Executive summary of "The effects of adjacent competitors and promotion on brand sales

Citation

(2015), "Executive summary of "The effects of adjacent competitors and promotion on brand sales", Journal of Consumer Marketing, Vol. 32 No. 1. https://doi.org/10.1108/JCM-12-2014-1258

Executive summary of “The effects of adjacent competitors and promotion on brand sales”

Article Type: Executive summary and implications for managers and executives From: Journal of Consumer Marketing, Volume 32, Issue 1

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

How brands are arranged on the shelves of retail outlets can considerably influence consumer purchase decisions. For several decades, shelf-space allocation has been closely associated with both unit sales and profitability. Retailers must therefore utilize shelf space in ways that help to maximize returns. Allocation of space for particular brands typically results from negotiations between retailers and manufacturers, whose aim is to secure prime positioning for their offerings.

Prior research has generated valuable insight into the effect on sales of shelf-space allocation. Most emphasis in this work has been on the area size and number of “facings” that particular items have occupied. What has largely been ignored to date is the potential significance of how products are positioned relative to competitor brands. Certain scholars determined that “local” as opposed to “nonlocal” information exerts greater influence on people. This suggests that research into the proximity of items to each other would more appropriately address the consumer perspective.

One of the prevailing assumptions from earlier work is that eye-level shelf positioning has the most positive effect on an item’s performance. However, researchers now believe that shelf allocation is one part of what is a more complicated situational process than previously recognized. Among more recent propositions to emerge is that decision-making might result from interplay between the physical proximity of different items, promotional activities and consumer motivations.

The impact of adjacency on sales has received some research attention. But the work in question measured cross- rather than within-category effects. It is suggested that an approach which directly compares juxtaposed items from the same product category would be more consumer-oriented.

Evidence shows the goal-oriented nature of many consumers. How such individuals respond to particular information in a shopping context is determined to some extent by their motivations. Certain people will be most attracted to deals, whereas brand name might be the most important consideration for others. Diversity in motivation would affect how the situation is evaluated.

Some consumers visiting a retailer will seek out a specific brand or be drawn toward a brand “featured” on in-store advertising material. When the brand is located, the customer is also likely to notice items positioned adjacent to it. Raised awareness of these alternatives will occur regardless of any price differences between them. The effect is expected to be different for shoppers aiming to secure a bargain. In this case, it is probable that lower consideration will be afforded to juxtaposed brands when the focal brand is offered at a discounted price.

Another potentially important factor is competitor type. Consumers compare brands on their perceived strengths and weaknesses; therefore, product assortment on the shelf will have some bearing on how items are evaluated. Scholars point out that people use assimilation and contrast as the means to compare brands. This relates to whether respective attributes are typical or different. Retailers exploit this tendency by juxtaposing store brands with manufacturer brands. The objective is for consumers to assimilate the retailer brand based on the notion that each possesses similar attributes. At the same time, price serves to contrast the brands, as the store brand will invariably cost less. By being positioned adjacent to a higher-price market leader, the focal brand is viewed more positively.

However, this effect is less likely when the brand is placed next to an “average competitor”. The rationale behind this is that assimilation on analogous attributes will be less favorable due to the lower prestige of the competitor relative to a market-leading brand. And since any price difference is likely to be inconsequential, the likelihood of a positive impact on consumer attention toward the focal brand and on sales will be lower.

Some people will seek alternative brands to satisfy their desire for variety. When the featured brand is found, the aim is fulfilled. Price is not typically a key motivating factor on these occasions. This means that there is less incentive to switch to an adjacent brand on the shelves that is cheaper. A negative effect on sales of the focal brand is the most probable outcome in such situations.

A significant relationship between competitor type and discounting is also proposed. When market-leading brands are discounted, they will have increased appeal relative to focal brands. This is due to the latter losing its potential advantage on price. A similar outcome is deemed likely when non-market leading brands are reduced. Such brands remain comparable to focal brands on other attributes but have secured a price-based advantage.

Scanner data covering 24 weeks from 50 stores of a regional grocery retailer were used for the study by Keel and Padgett. Wine was chosen as the focal product because of the limited brand loyalty associated with wine. The tendency toward variety-seeking and experimenting with the product are cited as reasons for this. A total of 21 stock keeping unit (SKUs) linked to 13 well-known brands were considered. Investigations revealed that wines are essentially organized on the basis of variety, with larger-sized bottled typically sited on lower shelves. Over the data period, positioning of wines tends to change only minimally.

Scrutinizing the data revealed that:

• sales of the focal brand increase when positioned next to a brand featured on leaflets or other in-store advertising material;

• being placed next to the market leader has a more positive effect on sales compared to that of a position adjacent to a non-market leader; and

• a focal brand’s sales increase when positioned next to a featured market leader, but decrease if juxtaposed with a featured non-market leader competitor or a discounted market leader.

Contrary to expectation, there was no evidence that a position next to a discounted brand helped to boost sales. It was likewise found that sales of a focal brand did not increase when placed next to a discounted non-market leader competitor.

It was additionally indicated that only price has a bigger effect on sales than being placed adjacent to the market leader. Such a position only had a negative impact when the market leader was discounted.

The authors point out that manufacturers might pay “slotting fees” to retailers to secure prime shelf positions for their brands. They advise managers of non-market leader brands to try and secure spacing adjacent to the market leader. It is argued that variety-seeking behavior of consumers or a price advantage of the product will help increase sales, providing the market leader is not discounted.

Retail managers are also advised to be astute in their use of price promotions. Customer focus on the discounted product means there is no “spillover effect” on adjacent items. Conversely, a non-price promotion like featuring a product on a store flyer does have a positive impact on sales of juxtaposed products. The most effective strategy could be to place retailer brands or non-market leader brands with higher margins next to featured market leaders. Awareness of comparative brand margins is also advised, along with the mutual effect when promotional activities and shelf positioning are combined.

Consideration of categories where brand preferences and brand loyalty are more established is one option for future study. Another possibility is to investigate the effect when items are positioned further away from the focal brand.

To read the full article enter 10.1108/JCM-02-2014-0860 into your search engine.

(A précis of the article “The effects of adjacent competitors and promotion on brand sales”. Supplied by Marketing Consultants for Emerald.)