sales are thanks to strategic marketing and promotion to make room for the next batch of products. The cyclical behavior continues throughout the year, accounting for other special days such as Thanksgiving, Memorial Day, Father’s Day, Labor Day, and Christmas Day.

 

Benefits of Merchandising

 

Cost-effectiveness

Merchandising is one of the most inexpensive promotional mix tools, especially if a company is experienced and skilled in its use. It may be valuable to companies with limited promotional funds since techniques such as product facing control, and better shelf-positioning may incur little to no additional expenditure. Also, sales representatives whose salaries are already being paid can perform these tasks.

 

Influence at the point of sale

Merchandising influences customers at that final stage of a buying decision. As a result, marketers strive to establish preference awareness of their brands before the customer enters the store. This allows the target customer to specify brands at the point of sale.

The preference is achieved through a consumer franchise. It is a public relation and an advertisement component of the promotional mix used to achieve brand preference.

Enlightened manufacturers who are not ready to lose the sale at the store supplement their expensive products with inexpensive merchandising, especially when the competition is stiff.

 

Merchandising Companies vs. Service Companies

Service companies provide services to customers who are attracted by their expertise and innovation to generate income. Such companies may include insurance providers and accounting firms.

Conversely, merchandising companies engage in the sale of tangible goods. They may incur additional expenditure on materials and labor to present products that stimulate consumers.

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Product Differentiation
  • Advertising to Sales Ratio
  • Product Life Cycle
  • Marketing Campaign

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!