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The Plan Behind Plan-o-grams: How Smarter In-Store SKU Placement Can Dramatically Improve Sales
July 13, 2006
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by Dave Caracci
Contributor, aftermarketNews.com

For decades, auto parts retailers and jobbers alike have attempted to prop up eroding profit margins by lowering product cost or increasing prices. Between the growth of retail chains and the evolution of program groups, product cost reductions have been exhausted. Now, through category management research, and plan-o-gram development, today’s parts stores can effectively change the profitability mix of the parts their customers buy.

Earlier this year, AutoZone CEO Bill Rhodes proudly reported a quarterly increase in gross profit. Rhodes credited part of the chain’s gross margin increase to its recent store-adjacency and sales-floor reset initiatives. AutoZone wanted to standardize how its stores put plan-o-grams into place, ensuring the best use of product adjacencies. Smart store adjacency practices are accomplished through researching which products appeal to a particular customer segment, and then merchandising those products side-by-side to entice them to buy more.

Okay, okay, I hear you: You know your store, your customers and your market. How can some guy at headquarters a thousand miles away tell you how to merchandise? Plus, how can they increase gross profit in your store by telling you what shelf to stock your oil on, or what product to put next to it? Well, in the old days before in-store point of sale (POS) systems, headquarters had to rely solely on your local market experience and customer knowledge. While your experience and knowledge are still very important, today the eggheads at headquarters can tell you a lot about your customers that you don’t know. This is accomplished through category management and marketing research. (More information on this can be found in the March issue of Counterman magazine, “Category Management: How it Impacts the Market” or click here.)

Years ago, a buyer and/or a store manager strategically marketed individual SKUs, or at least individual product lines, like filters or oil. With parts proliferation, however, SKU or individual product-line marketing management became simply impossible. The category management process uses market “basket” consumer research and POS history to strategically manage parts into a related group or “categories.” The result: More sales and profit dollars for your store.

A look at the research can tell which products a typical customer buys when buying other products. This can help your store decide how to manage stock adjacencies to get additional customers to include other products with their purchases. Take chrome exhaust tips, for example. Traditionally, these were kept in a store’s “high-performance” section, along with chrome valve covers and other chrome goodies. However, market basket research showed Frank Frederick, executive VP of sales and marketing at ROL Manufacturing, that the people who bought repair muffler clamps and hangers would also buy chrome tips — if they saw them. And so, moving the tips from the high-performance section to the clamp and hanger section, doubled a store’s gross margin dollars for those customers’ market baskets! There was no additional cost, just more margin dollars through a change in the product-adjacency merchandising strategy, dictated by the research data.

The research data in plan-o-graming also helps to improve a store’s sales, profit and return-on-investment numbers, as more localized input can be used. In the old corporate plan-o-gram days, national volume often dictated shelf space. With today’s POS data, headquarters can see, by SKU, which parts are popular in one region of the country, and which ones are not. This helps accelerate the “delisting” of sizes or SKUs in one region, freeing up inventory dollars and shelf space, while leaving them on the shelves of other stores in the regions in which they are popular. Also, by looking at the POS data, headquarters may see that a chain has the dominant market share of a particular SKU in a particular region. Once the category managers see what great market share you have on a particular SKU, they may actually ease your price up on that SKU, rather than run price-offs or promotions.

How about test markets? Testing every merchandising idea in your store would take forever, but with thousands of stores, a chain or program group can run multiple product, price and promotional tests at the same time. Once the winning combination is identified, a plan-o-gram can be created so that all the stores can benefit from the winning test results.

Plan-o-grams and merchandising programs can be developed with today’s excellent research, but the real “whiz bang” marketers know to watch for regional differences. Wal-Mart, the king of micromarketing, has many such examples. It has marine fire extinguishers and a flare island display (at full margin pricing) in a lakeside store, but no such display in Tucson, AZ. Now that’s good use of regional data to increase related product sales with no price reduction!

With plan-o-grams come the opportunity to influence what product brands your customers decide to buy. Because you and I know the industry, know the cars and know the brands, we tend to think our customers know just as much and come to our stores looking for a particular brand every time. But it’s just not true. Consumer research shows that two-thirds of brand decisions are made in the store. By tailoring your store merchandising to match what the consumer research shows will help direct your customers to choose the highest profit-margin brands in your store. A decade ago, your local grocer did it by moving the cheese dip onto a rack hanging in front of the chips and beer.

Now, the aftermarket is getting the same smarts. Jon Rubich, vice president of marketing services and category management for United Components, Inc., learned from research data that 20 percent of people changing their oil also buy performance chemicals, like fuel injection cleaner — even though the performance chemical section was on a different aisle than the oil. By changing the plan-o-gram to put the performance chemicals adjacent to the oil, the parts stores saw a significant sales lift on the higher-margin performance chemicals.

Advance Auto Parts used the same concept to put performance car magazines at the parts counter. It wasn’t many years ago that you had to buy your parts at the parts store and then drive to the drug store to pick up a Car Craft magazine. While some adjacencies can be permanent plan-o-gram positions, like stocking paper towels with GoJo Hand Cleaner at Advance Auto, John Seal, vice president-merchandising support for Advance, points to adjacency use in promotional locations also. The same paper towels may be on an off-shelf display alongside Mr. Clean Car Wash, oil, polish or carburetor cleaner.

Market researchers continue to look for products that your customers want to buy as a group. In fact, Industrial Marketing Research tracks consumer input on nearly 300 vehicle items to provide manufacturers with more consumer insight.

Seal points out that, while adjacencies can be good, the industry needs to be careful not to confuse the customer with too many products. One example is at the grocery store. Even though market research shows that a high concentration of bananas are bought in the same “market basket” as breakfast cereal, should bananas be put in the produce department or next to the Cheerios? Seal cautions that we need to be careful not to confuse the customer.

Up until now, we have talked about research influencing shelf-placement decisions. But what about the rest of the store? Think about your electronic catalogs, coupons, advertising, specials or technical clinics. If research shows that, in one region, customers often buy a premium brand oil with premium brand car polish, perhaps the next coupon or news circular promotion for that region should match the two items together. Of course, if research shows that customers also stop by a market for a snack and a soft drink, maybe your auto parts store should offer to sell the same. Silly idea? Maybe not: According to a vice president at Advance, it has sold more than 500,000 jars of cashews.

Coordination of departments is one of the keys to increased margins. If the category manager is trying to move purchases to a premium-priced product, the advertising department should certainly not be running promotions or ads on the lower-priced alternative at the same time.

Directing purchases to higher-margin products can also be done through catalog programming simply by placing the highest-margin choice first on each catalog page.

Plan-o-gramming in the back of your store also leads to increased sales, as you help store personnel remember the add-on suggestions. Rubich’s category management team found that moving the Champ fuel filters from the filter aisle to adjacent to the Airtex fuel pumps in the back room gave a significant fuel filter sales increase.

While product display location in the back can remind the store personnel of a related sale, the proper placement in the front of the store can dramatically affect store profit margins. Do you give more facings to the most popular oil filter, or to the one with the highest gross margin dollars? Do you place the oil in vertical columns by brand, or do you place the high-dollar brands at consumer eye-level and the lower-profit oil on the bottom or top shelves? All of these ideas, and many more, can be tested and sales data examined before plan-o-gramming into a national or regional setting.

Remember, two-thirds of brand decisions are made in your store. Two thirds of the time, your customers are relying on your merchandising and sales skills to help them decide which brand to buy. There could be no better opportunity to increase your high-margin sales and store bottom line profitability, than this.

Today, the large auto parts retail chains are ahead of their competitors in the area of category management directed plan-o-gramming and product adjacencies. Over the past seven years, the auto parts retailers have teamed up with the manufacturers to gain market research and consumer information. The Automotive Aftermarket Industry Association Category Management Committee created the reporting method to track stores POS sales by SKU and the race for profit/sales through data research was on. It is only a matter of time before all of the program distribution groups use their resources and manufacturer knowledge to develop and implement similar research data driven merchandising tools, directed by groups of national category managers. When they do, be sure to use that expertise in your jobber stores to get your fair share of sales growth and profit margin.

Dave Caracci has spent the past 29 years as a sales and marketing executive for aftermarket manufacturers such as Dana Corp., ROL Manufacturing and Robert Bosch Corp. Caracci recently ended his second term as chairman of the Automotive Aftermarket Industry Association. He has previously served as president of the Automotive Sales Council, chairman of the Engine Repower Council and president of the National Engine Parts Manufacturers Association.

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