Today’s blog is about the economics of POP displays. This is the first in a 3-part series. If you take the time to read it, understand it, and apply the 3 lessons, we guarantee you will improve the financial performance of your merchandising program. We are going to illustrate our lessons by creating 3 hypothetical scenarios. We will cover the first lesson in today’s blog.
Lesson # 1: The Economics of Delay
Suppose you are a product manufacturer who just landed a 100-store rollout. Now you are scrambling to get the right POP display to help to sell your product and build your brand. You get a quote for $100/display from a reputable POP display supplier with a lead time of 4 weeks. To make sure you have your bases covered, you decide you better get a quote from an overseas supplier. You get the quote back and to your delight, the landed cost comes in at $50- half that of your other quote. The lead time on the overseas option is 12 weeks, which seems reasonable. You quickly do the math and figure out that you can save $5,000 on your 100-store rollout- not exactly chump change in a world of tight budgets. So, what should you do? Which option is best financially? The answer is pretty obvious, right?
Well, not exactly. It’s impossible to make a good decision in this case without additional information. Let’s say you sell your product to the retailer for $15, and you earn a 25% profit margin on each unit, or $3.75 per unit. So, now that you understand your product profitability, you have what you need to make a sound financial decision, right? Nope, not yet.
The one other piece of information you need is your projected unit sales. Let’s say your sales manager tells you that conservatively the company expects to sell 5 units per week in each of the 100 stores. That means that each week you expect to sell 500 units across the 100 stores. You already know that your profit is $3.75/unit so each week you can expect to make $1,875 in profit. You revisit your POP display manufacturing options and calculate that the time to market for your first option is 4 weeks vs. 12 weeks for the overseas option- an 8-week difference. You multiply 8 weeks times $1,875 of profit each week for a total of $15,000.
You now have your answer: getting to market 8 weeks earlier by going with the supplier who quoted a 4-week lead time enables you to capture $15,000 in incremental profit or 3 times what you would have saved by getting your POP displays at half price with a 12-week lead time. The math is not hard. The problem is nobody does the math. Our recommendation: do the math.