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SKU Rationalization and Affinities With Tobacco Products
I read this very interesting analysis of why Tobacco isn’t Going Up in Smoke.
The author argues that for 20 years the industry faced increased social, legal, and political pressure yet; it is still here, still profitable, and still reinventing its marketing to fuel growth.
The analysis is based on the following reasoning. Some investors avoid the industry due to its declining volume and regulatory, political, societal pressure. Despite those headwinds, here are four reasons why tobacco will remain a profitable for many years to come. First, the distribution network and restrictions on advertising keep SG&A 15 to 20 percentage points below other consumer sectors as a percent to gross sales. Second, regulatory pressure will meet reality. Record budget deficits at the federal, state, and local level will necessitate tax revenue from tobacco long term. Third, under the Master Settlement Agreement, the industry has made great strides to educate people about the dangers of smoking, curb underage smoking, and limit advertising. The next generation of people that get smoking related illnesses will have a more difficult time building cases against tobacco companies for loss compensation. Fourth, SKU rationalization remains an untapped lever to protect profit amidst relatively predictable volume declines.
Items (and Categories) with affinities to Tobacco Products Are Impacted When Tobacco Prices Fluctuate
As retailer look to rationalize the tobacco product, they also need to know what items in the store have strong affinities with tobacco products. As tobacco prices have fluctuated the sale of these items has been impacted dramatically. The risk of SKU rationalization is eliminating low volume sellers that are connected with other low volume sellers. You will end up losing more sales that you bargained for; not a good thing in this economy.
SKU rationalization remains an untapped lever. There are many instances where companies have rationalized products only to bring them back and more. The failure rate of SKU rationalization is due to the lack of quantitative analysis on the item affinities on low volume sellers. There are two kinds of low volume sellers:
1. Low volume sellers that sell with other products.
2. Low volume sellers that sell in singleton baskets. These are candidates for SKU rationalization.
A complete affinity analysis of your products will reveal opportunities and low hanging fruit that you can benefit from today.
Grow Your Business with Value Upsell and Cross-sell Strategies
Grow Your Business with Value Upsell and Cross-sell Strategies
Gearing traffic to your website can prove quite difficult, and converting even two-thirds of the visitors into customers can be a challenging task in itself. Most e-commerce conversion rates fall between 2% and 3%, unless you are selling at Amazon (9.6%) or at Proflowers (14.1%)! Therefore, when you manage a hard-fought victory, capitalize on it through aggressive upselling and cross-selling strategies.
Benefits of Upsell and Cross-sell
When a customer enters a shop searching for a specific product, a salesman comes to their aid, provides them whatever they need while suggesting alternatives and complementary products. Perceptive suggestions by the salesperson enhance the store’s image in the eyes of the customer, since it reflects a level of thoughtfulness on the part of the store. Suggestive selling online can serve as a practical method of increasing profits.
Cross-selling and upselling have great value for e-commerce as well, since they increase:
- Average order value
- Conversion rates, since they guide consumers to select appropriate alternatives in case they are looking at the wrong product or one that does not complement the product in the shopping cart
- Exposure to high margin products
- Customer satisfaction through the recommendation of related products that will supplement the product as well as the user’s experience
- Deeper awareness about the product you are offering
Upsell and Cross-sell: Tips and Tricks
The following are certain ideas that would definitely improve your opportunity to upsell and cross-sell:
Suggest the obvious: Several cross-selling and upselling opportunities arise all by themselves. For instance, if you are offering tennis racquets, suggesting balls, bags and other tennis accessories is natural. You can also consider mentioning a few other related products and services that you provide.
Relevant suggestive selling works wonders: Overloading customers with unrelated suggestions can only serve to exasperate them and hamper purchase scope. If not immediately purchased, it will definitely eliminate chances of developing a recurrent clientele. Therefore, product suggestions should be as closely related as possible.
Expert recommendations help: Another way to facilitate upselling and cross-selling is by offering recommendations by professionals, field experts and customers. This could be anything – from a chef’s suggestion on a particular menu to a doctor’s recommendation on drugs. This is a strategy followed by Amazon.com.
Timing is crucial: The best time to cross-sell or upsell is when the customer is trying out some item. For instance, if the customer is looking for a low-priced camera and seems disappointed with a particular model’s features, the person may not mind buying a higher-priced model with more advanced features. Or, suggesting a belt when the customer is trying on a pair of trousers is quite fitting.
Offer products of a different price range: The supplementary product suggestions should be across a varied price range. If three items have been suggested, it is crucial that all three offer a welcome mix of different price points. Most often, the item that costs the least will be chosen. However, it will leave a good impression in the minds of the customers, increasing the chances of future sales from the same client.
The secret to successful cross-sells and upsells is complete focus on customer needs and requirements, instead of concentrating on increasing sale. As they say, Take care of the pennies and the pounds will take care of themselves.
How Suggestive Selling Can Increase Sales
In the hard goods industry, purchases are need based. Customers buy items for their job and projects.
When a customer comes to the checkout counter, the counter man can look at what is being purchased and recommend other items that the customer might want to purchase. Not all of these recommendations will be accepted, but those that are represent additional revenue. The recommendations that are made depend on the sales person’s knowledge of the products and experience on how they are used. The profit margin on suggested items, when they are bought is very high, because you are leveraging a customer who is already in your store!
Suggestive Selling is a Recession Buster!!
In a virtual environment such as a web-store, there is software that monitors what is being placed in the “shopping cart” and make recommendations based on the individual items or on collections of items. As in the real store, a few of these recommendations will be accepted. But the net effect will be to increase the average number of items in a shopping cart, and therefore revenue.
You might be wondering how software can make these recommendations. It is accomplished by analyzing earlier sales and discovering what items are typically bought together. Emcien’s analytics on the sales data will reveal items that are bought together for the job. For example – 90% of the times item A is bought with item B and C. If you know the items that go together (for a job), why not make suggestions to the customer? This shows that you know how customers use your products; it improves customer service and increases sales. A win-win all the way through!
Distributors typically sell tens of thousands of unique items across hundreds of thousands of transactions. Emcien’s analytics quickly reveals customer buying behavior and trends that every distributor can utilize to increase sales. When suggestive selling is based on actual buying patterns, the suggestions are more plausible, and customers trust them. It is very believable when you can say “ 90% of the times this ballast is bought with this lamp and mounting.” These recommendations are sensible, simply because they are based on the actual buying behavior of your customers. Emcien’s analytics can simulate the years of experience that’s normally accumulated by working in a store for years. I need to point out that sensible recommendations are critical because irrelevant recommendations annoy customers and may reduce sales.
To illustrate the potential of suggestive selling, here are some actual numbers. ACME hardware store carries 41,155 unique items. An analysis of 232,500 orders showed that 61% of these orders would result in at least one additional recommendation. When the store implemented the suggestive selling, sales increased by 3% in the first 4 months.
Product recommendations have been used very effectively by Amazon and reported to increase sales by up to 30%. Surprised? Here is the impact to your business – Adding one more item to 10% of the orders can increase sales by 5%!
How much money are you leaving on the table because you are not leveraging suggestive selling for your products? Would you like to know?