The basic definition states that the Planogram is a visual representation of product placement within a shop to maximise sales and minimise wasted space. It is created by a shop manager or a member of the advertising/marketing/sales team.
Previously, planograms circulated as schematic diagrams, but more recently they are managed digitally on electronic devices, thanks to SaaS-based applications.
Prior to the creation of a planogram, a thorough research of the buyer must be done. CPG companies are responsible for categorising their products and analysing current market trends. Understanding how buyers shop in that category is vital to creating an effective planogram.
Marketing or market research teams must be attentive to every detail. A small setback can incur substantial losses. Take the example of “Project Impact”, a 2009 Walmart project.
The main objective of the project was to increase space in superstores and improve the overall shopping experience. To achieve this goal, Walmart removed 10% of SKUs, approximately 15,000 SKUs, from select superstores in prime locations. Products such as jams and jellies, which they discovered were the reason for shop clutter, were part of this removal.
As Walmart’s research team predicted, the change positively affected the shopper experience.
Management was happy with the change, and the project was considered a success. However, they paid no attention to the slow decline in sales. A decision that soon turned into a disaster.
Over the next two years, sales declined drastically in these superstores. By the time Walmart management realised their blunder, losses had accumulated to $2 billion. A huge loss compared to its competitors, which brought “Project Impact” to an end.
Upon investigation, they found that Walmart’s research team neglected the unique nature of these products. Yes, it was just Jam and Jelly, but many shoppers were coming to these shops to buy them.
By eliminating these products, shoppers’ frustration levels increased as they had to go to other shops just to buy jelly. So, instead of travelling for a product, they started shopping at Walmart’s competitor supermarkets. This shopper behaviour resulted in low sales of other SKUs and an overall loss for the shop.
Benefits of implementing a planogram
The Cambridge Dictionary defines ‘Compliance’ as: “the act of obeying an order, rule or request”.
The term ‘Planogram Compliance’ refers to the shop’s execution of the pre-defined provisions of the store/product planogram. The main objective is to ensure that each retail shop is optimised to sell the products offered.
Retailers and shoppers can easily find the products when the shops comply with the plan.
That said, let’s look at the 3 key benefits of planogram compliance:
Inventory depletion, commonly known as Out of stock (OOS), is caused by inconsistent replenishment of shelves. Research by Grocery Manufacturers of America attributes 70-90% of out-of-stocks to poor shelf replenishment practices. An empty shelf does not necessarily mean a lack of inventory in the shop. To negate this situation, retail operations must include automated software that detects planogram non-compliance.
This change allows retailers to guide their shop and field representatives to the appropriate shelves.
50% of the planogram design belongs to successful brands/SKU and the remaining space to new or low margin products. Most of the time, compliant shops make it easier for auditors to evaluate the performance of a brand/SKU.
After analysing the impact of product placement and shelf optimisation on shopper behaviour, merchandise owners can deduce strategies to capitalise on sales opportunities.
Regardless of retail space and the corresponding rental costs, maximising space utilisation leads to an efficient and profitable business. Planograms help retailers stay organised and understand the purpose of shop space.
In addition, planograms support effective inventory management.
Before implementing a planogram…
Do proper research before changing planograms or creating new ones.
While optimising store/shelf space and focusing on the shopper experience are essential, decisions should be avoided without a thorough analysis of product performance.
In addition, to realise these benefits for your business, it is important to have a tool that supports you in managing your inventory more efficiently – like a CRM!
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