What is Merchandising in Retail? A Primer for CPG Brands
In retail, few concepts are at-once more important and yet more hazy than merchandising.
While merchandising generates, to some extent, trillions in annual retail spending, few people—even longtime brand and retail professionals—will agree on what it is exactly.
After all, merchandising assumes many different forms, and serves many different stakeholders.
To further muddy the waters, merchandising resources are often geared toward retailers trying to create “sticky” stores rather than brands trying to move products off shelves.
And that may obscure the fact that brands, too, care about merchandising.
Like, a lot.
So it's high-time CPG companies had their own primer on merchandising.
What is it? What does it entail? Why does it matter?
What is Retail Merchandising? The Essentials
What is merchandising in retail?
Generally speaking, we might define merchandising as…
The fulfillment, organization, placement, and presentation of products within a retail environment to encourage purchases by shoppers.
You’d agree, brands face many problems at-retail:
- Shelf tags that don’t reflect sale prices
- Displays stocked with the wrong product
- Soon-to-expire groceries pushed to the back of shelves
- Stock languishing in the store’s backroom
- SKUs wrongly positioned on shelves
- New products slow to arrive on-shelf
And they're not uncommon. Brands lose billions in sales every year to problems like these.
But, they're all problems effective merchandising can prevent or, at least, correct.
Given this definition, it stands to reason that both brands and retailers are acutely concerned with merchandising—with different yet overlapping aims. Moreover, as a function, merchandising transcends retail channels. It's crucial to driving in-store and online sales.
Merchandising has both a quantitative and qualitative dimension. For example, merchandising seeks to ensure the right quantities of products for shoppers, but it also cares about the quality of the product’s presentation.
Most importantly, understand this: Merchandising is always about driving purchases. That’s the common denominator, regardless of how, when, or where it takes place.
While merchandising is, clearly, a broad activity with multiple stakeholder groups and many applications, this primer is specifically focused on in-store merchandising and its implications for CPG brands. Which leads to the question…
What is in-store merchandising?
The definition of merchandising is, then, the fulfillment, organization, placement, and presentation of products inside stores to encourage purchases by shoppers.
From a CPG perspective, in-store visual merchandising is concerned with the execution and accuracy of a brand’s retail program—product, price, place, and promotion—once shoppers arrive in-store.
While more sales transpire online these days, brick-and-mortar CPG sales still dwarf online CPG sales. The in-store experience, the all-important "first moment of truth," still matters immensely. It always will.
In-store merchandising helps brands drive sales at-retail by ensuring the right products in the right quantities are available in the right place under the right circumstances, which includes presenting these products to shoppers in the most engaging way.
Quantity and quality, as you can see.
But why exactly does merchandising matter?
For the rest of this primer, assume we’re specifically referring to in-store merchandising.
Why does merchandising matter?
If retail were a static environment, one that never changed, merchandising wouldn’t matter.
But the retail environment is dynamic—constantly changing, constantly shifting, constantly surprising. We’re talking about a complex ecosystem with many, many moving parts.
Merchandising matters because it introduces an element of consistency to a brand’s retail operations. With effective merchandising, CPG companies can be more confident (never fully confident) that they’re giving their products the best possible audition for purchase-minded shoppers—regardless of what changes or surprises arise at-retail.
This consistency, this attention to operational detail, carries some critical benefits for brands:
- Commanding the attention of shoppers as they pass by
- Minimizing shopper effort/confusion/frustration
- Guiding shoppers' eyes, hands, feet, and even thoughts
- Building brand recognition and equity
- Using in-store resources (especially, space) as efficiently and effectively as possible
- Winning the confidence and goodwill of retail partners
- Adding value to the in-store shopping experience
Ultimately, however, all these merchandising benefits reach their crescendo in the form of two principal benefits:
- Higher conversion rates (turning shoppers into customers)
- Higher retail sales
That's ultimately why merchandising matters: higher conversions and sales.
And that's why brands care about it.
What does merchandising involve exactly?
In other words, what are some common elements of merchandising among brands? What does merchandising look like in the real world of stores, shelves, and shoppers?
There’s a lot we can say, so below we offer a graphic to say it a little more easily. As you can see, brands often focus their merchandising techniques on things like:
- Product display execution
- Planogram/modular compliance
- Inventory rotation and replenishment
- Product/promotional removal
- New product sell-ins
Working backwards from these real-world merchandising activities, you can see how we arrived at our definition of merchandising above, with its focus on fulfilling, organizing, positioning, and presenting products.
But who exactly does all this merchandising work?
Who does the work of merchandising?
That's a lot of merchandising activity above. So who does it?
Naturally, retail employees do much of it. Yet, many brands don't (or can't) rely on a store's staff to do all their merchandising work, for multiple reasons.
- Work for the store, and care more about its overall sales than a specific brand's sales
- Take directives from store management rather than brands
- Can only spread so far. They're limited in number, scope, and workload
- Divide their attention over many categories, brands, and SKUs
- Generalize, and thus may lack experience and expertise merchandising a particular brand or category
- Lack permissions, knowledge, and/or skills to perform all the activities above
Many brands, consequently, find it advantageous or even necessary to provide their own merchandising labor in stores. Whether that’s...
- Field staff (employed directly by the brand)
- Third-party merchandisers
- On-demand merchandising solutions
You’ve probably heard of third-party merchandisers, but maybe on-demand merchandising solutions are a new one on you. First, third-party merchandisers....
What are third-party merchandising services?
Their names are widely-recognized in retail and CPG circles. Names like…
- Customer Impact
To one degree or another, all of these companies offer “retail services,” including third-party merchandising (TPM).
TPMs, while not directly employed by the manufacturer or retailer, can be hired by a brand to ensure its products and promotions are set up and maintained correctly inside stores.
They stock, position, assemble, organize, and fix. In other words, they merchandise.
Here’s how Customer Impact describes its third-party merchandising services:
Our goal is to keep you looking your best in-store and on-shelf. Whether it’s ongoing brand improvement or a one-time project, our merchandising services provide flexibility and support to help you drive sales at retail.
But why do brands use third-party merchandisers?
Why Do Brands Use Third-Party Merchandisers?
CPG companies could, after all, rely on retail employees or dispatch their own field staff to merchandise their products inside stores.
So why TPMs? Consider that TPMs...
- Work on the brand's behalf, not first and foremost the store's. They're focused on the brand and its in-store performance
- Can be held accountable by the brand that hired them
- Maintain large workforces across the country, a costly and complex function for brands to bring in-house
- Specialize in merchandising, with major implications for efficiency and effectiveness
- Have reps who are acquainted with local stores, managers, and conditions
And, naturally, TPMs provide a highly valuable service: merchandising. As seen, brands need it.
For many brands, however, there are challenges to engaging traditional merchandising methods...
What are common merchandising challenges for brands?
Various obstacles stand in the way of brands doing merchandising, doing it more often, or doing it more effectively. Among these are…
The hefty price tag on many traditional merchandising services can be prohibitive for some brands, particularly smaller CPG companies.
2. Speed & Flexibility
Brands rarely have time to waste when merchandising problems or opportunities arise, but many traditional merchandising services can only move so fast.
3. Retailer Requirements
Brands may be limited to certain merchandising services/solutions approved by the retailer (e.g., Walmart’s Preferred Service Provider [PSP] program).
4. Scarcity & Reputation
Shelf space and merchandising opportunities are limited in stores, and retailers often favor brands with a long sales history and years of built-up brand equity
5. Supply Chain Efficiency
Inventory replenishment and promotional execution are only as strong as the supply chain responsible for getting cases/materials to the store in the first place.
The ROI on merchandising services depends on the need for merchandising services. Brands often don’t know which stores need attention, which is why tools like this one from Retevo can be so valuable.
Brands may find it difficult to know if retail employees, field staff, or third-party merchandisers are maintaining products/promos per the brand’s specs. Field staff and merchandising reps may be watching a brand’s products, but who’s watching the merchandisers? Which is why retail auditing, as described here, makes a powerful one-two punch alongside merchandising.
Given these challenges, a new approach to merchandising is on the rise.
It’s called on-demand merchandising.
What are on-demand merchandising solutions?
On-demand merchandising (ODM) solutions combine the expertise and coverage of third-party merchandising services with technology and UX design to simplify and streamline the merchandising process.
ODM is “on-demand” because it’s flexible. Brands can, for example, launch a one-time merchandising project inside a single store, or use ODMs for ongoing merchandising support across thousands of stores.
They're also distinguished by their pricing structure. ODM is merchandising à la carte, and brands can pay for such solutions on a per-visit basis (e.g., $19.50 for a single shelf-management visit by Observa reps). No contracts necessary.
ODMs also remove certain hassles and frustrations of procuring traditional merchandising services, like presentations, contracts, and paperwork.
Below are examples of on-demand merchandising solutions fulfilled by Customer Impact, Observa, and Retevo. Explore these products and others by clicking here.
ODMs start with the strengths of third-party merchandising services, but incorporate technology and a simpler user-experience to deliver a more efficient, convenient, and affordable approach to merchandising.
They're bringing simplicity and accessibility to a crucial retail function.
Merchandising Made Simple
The Field Agent Marketplace contains an assortment of on-demand merchandising solutions designed to deliver more for you and demand less from you.
They’re leveling the playing field, giving more brands access to professional merchandising services. We call it merchandising made simple.
Click to see on-demand merchandising for yourself.