Placing your product on a planogram next to a brand with a high range is an aggressive game with high winnings but also high levels of risk

Every brand with a high range is a potentially interesting source of users for brands with a weaker market position. By handing over even a fraction of their customers’ traffic, high range brands can visibly increase sales/range of a smaller brand. However, what should be taken into account is the risk that this minimum consumer flow might be suppressed by periodical significant increases in preferences in favour of the bigger brand, which result from a promotional or ATL/BTL campaign.

CONSEQUENCES FOR BUSINESS

Substitution analysis provides an opportunity to assess the balance of risks and chances connected with customer flows between neighbouring brands on a planogram. An aggressive policy of smaller brands consists in placing themselves next to brands with high rotation, provided that they are capable of ensuring a share of preferences above their current volume share. However, modelling substitution can be unreliable, especially in the face of promotional campaigns or ATL/BTL communications. When a campaign appears, a large brand can suddenly not only cease to be the source of new users for the smaller one, but it can also intercept current consumers of the latter.

CASE STUDY

On the basis of research results on substitution on the beer market, an analysis was carried out to study flows between brands that are sitting next to one another on the shelf. The analysis looked into arrangements in which brands with ca. 1% market share were placed on the shelf next to brands with market share at ca. 10%. An analysis of brand preference was conducted as well. It allowed to determine the chances for choosing a particular beer by the customer in the situation where the choice exists between this particular brand and the competitor’s product. In the case where chances for choosing the smaller brand were bigger than its market share, sales increased several times.

BUSINESS RESULTS

Thanks to the vicinity of brands with 10 times greater market share, brands with lower rotation can increase their sales several times (even up to +800%).

TIPS BEFORE APPLICATION:

  • Analyse customers’ preferences: What are the ratios of customers who prefer the smaller and the bigger brand? What are the chances that the customer chooses the smaller brand instead of the bigger one? Is the chance bigger than its market share?
  • Ask yourself: what are the chances that the dominant brand introduces in the particular period actions which might change customers’ preferences? (e.g. a promotional campaign)