Platt Perspective on Business and Technology

Managing an inventory so as to create synergies in marketing and sales

Posted in strategy and planning by Timothy Platt on April 22, 2014

I wrote and posted an entry to this blog: Inventory management and a possible misuse of the Pareto Principle approximately three weeks ago, and have been planning on adding a follow-up to that since then. I ended that posting by noting that capturing the marketing and sales synergies, that looking at overall sales patterns can make possible, is the topic of another posting. My goal for this posting is to at least begin that wider discussion.

• I focused in my earlier, above cited posting on how sales of specific types of items can be significantly correlated and on how value can be created by coordinately managing inventory selections and levels, rather than simply considering separate stock keeping units (SKU’s) as if in vacuo.
• People who buy a packaged frosting mix at a supermarket are, for example, more likely to also buy a packaged cake mix, than would be expected when compared to shoppers who pick up randomly selected items as determined from that store’s sales receipt records (e.g. a jar of mustard or a bag of frozen mixed baby vegetables.)
• And some items that might sell more slowly in and of themselves might correlate for their sales with larger overall shopping levels and larger overall purchasing (e.g. sales of a chili seasoning mix frequently correlating with customers buying a list of other items that might go into preparing a pot chili of some sort, where there can be and is a lot of variation of what else would be added to that shopping cart but where a significant number of other ingredients would be called for.)

If a retail operation such as a supermarket is aware of this and if they coordinately manage their inventory in terms of what their customers purchase together, they can manage their inventory more effectively and improve their business’ bottom line. If they also market their offerings in coordination with this understanding, they can increase the chances that a would-be customer would bring their business to them, to buy these correlated item combinations. As an example,

• When the weather begins to get colder, and their customer base begins thinking in terms of colder weather hearty meals that they can prepare in advance and for several days’ worth of meals – that is when it might make sense to highlight their stew and chili seasoning mixes in their advertising circulars and even as loss leaders, while advertising their sale of stew meats and root vegetables that would also go into these dishes.
• And for their customers entering their store, they can position items that correlate for sales together in their shopping aisles and highlight there that they are offering those seasoning mixes at special reduced prices.
• And to round this out they can also place marketing posters and similar information, showing attractively prepared stews and chili preparations, noting that everything needed is available then and there – and at cost savings prices. This type of marketing can capture impulse buyers who know they want to make grocery purchases for evening meals but who enter the store looking for finalizing inspiration on what to buy and prepare, that would be easy and that they and their families would enjoy.
• Some stores even offer recipe sheets, also carefully positioned in the store, to help their customers to both find everything needed, and find the threshold-crossing incentive to make that set of purchases in the first place.

And all of this rests on knowing the demographics of your current and potential customer bases, and of knowing and understanding their buying habits and purchase preferences – then targeting them with items and combinations of items that they would want, and in ways that would help them see the right connections as to how your SKU’s offered for sale, would fit together and work for them.

I will come back to further discuss inventory planning and coordinated sales in further postings, but finish this one here at this point. Meanwhile, you can find this and related postings at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory.

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