The relationship between instore marketing and ob

Authors: Erica van Herpen Erjen van Nierop Laurens Sloot

Publish Date: 2011/12/15

Volume: 23, Issue: 1, Pages: 293-308

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Abstract

To stimulate sales of sustainable products such as organic and fair trade products retailers need to know whether their instore instruments effectively enhance market shares This study uses sales data and a multilevel modeling approach to explain the market shares of sustainable products according to shelf layout factors price level price promotions and consumer demographics It argues that the effect of these variables differs between organic versus fair trade products as buying motives might differ organic buyers tend to be more loyal and price is a more informative signal of quality for organic products Results show that the number of facings has a positive relationship with the market share of fair trade brands but not with the market share of organic brands The same holds for the price difference with the leading brand which is important for fair trade brands but not for organic brands In contrast an arrangement of the product category by brand is associated with higher market share for organic brands but not for fair trade brands Additionally placement at eye level and clustering of items benefits both types of sustainable brands whereas they appear to be not very sensitive to price promotions Finally higher sales of sustainable products are found in areas where the customer base is older and has a higher education levelAs consumer consideration for the societal impacts of products has increased Auger et al 2008 organic and fair trade products have become part of mainstream food retailing The ability to influence the sales of these sustainable food products grants supermarkets a key role in the development of “a greener healthier and fairer food system” Sustainable Development Commission 2008 In this sense many retailers not only carry organic and fair trade products but actively attempt to stimulate their sales using instore marketing tactics JustFood 2004To promote such sales retailers need to identify the key drivers Interestingly although organic and fair trade products have often been lumped together as “green” products or as products concerning an ethical issue eg Tanner and Wölfing Kast 2003 De Pelsmacker et al 2005a important differences exist between the two Specifically consumer motives for buying organic or fair trade products differ Organic products are often bought not only for environmental motives but also for personal motives such as health or taste Schifferstein and Oude Ophuis 1998 The latter are even considered the main purchasing motives for organic products Cottingham and Winkler 2007 The primary motivation to buy fair trade products in contrast is to benefit the world’s poor Bowes and Croft 2007 Possibly as a result of this important differences between purchases of organic versus fair trade products have been observed Whereas organic buyers are identified as a small core of big spenders willing to go to extra length to buy these products Cottingham and Winkler 2007 the fair trade consumer base is considered more diverse and less willing to spend effort in search for these products De Pelsmacker and Janssens 2007 Lamb 2007 This implies that the market share of fair trade brands may rely to a larger extent on their visibility on the shelf than the market share of organic brandsFurthermore consumers often rely on information signals to determine brand value and credibility and in a supermarket context marketing mix instruments can serve as such signals Erdem 1998 Erdem and Swait 2004 Ngobo 2011 An important signal of product quality is price Erdem et al 2008 Yet whereas a premium price can indeed signal quality in the case of organic products it may mainly signal higher wages for laborers in the case of fair trade products Consumers may thus respond differently to price premiums for organic versus fair trade brandsThe present study aims to identify key drivers of the market share of organic and fair trade brands and to investigate differences for these two types of products Specifically it examines three groups of variables 1 shelf layout 2 price and price promotions and 3 consumer demographics To our knowledge this is the first study directly comparing organic and fair trade brands to show how the effectiveness of marketing mix variables differs between these products It focuses on aggregate data about consumer purchases a relatively new perspective in literature on sustainable products which tends to employ willingnesstopay measures or selfreported attitudes and behavior Auger et al 2008 Thompson 1998 Loureiro and Lotade 2005 rather than actual product sales Yet consumers overestimate their willingness to pay for products Ajzen et al 2004 and selfreported positive attitudes cannot ensure high sales levels Vermeir and Verbeke 2006 Furthermore the effectiveness of instore factors such as shelf space and shelf arrangement are difficult to assess using survey data even though they are potentially very important Drèze et al 1994 Our study thus extends existing literature in two important ways first by directly comparing the impact of marketing instruments for organic and for fair trade sales and second by providing a rich analysis of this impact using aggregate sales data combined with information on shelf layout price and price promotions and store service areaThe allocation of shelf space is of vital importance to retailers because it influences both inventory return on investment and customer satisfaction Lim et al 2004 In recent decades this influence has stimulated experiments to measure the effect of shelf space on sales as well as the development of models designed to solve the shelf management problem for a review see Van Nierop et al 2008 The general insight from prior research is that the amount of shelf space allocated to a product in relation to that of the total product category positively affects product sales Desmet and Renaudin 1998 Yet the positive effects of additional shelf space can taper off such that increasing the number of facings for a product has a positive but marginally diminishing effect on product demand Chandon et al 2009 Drèze et al 1994 use field experiments to show that most products are even allocated more shelf space than would be expected based on their market share and that the number of facings is one of the least important success factors among shelf layout factors However because the majority of studies find positive effects of shelf space we expect that overall the market share of both organic and fair trade brands relates positively to the proportion of the category shelf space allocated to these brandsAdditionally we expect differences between organic and fair trade products The shelf space devoted to products is related to their visibility on the shelf Given that the visibility of fair trade products is considered vital to their sales De Pelsmacker and Janssens 2007 this may matter more for fair trade products than for organic products After all the consumer base of organic enthusiasts may be willing to spend more effort to locate these products on the shelf Cottingham and Winkler 2007 Hence the market share of fair trade brands may relate more positively to the proportion of the category shelf space allocated to these brands than the market share of organic brandsWhereas the effect of shelf space has been examined thoroughly location issues have received much less research attention as noted by Campo and Gijsbrechts 2005 even though the location of a product on the shelf has an important influence on its sales For its vertical location eye level is typically best with regard to the horizontal location the optimal position is less clear Chung et al 2007 Drèze et al 1994 Some evidence suggests that a location toward the beginning of the shelf ie closer to the main aisle may be better whereas a location in the middle of the displayed product category is worse possibly because consumers can reach the product quicker coming from the main aisle Van Nierop et al 2008 The inferior performance of the center position may not generalize to all contexts though it depends on assortment complexity Chung et al 2007 Van Nierop et al 2008 show that price sensitivity is lower for products that are placed on the middle of the shelf Because both organic and fair trade products are often priced higher than conventional products this lower price sensitivity could help their sales Also Chandon et al 2009 revealed that being in the center of the shelf helps products get noticed and ultimately bought This point seems especially relevant for organic and fair trade products which generally lack the consumer awareness levels that national brands enjoy Generally thus a location closer to eye level and a location in the center of the shelf space assigned to the product category rather than toward the end of the category shelf space should both increase the market share of organic and as well as fair trade brands Based on the observation that organic buyers appear more willing to spend effort to locate these products than fair trade buyers we suspect that this effect may be stronger for fair trade than for organic brands Being in a highly visible location implies less effort on the side of the consumer in locating the products on shelf and this should stimulate fair trade sales more than organic sales

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