If you take the time to read this blog, we will show you how to get your point of purchase displays absolutely free while dramatically increasing your profit. The secret to getting free POP displays lies in what we call the “economics of delay.”
Understanding the economics of everything can change your perspective on business and your perspective on life. Few people take the time to understand what things really cost and how timing can impact the economics of almost anything. When it comes to point of purchase displays, you might be surprised at the real cost of delaying your next project and how avoiding that delay can have a significant and positive impact on your program economics.
I learned about the value of understanding the economics of things early in my career when I worked for AT&T right out of college. I remember sitting in a meeting with about 20 other people. The meeting lasted for about 3 hours. After the meeting, one of my colleagues told me that the meeting we were in just cost the company $3500. He had figured out the average fully loaded salary of the participants and calculated the total cost. It made me realize that there is a cost to everything and that most people don’t really understand the cost of things that are not already calculated for them, such as the price of a product.
I remember using this approach once to figure out how much it was costing me to spend one night in my house. When I added up the mortgage cost, property taxes, utilities, maintenance, etc., I was blown away by how much it was actually costing me to spend a night in my own house- way more than I would ever consider spending on a hotel room for a night. I quickly decided to put my house up for sale. Understanding the true economics of things can be both a blessing and a curse. On the one hand, knowing the true costs of something can help you make informed decisions. On the other hand, ignorance is bliss since knowing the cost of things can diminish the full enjoyment that you may have experienced if you didn’t know the cost.
In the POP display business, we constantly see delays. Projects are delayed because the retailer wants to wait until after the holidays to launch your product. Perhaps you have exhausted your budget for the year and need to wait for the funds to become available before rolling out your merchandising program. Or, maybe you want to test your product in a handful of stores before committing to a larger investment. While all of these might be legitimate reasons for delaying your POP program, you should understand there is a real cost to the delay.
Consider an example to illustrate the point. Let’s assume your company makes energy bars, and you have an opportunity to get a freestanding floor display into 400 Whole Foods stores. Your energy bars retail for $2.00, and you sell them to Whole Foods for $1.00. Let’s assume your cost per energy bar is $.50 so you make $.50 profit on each bar you sell. Let’s further assume that on average you can sell a dozen bars a day per store. You worked with a POP display company who designed a nice floor display for you for $75 per unit, but you are worried about the $30,000 initial outlay for the displays so you keep tweaking the design and exploring options to get the cost below $70 per unit so you can save $2,000 in upfront costs.
All of the indecision and back-and-forth delays your program for 60 days. What does a 60-day delay mean in terms of your true economics? What it means is that you would lose $288,000 in revenue and $144,00 in gross profit. So in an effort to save $2,000 you just lost out on $144,000 in profit or 5 times the cost of your entire display program. In fact, for each day you delay, you lose $4,800 in revenue and $2,400 in profit. Conversely, if you could speed up the implementation of your display program by just 13 days, the profit that you generate could more than fund the $30,000 you are spending for the display programs. In other words, if you stepped on the gas and moved your display program up by 2 weeks, your displays would be free.
Understanding the opportunity cost of delay is both powerful and empowering. The above analysis is compelling on its own, but it’s not the complete picture since it only looks at the lost sales during the delay period. What it ignores is the sales associated with capturing a customer who is likely to make repeat purchases of your product over several years. If customers lock into another brand of energy bars because yours is not available at the right time, the opportunity cost becomes huge. Say, for example, that during the 60-day delay period, in each of the 400 stores you lose 20 customers to competing brands, and those customers on average buy 12 energy bars each week. Over a 5-year period, those customers would have generated nearly $5M in sales for you and nearly $2.5M in profit. The opportunity cost of losing repeat customers can be staggering.
“The opportunity cost of losing repeat customers can be staggering.”
Jim Hollen is the owner and President of RICH LTD. (www.richltd.com), a 35+ year-old California-based point-of-purchase display, retail store fixture, and merchandising solutions firm which has been named among the Top 50 U.S. POP display companies for 9 consecutive years. A former management consultant with McKinsey & Co. and graduate of Stanford Business School, Jim Hollen has served more than 3000 brands and retailers over more than 20 years and has authored nearly 500 blogs and e-Books on a wide range of topics related to POP displays, store fixtures, and retail merchandising.
Jim has been to China more than 50 times and has worked directly with more than 30 factories in Asia across a broad range of material categories, including metal, wood, acrylic, injection molded and vacuum formed plastic, corrugated, glass, LED lighting, digital media player, and more. Jim Hollen also oversees RICH LTD.’s domestic manufacturing operation and has experience manufacturing, sourcing, and importing from numerous Asian countries as well as Vietnam and Mexico.
His experience working with brands and retailers spans more than 25 industries such as food and beverage, apparel, consumer electronics, cosmetics/beauty, sporting goods, automotive, pet, gifts and souvenirs, toys, wine and spirits, home improvement, jewelry, eyewear, footwear, consumer products, mass market retail, specialty retail, convenience stores, and numerous other product/retailer categories.