Look inside your website and you’ll see a major issue hiding the path to more online sales: product merchandise. But I rarely hear my ecommerce colleagues talk about merchandising, or ways to improve merchandise turnover, called merchandise productivity.
Why? It’s boring.
When you focus here, you can increase inventory turn time, maximize margins and save money with your inventory decisions and marketing costs. I’ve always felt if you’re good at merchandising decisions—really good at it—then your marketing doesn’t need to work as hard. And if you’re poor at merchandising decisions, well, you’ll end up spending more money on marketing to chase sales. So less budget spend is certainly one benefit. But opportunity costs is the biggest win, as you can devote more resource to other initiatives aimed at growing new segments or channels.
Effective online merchandising also saves you wasting efforts and being reactive, because you’re basing your marketing decisions on real product movement living within the sales data you’re collecting. But are you studying this product movement closely? Focusing on merchandise productivity at the product level affects everyone and everything in your company.
Remember, there are two basic ways to grow sales: acquire more new customers or improve your merchandise turnover, called merchandise productivity. Each involves different approaches. But no one talks about ecommerce merchandising because it’s not sexy like m-commerce.
If you think this role is relegated to your Operations staff—think again. As a seasoned online marketer, I’ve begun to recognize the growing importance that the impact of good (and bad) merchandising decisions have to ecommerce sales. I was first exposed to this on the print side of mail order in the 1990s with offline marketing related to square inch analysis: measuring the productivity (sales & profit) on the pages of the space (sq. in.) allocated to the product. Talk about data! I learned to be careful to not get caught in minutia and never forget to focus on whether productivity turns are a true indicator of customer demand or otherwise.
So what are ways to increase your online merchandise productivity?
1. Focus on your high trafficked pages, including category and product pages.
Since the majority of all online traffic will hit a category or product page, testing is required. You can easily see wins with your merchandising decisions through optimization and testing gains. It’s hard work and requires focus and a passion for testing, but the upside is huge.
2. Get clear on your merchandising strategy.
Walmart defines their merchandising strategy this way: Operate for less, buy for less, sell for less, grow sales. That’s it, simple! And this “productivity loop”, as they call it, affects all levels of the organization with their merchandising focus driven by data – not gut or instinct, or rehashed opinions.
3. Know your sales-to-stock figure and set acceptable ratios by watching your data.
Sales-to-stock ratio means net sales (margin dollars) divided by average dollar investment you make in that inventory. Obviously you want to keep this as low as possible (within reason), so cash isn’t tied in inventory but it can’t be so low that you impact product availability. This ratio is NEVER a static number due to retail trends and seasonality of your selling calendar.
4. Focus on what matters.
Real-time data gives you (or your Operations people) the ability to respond to changes in customer demand. It lets you focus on smarter marketing and cut the amount you pay for inventory without out-of-stock scenarios occurring in your warehouse. It also helps you position products on pages (and higher up) more rapidly where people want them, adding to a friction-free user shopping experience.
5. Create great products.
Easier said than done! This isn’t just about product development. Perhaps you can bundle a product, create a product kit, or otherwise take an average performing product and associate other products with it thereby turning it from a dog to above average performer.
Merchandising productivity and product associations aren’t something you hear many ecommerce execs talk about, but don’t underestimate the importance! It’s an extremely valuable and winning approach to growing your online sales.
Image: Crystal Ball by Shutterstock