Point of Purchase Design: Success Depends on Knowing the Rules of Retail

Posted by Jim Hollen on Sep 6, 2016 2:30:00 PM

10 Things You Need to Know to Before Starting the Design Process

Part I

In his book The 4-Hour Work Week, Tim Ferris tells how he won the gold medal at the Chinese Kickboxing National Championships. Tim’s a smart guy with a degree from Princeton but with no real kickboxing experience and only 4 weeks of preparation, how did he do it? The answer is he knew the rules better than his competitors and applied them to his advantage. By studying the rules, Tim learned that weigh-ins occurred on the day prior to the competition. He used advanced dehydration techniques to lose 28 pounds in 18 hours and weighed in at 165 pounds. He then hyper-hydrated back to his normal weight of 193 pounds for the day of the competition. The second thing he learned by reading the rules was that if one competitor fell off the platform 3 times in a single round, his opponent won by default. He combined the 2 things he learned and became national champion, winning all of his matches by technical knock-out by simply using his weight advantage to push his opponents off the platform.  So what does this have to do with point of purchase design? Actually a lot.

Knowing the rules of retail and understanding the complete picture of the economics that will underpin your brand’s merchandising program should be a prerequisite before launching any point of purchase design process. Here are the first 5 things you need to understand before investing too much in the POP design process. In our next blog, we’ll discuss the other 5 things you should know.

1. Display Location- It’s important to know where in the retailer’s plan-o-gram your product fits. Will your product be placed in-line? Will the retailer commit to giving you a dedicated end cap? If so, is it at the front of the store or the back of the store? Will you be allowed space for a freestanding POP display? Understanding the detailed rules of engagement of your merchandising program is important, particularly when it comes to in-store placement. That information can not only influence your point of purchase design, but it also can affect the amount of capital you are willing to invest in your display program and the projected sales you are likely to achieve.

It’s not possible in every case to have complete visibility on your in-store location, but even having a general idea can help you plan better. We recently made a floor display for one of our customers called Mati Energy. They sent us the pictures below from their Kroger launch which shows that their display was positioned in slightly different locations in different stores, but most of them were positioned adjacent to an end cap.
 
Mati point of purchase design

2. Decision Making Authority- It’s worth taking the time to understand how decisions get made within the retailer organization you are targeting. Some companies like Wal-Mart have centralized decision making where corporate drives the process, whereas other retailers like Whole Foods distribute decision making authority to the regions. In some companies, District Managers or Store Managers can make store-level merchandising decisions that can have a major impact on your program. It is important to understand how this works on a retailer-by-retailer basis because even if you get a commitment from the folks in corporate visual merchandising, you might find that store managers don’t honor that commitment.

For example, our customer Tieman’s Fusion Coffees sold their merchandising program into Sprouts corporate, only to find that some stores were throwing brand-new displays away in the name of trying to maintain a clean floor policy. These store managers were unaware of the huge sales lift the displays were generating. To try to prevent this, at the end of the production process we printed stickers that indicated the displays were part of an approved corporate program and should not be thrown away.
 
POP Tiemans coffees point of purchase design

3. Shipping Economics- Shipping can represent a significant component of overall merchandising program economics, yet it is amazing that many customers don’t think about how shipping will work until very late in the process. Will your product ship with the display? Will the display be dropped shipped to individual stores or will it be shipped to regional distribution centers? If your POP display will be shipped to distribution centers, how many displays fit on a pallet? The same question applies for your product. It is important to understand and model your shipping economics for your display and for your product since shipping can represent as much as 15%-20% of the overall program economics.
 

4. Other Retailer Program Costs- With many retailers, particularly the larger ones, there are other program costs that need to be taken into consideration before committing to a merchandising program. For example, some retailers charge a fee for allowance and deductions. Some offer onerous payment terms that require you to utilize factoring to make the cash flow work. Some have an advertising fee. Others might make you buy back a competitor’s product to create space for your product. Some retailers charge slotting fees for prime store locations, such as end caps or front-of-store locations. Sometimes you have to hire a rep firm who knows the buyer to get your product into the retailer. These are just examples of the types of costs that some brands don’t anticipate. It’s important to understand all of these costs up front so you can get a full picture of the economics of your program, which in turn, will help you determine what is reasonable to spend on a POP display.

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5. Sales Projections- What kind of sell-through do you expect for your product. Is it reasonable that you can turn your product 2-3 times per year? What does that mean for the return on investment for your display? Develop a financial model that includes high, medium, and low sales projections. Be sure to track your sales results as best you can so you can increase your sales projection accuracy for future store roll-outs.

Sales_Projections point of purchase design

 Along with sales projections, you should also create a financial model that shows your gross margin projections. Looking at your sales and profit projections will help you determine the amount of money that is feasible to spend on a point-of-purchase display. It’s a bit of a chicken-and-egg problem since your sales may increase with a higher-end display, but it’s still a worthwhile exercise.

In our next blog, we’ll cover the other 5 things you should know about retailer rules of the game before starting your point of purchase design process.

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