Exploiting the installed base using cross-merchandising and category destination programs

Abstract

We investigate two ways to increase sales and customer loyalty by taking advantage of a store's installed base of current customers. We propose a classification of products into two types. Products of Type 1 are products for which consumers have a loyalty to a specific retailer and, as far as possible, always shop at that retailer for these products. The other products (Type 2) are not associated with any retailer and are bought at whichever retailer consumers happen to shop when they plan or remember to buy the product. With this in mind, we test the potential of two marketing tools to help retailers increase their share of sales of the Type 2 segment. Using a category destination program we show that one can successfully transform Type 2 into Type 1 products. Using cross-merchandising promotions, we show that one can increase the sales of Type 2 products thereby gaining a larger share of discretionary purchases than what one would receive from a straight random allocation. Both series of tests yielded significant increases in sales and profits and were deemed successful by the retailers who implemented them.