Monday, May 25, 2015

Grow Profits the Organic Way

Introduce “organic” into your retail marketing and profitability is likely to increase. But the increase is often for reasons you might not expect.
     Researchers at University of Groningen used scanner data to track purchases across 28 product categories. They found that sales volume advantages of an organic label held most reliably with fresh foods for which limited promotions are done. With items which are processed, heavily advertised, or sold at discounts, listing “organic” as a product benefit won’t increase sales that much. Shoppers find it easy to justify not buying the organic choice. The researchers saw egoism and price consciousness as principal justifications.
     So why does the profitability increase when the store carries organic items and boasts about it? The answer is that the increased profitability often comes from purchases of items not carrying the organic designation. The presence of socially conscious products makes it more likely the customer will purchase products that do not embody social consciousness. It’s as if having chosen the store is enough to satisfy the values.
     Studies at City University of New York, Loyola College, and Duke University suggest that even when this sort of thing doesn’t occur within the same shopping trip, it can occur over subsequent shopping trips. That is, if someone purchases a socially conscious item on this trip, they become more likely to purchase next time an item which shows little attention to social consciousness.
     Consumers who favor organic products think of themselves as being environmentally conscientious, and that leads to another indirect explanation for the increased profitability from organic items. This explanation applies to categories like cleaning products. Studies at Central Michigan University and National Dong Hwa University found that consumers believe green products are less effective than others, so they use more of them for the equivalent task, requiring larger buys.
     Researchers at Özyeğin University in Turkey and State University of New York-Buffalo assessed sales elasticities for 56 product categories of organic and nonorganic items: What happens when product assortments or price discounts are raised or lowered in your store?
     They found elasticities are higher for organics: Increase item assortment 20% with organic and nonorganic items. The increase in sales will be greater for the organic set. Discount prices on organic items 20% one week and on the nonorganic parallels 20% a few weeks later. The sales boost is greater for the organic than for the nonorganic items.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Organize Organic Item Assortment/Promotion
Acknowledge Customers’ Willful Ignorance

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