Merchandising: How Companies Entice Customers To Spend

What Is Merchandising?

Merchandising is the presentation and promotion of goods that are available for purchase for both wholesale and retail sales. This includes marketing strategies, display design, and competitive pricing, including discounting. Merchandising is important for retailers looking to cultivate their brand, improve the experience of customers, compete with others in the sector, and ultimately, drive sales.

Key Takeaway

Merchandising refers to the marketing and sales of products.
Merchandising is most often synonymous with retail sales, where businesses sell products to consumers.
Merchandising, more narrowly, may refer to the marketing, promotion, and advertising of products intended for retail sale.
Technology is changing the face of merchandising, with electronic point-of-sale terminals to targeted and personalized mobile ads.
Categories of merchandising include product, visual, retail, digital, and omnichannel.

Understanding Merchandising

Merchandising includes the determination of quantities, setting prices for goods, creating display designs, developing marketing strategies, and establishing discounts or coupons. More broadly, merchandising may refer to retail sales itself: the provision of goods to end-user consumers.

Cycles of merchandising are specific to cultures and climates. These cycles may accommodate school schedules and incorporate regional and seasonal holidays, as well as the predicted impact of weather.

Merchandising can take on different and more specific definitions in regard to different aspects of retail sales. For example, in marketing, merchandising can refer to the use of one product, image, or brand to sell another product, image, or brand.

The word merchandise comes from the Old French word marchandise, from marchand, which means "merchant."

Special Considerations

Since retailers may or may not be producers of the goods they sell, measuring the gross value of all sales provides insight into the company’s performance. This is especially true in the customer-to-customer market, where the retailer serves as a third-party mechanism for connecting buyers and sellers without actually participating as either.

Merchandising may also provide value to retailers in the consignment sector. In this sector, retailers never officially purchase their inventory. Even though the items are often housed within a company’s retail location, the business functions as the authorized reseller, often for a fee, of another person’s or entity’s merchandise or property. Generally, they are never the true owner of the item because the person or entity that placed the item on consignment may return and claim the item if they so choose.

Gross merchandise value is the total value of merchandise sold over a given period of time through a customer-to-customer exchange site. It is a measure of the growth of the business.

All around the world, but most notably in the United States, the reality of merchandising is getting an update. The roles and rules of merchandising are experiencing an evolution. Chief merchants, formerly concerned mainly with the selection and presentation of products, now have broader accountability and a heavier hand in customer experience, as well as the development of design and talent related to display and marketing design.

Because consumer savvy is broadening, and technology is playing such a massive role in merchandising, companies need to stay ahead of consumers’ expectations. Innovation and experimentation have a central role in retailers' merchandising strategies.

U.S. Retail Cycles

In the United States, the routine retail cycle starts at the beginning of January. During this time, merchandising includes the promotion of Valentine's Day and St. Patrick's Day products and related items. Shortly following this, Presidents' Day is represented through special sales and discounts.

The next major holiday in the United States is Easter. During this time, not only is the holiday promoted but so is springtime and the associated warmer weather. Most promoted products at that time of year include clothing items appropriate for warmer weather, in addition to tools and other items suited for outdoor activities, such as gardening and picnics. These items are typically made available mid-winter and heavily marketed and promoted to move such items from shelves to make room for the next batch of products.

The cycle continues through the rest of the year in the same manner, accounting for Mother's Day, Memorial Day, graduation season, Father's Day, the Fourth of July, Labor Day, Halloween, Thanksgiving, and Christmas.

Retail is the largest private-sector employer in the United States, responsible for one out of every four jobs, or 52 million American workers.

Merchandising typically varies within retail chains but will vary greatly depending upon the region of the country (and within states themselves).

Merchandising Company vs. Service Company

As the name suggests, a merchandising company engages in the sale of tangible goods to consumers. These businesses incur costs, such as labor and materials, to present and ultimately sell products.

Service companies do not sell tangible goods to produce income; rather, they provide services to customers or clients who value their innovation and expertise. Examples of service companies include consultants, accountants, financial planners, and insurance providers.

Merchandising Strategies

Merchandisers employ a number of different strategies to attract buyers to make purchases, including window and in-store displays, strategic grouping of products, well-stocked shelves that have clear signage, the highlighting of certain promotional products, samples and other freebies, in-store demonstrations, and other in-store advertisements. Cleanliness and neatness are also important, as they are synonymous with professionalism. A business's online store should also use merchandising strategies to appeal to online shoppers.

Benefits of Merchandising

Merchandising is critical for a retailer, as it can directly impact sales and customer retention. Whether a store has a physical presence, and/or an online presence, how the store presents itself and its products is crucial. In a physical store, cleanliness, organization, ease of accessibility, and the strategic use of discounts and offers can be the difference between a customer that casually browses once and one that becomes a repeat purchaser.

Effective merchandising can help a retailer grow its brand, compete with others in its same category, and stay competitive even when the economy is struggling.

What Are the Types of Merchandising Companies?

Merchandising, broadly speaking, refers to any entity that engages in selling a product. Under this definition, there are two types of merchandising companies, namely retail and wholesale. Retailers sell their products directly to consumers, while wholesalers buy from manufacturers and sell to retailers.

What Does Merchandising Entail?

Essentially, merchandising is the promotion and sale of products. It often is used to mean retail sales itself in that its goal is to influence the buying decisions of consumers. However, it should not be confused with the sale itself. It is the process leading up to a sale. It includes the determination of quantities, setting prices for goods and services, creating display designs, developing marketing strategies, and establishing discounts or coupons.

What Is the Difference Between a Merchandising and a Service Company?

A merchandising company, both wholesale and retail, sells tangible goods to its consumer. These companies incur costs, such as labor and materials, to present and ultimately sell products. Service companies do not sell tangible goods to produce income. Instead, they provide their expertise as a service to their clients. Examples of service companies include consultants, accountants, and financial planners.

What Are the Four Main Categories of Retail Merchandise?

There are essentially four types of retail merchandise, and most retailers specialize in one of the four classes. However, especially savvy retailers merchandise their stores with products from all four categories. Shopping products are the main class of retail merchandise, comprising products consumers want, are willing to research and comparison shop for, and are generally in demand for either a consumer or business audience.

Convenience products that consumers can't live without, such as food, health, and hygiene products and basic household goods comprise the second category. The third category constitutes impulse purchases, such as candy, magazines, or drinks; these products are usually near the checkout aisle in supermarkets or so-called big-box retailers. Finally, there are specialty products, or unique, personalized, or otherwise more individualized products that are also available.

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