Key Takeaway of New Consumer Trends Data Science Study:
Brands that win the competition to get space on those small format store shelves can win big.
The rapid growth of the “small formats” retail sector that includes Save-A-Lot and Aldi and neighborhood stores like Target Express, has raised some interesting questions for consumers and major brands alike. The core issue is whether it matters to have a product on those small format store shelves. A study has shown that it matters a lot, and that having a presence on those small format store shelves can do wonders for sales, and indirectly brand awareness.
This issue was at the center of a forthcoming study in a leading INFORMS scholarly marketing journal, Marketing Science, which found that gaining the same increase in distribution penetration from limited assortment stores provide much larger increases in sales, relative to that from large assortment stores.
The study, “The Effect of Retail Distribution on Sales of Alcoholic Beverages,” answers the question of how much distribution affects sales, though this can be challenging, due to a “chicken and egg” problem. Sales increase with distribution, but firms also increase distribution when sales increase, making it hard to tease out the effect of distribution on sales from the effect of sales on distribution.
The authors examined SKU level sales data from Systembolaget, a Swedish state-owned monopoly for retailing alcoholic beverages such as wine, beer and other spirits from 2006-2011. The advantage of the Swedish data is that the monopoly has to follow a certain set of rules when changing distribution for brands. These rules were established to ensure fairness to wholesalers and to satisfy conditions for Sweden’s accession to the European Union. The Swedish retailer classified stores into four tiers based on assortment levels. All brands chosen for distribution are initially sold at the largest format stores. As they become more popular, their likelihood of being sold in the next tier of smaller format stores rises. These distribution decisions are all made twice a year.
The authors found that a 10 percent widening in the retail distribution of wines, for example, yields increases in sales by 1.2 percent, 2.1 percent and 6.2 percent as the product gained distribution to the next tier of stores with smaller assortments. These results suggest that gaining distribution in one large store with a certain turnover is less effective in increasing sales than gaining distribution at two small stores that have the same combined turnover as the larger store. Hence gaining distribution is small retail formats remains important for larger brands.
When the authors dug deeper into why they found that the effects of increasing distribution to smaller format stores are greater, they were able to rule out explanations such as greater word of mouth that arises from larger distribution and conclude that a brand gaining distribution in limited assortment stores can get a larger share of sales relative to shares at larger assortment stores.
For the complete study, click.
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|Topics covered in Marketing Science include the following:|
Other subjects include models of consumer perceptions, purchasing behavior, electronic commerce, market research, and interaction between manufacturers and retailers.