3 Axioms of Merchandising
An axiom, or postulate, is a premise or starting point of reasoning. The word comes from the Greek axíōma, “that which is thought worthy or fit” or “that which commends itself as evident.” As used in modern logic, an axiom is simply a premise or starting point for reasoning.
There may be many more axioms that can apply to merchandising. However, I have found these three to be consistent and applicable to more than just the merchandising areas of a business.
Axiom One: Sales in a typical catalog, offer, web promotion, etc., regardless of product category, are distributed across items as follows:
- Top 1/3 (Best Selling) of items will perform at approximately 2 times the average item,
- Middle 1/3 of items will perform at approximately 0.8 times the average item,
- Bottom 1/3 of items will perform at approximately 0.26 times the average item.
So what does this tell us? In any given offer, 33% of the items will substantially under perform, which is why another good rule of thumb is to attempt to constantly replace 30% of your items. Of course, if we had a crystal ball, we would know which items would under perform and need to be replaced. However, this axiom will apply even on an analysis of an offer of best-selling items. A corollary to this axiom is for every 10 new items introduced, only 3 will be winners. But don’t despair, as you only have to improve the performance of one or two of those “middle third” new items to have them make it to the “hall of fame,” and have a truly successful business.
Axiom Two: As the catalog space given to an item is increased or decreased, the impact on sales will be equal to approximately 1/3 to 1/2 of that change. This axiom also applies to changes in item counts, circulation, page counts, etc. etc.
Many businesses feel that by increasing items offered or page counts, the result will be a substantial increase in sales. However, as we provide the consumer more choices, they tend to actually buy proportionately less (or lower priced items). For example, if we increase the item count in a category by 30%, the increase in that category’s sales would be between 10-15%, and thus, the productivity of all the items in the category actually declines. Conversely, if we remove 30% of the items, the decrease in sales would only be between 10-15%, as it is assumed we have removed the worst performing items.
Axiom Three: (This is my favorite) – In any negotiation there are always three major factors: Price, Quality and Speed. You can expect ONLY two of the three to be successfully achieved. This can apply to almost any situation. For example, if working with an outside manufacturer and you require lowest cost, but delivery in 4 weeks (versus normal turnaround of 6-8 weeks), you will lose the quality control variable. Using the same scenario, if you won’t compromise on quality or price, then added time must be allowed to ensure that quality standards are met. If we wish the best price and the best quality, then speed of delivery will be sacrificed. However, most of us opt for the best price and speed of delivery, so the quality of the product can often suffer. Choose any two you wish, and you will see that logically the remaining component will most likely suffer.