Download The effects of in-store marketing tools for the sales

Bachelor Thesis
Marketing Department
Innovation in Grocery Retailing
The effects of in-store marketing tools for the sales of
new Consumer Packaged Goods
Jeroen Cox
ANR: s263889
International Business
Supervisor: P. Lin
Tilburg University
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Table of contents
Page
Table of contents …………………………………………………………….. 2
Abstract…..…………………………………………………………….......... 3
Chapter 1: Introduction………………………………………………............ 4
1.1 Problem Statement……………………………………………………............ 5
Problem Definition........................................................................................... 5
Problem Statement……………………………………………………............ 6
Research Questions……………………………………………………........... 6
1.2 Conceptual Framework………………………………………………………. 6
1.3 Managerial Relevance………………………………………………… ........... 7
1.4 Academical Relevance………………………………………………………...7
1.5 Structure of the thesis………………………………………………………… 8
Chapter 2: Definition of Constructs................................................................. 9
2.1 In-store marketing……………………………………………………………. 9
2.2 In-store marketing tools……………………………………………................. 10
2.2.1 Shelf facings…………………………………………………………….. 10
2.2.2 Pricing………………………………………………………………….. 10
2.2.3 Price promotions……………………………………………………….. 11
2.2.4 In-store displays…………………………………………………………11
2.2.5 Sample product…………………………………………………………. 11
2.3 Sales of new CPGs…………………………………………………………….12
2.4 Consumers’ risk avoidance…………………………………………………… 12
Chapter 3: The effects of in-store marketing for the sales of new CPGs….. 13
3.1 Shelf facings and the effects for sales of new CPGs…………………………. 14
3.2 Pricing and the effects for sales of new CPGs……………………………….. 15
3.3 Price promotions and the effects for sales of new CPGs…………………….. 17
3.4 In-store displays and the effects for sales of new CPGs……………………... 18
3.5 Sample products and the effects for sales of new CPGs……………………... 18
3.6 Chapter Overview……………………………………………………………. 19
Chapter 4: Moderating influences…………………………………………… 21
4.1 Consumers’ risk avoidance as a moderator………………………………….. 21
4.1.1 The moderating effects of consumers’ risk avoidance on the relationship between price and new CPG sales……………… 21
4.1.2 The moderating effects of consumers’ risk avoidance on the relationship between price promotions and new CPG sales.. 22
4.1.3 The moderating effects of consumers’ risk avoidance on the relationship between sample products and new CPG sales… 22
Chapter 5: Conclusions………………………………………………………. 24
5.1 Conclusions of the study…………………………………………………….. 24
5.2 Limitations and suggestions for further research……………………………. 25
5.3 Managerial implications……………………………………………………… 25
Reference list…………………………………………………………………. 27
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Abstract
This paper investigates the effects several in-store marketing tools have on the sales of
new consumer packaged goods, mostly referred to as new CPGs in the rest of this study, in
the retail environment.
Past research often has not made a clear distinction between the several in-store
marketing tools available and their effects on the sales of new consumer packaged goods.
Therefore, a short explanation of the tools used in this research is given.
After having distinguished the in-store marketing tools from each other, the influences
they have on new CPG sales are discussed.
Finally, the moderating influence of consumers’ risk avoidance on the relationship
between the in-store marketing tools and sales numbers of newly introduced CPGs was
investigated.
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Chapter 1: Introduction
When research on the acceptance of new packaged goods first began, the majority
focused on investigating the behavioral sciences behind the choices consumers make (e.g.
Donnelly Jr., 1970). According to Donnelly Jr. products that are not significant departures
from those previously offered may be tried more quickly and easily because the risk involved
by the consumer is less (Donnelly Jr., 1970). For a wide range of products this line of
reasoning is applicable, but for a more complete understanding of consumers’ choices with
regards to newly introduced CPGs, the role of in-store communication and cultural aspects
have to be taken in to account as well.
Recent research indicates that the retailing sector has long been a sector which was
mainly dominated by managers practicing product management instead of consumer
management. However, this orientation is changing because of the availability of databases on
the purchases of individual customers, which make it possible for retailers to keep track of
consumers’ buying behavior (Mulhern, 1997). In a world of integrated retailing, retailers will
be less concerned with the profitability of items in stock and more concerned with the
profitability of the customers in store (Mulhern, 1997). This change in focus is a direct reason
for retailers to differentiate from its competitors in order to attract consumers to buy products
at their stores. In order to attract consumers to buy at their stores, retailers came up with instore marketing tools which were intended to invite the consumer to buy a certain product by
means of presenting a product in a tempting manner. Unfortunately, the relationship between
in-store marketing and sales of new CPGs has not been widely investigated under the recent
retailing environment.
This paper will make a contribution to extant research on the effects in-store marketing
has on consumers’ purchasing decisions. More specifically, this study will address the effects
of in-store marketing on sales volumes of new CPGs. In past research it has been found that
marketing tools have an impact on purchase decisions a consumer makes (see e.g. Mulhern,
1997). Since it has been found that marketing has an effect on consumer choice, this paper
will focus on how the selected in-store marketing tools affect the choice for newly introduced
consumer products.
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1.1 Problem Statement
Problem Definition
Historically, research in the field of marketing has focused on cultural, economical and
personal aspects to find explanations for the acceptance of new CPGs (e.g. Gielens and
Steenkamp, 2007; Tellis, Stremersch and Yin, 2003). Unfortunately, less research has been
done about the relationship between in-store marketing tools and the sales of new product
innovations. So there is still a lot about the influences of in-store marketing tools on sales of
new goods that remains to be uncovered. Knowledge of this relationship is beneficial for
retailers and producers of new innovations such that they can design a marketing strategy in
order to attract customers to buy their products.
This in combination with the changing retail environment of the last decades and the
fierce selling price battle of 2009, in which Dutch retailers were fighting each other on the
basis of product prices in order to attract customers and push direct competitors out of the
market, makes it interesting for this paper to provide a clear view on how in-store marketing
influences new products’ sales volumes.
For the purpose of this research, a distinction will be made in consumers’ risk
avoidance and other types of customer characteristics. Although all characteristics mentioned
by Tellis et al. (2003) may have an influence on purchasing decisions made by a customer
about a new CPG, the focus of this paper is on the level of uncertainty avoidance because this
could be a factor influencing most of the in-store marketing efforts made by the retailer.
Now that all important variables have been briefly introduced to the reader, and a short
introduction and problem definition have been given, the problem statement can be presented.
Problem Statement
How does in-store marketing contribute to the sales of new CPGs, and how does consumers’
risk avoidance influence this relationship?
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Research Questions
1. What is in-store marketing and how can we distinguish in-store marketing from other forms
of marketing?
2. What kind of in-store marketing tools are available in the retail environment?
3. What are the effects of in-store marketing on the sales of new CPGs?
4. How does consumers’ risk avoidance influence the relationship between in-store marketing
and sales of new CPGs?
1.2 Conceptual Model
The conceptual model presented below has been created from the problem statement
and research questions stated above.
1.3 Managerial Relevance
When talking about factors influencing consumer’s purchasing decisions, Gielens and
Steenkamp (2007) have found that product factors, competitive environment and consumer
characteristics are of importance in the decision making process of consumers. Besides the
factors mentioned by Gielens and Steenkamp (2007), in-store marketing may have an effect
on this process as well. However, little academic research has been done on in-store
marketing and the effects of it for new CPG sales.
Previously, a lot of research has been done to the effects of in-store marketing on the
buying behavior of consumers in general. According to various studies, a majority of brand
choice decisions are made inside the store, yet consumers only evaluate a fraction of the
products available for sale (Inman, Winer and Ferraro, 2009). In this context, improved
attention through in-store marketing activities should influence consumer behavior at the
point of purchase, and the results found in the study done by Chandon, Hutchinson, Bradlow
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and Young (2009) show that this is indeed the case to a certain extent.
Consumer choices are without doubt of interest for retailers and producers, since
companies heavily rely on consumers buying their products, as they will not survive in the
current competitive environment when their products are not bought by consumers. Therefore,
they try to influence the choices consumers’ make in order to let them pick and buy their
products instead one of the competitors. For this reason, it is important for the producer to
know how in-store marketing can increase the sales volumes of new CPGs such that they can
recoup initial investments in the new product development process.
In addition to the producer, the retailer is also likely to be interested in the effects of
in-store marketing on the sales numbers of new products as this will probably lead to higher
turnover for the retail shop and a better competitive position in the retail landscape.
1.4 Academic Relevance
Consumer characteristics and in-store marketing have become important subjects in
consumer purchasing behavior in the past decades. Various studies have been involving the
effects of several cultural barriers and product characteristics influencing the sales volumes of
newly introduced CPGs in the retail landscape (Tellis et al., 2003; Gielens and Steenkamp,
2007) as well as studies about the effects of in- and out-of-store marketing on purchasing
decisions (Mulhern, 2007; Chandon et al., 2009). However these studies did not take into
account the role that consumers’ risk avoidance can play in how effective in-store marketing
is in promoting a new CPG. It is especially this what is interesting to know for a retailer since
consumers’ avoiding risks might not be willing to buy new, unknown products.
Therefore, it is important to know for the retailer what the role of in-store marketing
can be in reducing the uncomfortable feelings of consumers. Once the retailer has gained the
essential knowledge, he could try to influence the risk avoiding consumers by in-store
marketing efforts in order to increase the probability of new CPG sales.
1.5 Structure of the Thesis
In the second chapter of this paper, we will elaborate on the conceptual model
presented earlier in this chapter. This will be done by giving a short description of in-store
marketing followed by a short explanation of the five in-store marketing tools picked for this
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research: shelf facings, pricing, price promotions, in-store displays and sample products.
The third chapter will discuss the relationship between the in-store marketing tools and
their effects on sales volumes of the new CPGs. Thereafter, chapter 4 will describe the
moderating influence of consumers’ risk avoidance on the relation between pricing, price
promotions, sample products and the sales of new CPGs.
The last chapter of this study will contain the conclusions made from this literature
research followed by recommendations for future research and managerial implications for
the producer and retailer of CPGs.
Chapter 2: Definition of Constructs
In this chapter, we will take a closer look at the relevant constructs as depicted in the
conceptual framework of chapter 1. First of all, the broad field of in-store marketing will be
described and subdivided into several more specific tools of in-store marketing. The tools
presented to the reader for this research are: shelf facings, pricing, price promotion, in-store
displays and sample products.
Thereafter, the dependent variable of the framework, sales of new consumer packaged
goods will be clarified followed by consumers’ risk avoidance; the moderating variable in this
research.
2.1 In-store Marketing
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In the current retail landscape marketers are diverting a growing proportion of their
promotional budgets from traditional out-of-store media advertising to in-store marketing, and
retailers are responding by adopting increasingly sophisticated shelf space management and
audience measurement tools (Egol and Vollmer, 2008). But what is in-store marketing exactly
about? According to various studies done in the past, a significant part of all purchases are
made at the retail shop floor, while consumers only notice and evaluate a small fraction of all
the products available in a store (Inman et al., 2009). In-store marketing then could be
described as all the marketing activities available in stores that strongly influence consumer
behavior at the point of purchase (Chandon et al., 2009).
Unlike in-store marketing which primarily influences attention, out-of-store marketing
factors – which are typically printed ads and television or radio spots – influences evaluation
and only have a marginal effect on attention (Chandon et al., 2009).
The focus of this paper will be on the in-store marketing tools, as they can play a role
in the process of selection, and thus buying, of new introduced products. The reason for this is
that with in-store marketing, the consumer can be influenced more easily than with out-ofstore marketing since grocery consumers mostly decide in the shop what to buy for dinner.
In the field of in-store marketing we can differentiate between several tools used to
promote products in the retail environment. The following paragraph will go deeper into the
in-store marketing tools of importance for this research.
2.2 In-store Marketing Tools
As already told in the previous section, in the field of marketing we can distinguish
between several marketing tools. For this paper, the focus will be purely on in-store marketing
tools, and it is this paragraph in which a short description of the marketing tools of importance
for the study will be given. Respectively, shelf facings, pricing, price promotions, in-store
displays and sample products will be presented to the reader.
2.2.1 Shelf facings
Facing, a frequently used tool in retailing, means creating a perfectly looking and
stocked store by pulling all the products available on a shelf to the front such that consumers
can view and take the products easily. From past research it has been found that the number
and position of shelf facings is of importance for the evaluation and attention of products
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(Chandon et al., 2009) and that increases in visual area strongly increases attention of
consumers in the retail shop (Janiszewski, 1998).
Since attention and evaluation of new products are of importance in the process of a
consumer buying a certain(new) product, this research will focus on describing the effects of
the number of shelf facings. In this research, shelf facings are defined as the number of
product packages sitting on the shelf and being presented full face to the consumer (Nogales
& Suarez, 2005).
2.2.2 Pricing
With pricing we could simply mean the retailer setting prices for the products he is
selling, but behind this apparently simple looking act goes an entire process of demand and
offer. Pricing, therefore is a crucial element in retailing and is a unique marketing element as
it can be changed quickly and it has an immediate effect on sales (Mulhern 1997). In the retail
environment, prices tend to be on “regular” levels most of the times, with periodic
discounting for short periods (Hosken & Reiffen, 2004).
For the purpose of this study, pricing will be described as the price a retailer sets for a
newly introduced product.
2.2.3 Price promotions
Price promotions, also referred to as periodical discounts on some products or product
categories, are frequently used by retailers in order to attract consumers buying products in
their shop. Promotions, according to Mulhern (1997), can take either the form of a random
discount or the form of a periodic discount occurring systematically over time. Retail pricing
practices, along with price related promotions, are essentially intended to allow retailers to
price discriminate across shoppers and achieve profits higher than those obtainable with fixed
pricing (Dhar and Hoch 1996).
In this research, price promotions will be defined as temporarily selling a new product
for a price lower than the price normally asked for it by the retailer.
2.2.4 In-store displays
With thousands or even more (slightly) differing products being available within the
retail shop, and all of them being presented to the consumer in endless identical rows of shop
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shelves, in-store displays might be the small difference a producers’ product needs to become
a success. In-store displays can be seen as a final marketing tool to attract the attention of
consumers’ at the point of purchase.
In this paper in-store displays will be interpreted as (special) shelves mostly made out
of carton, which are supplied to the retailer by the producer of the new consumer packaged
goods in order to present their product in an attractive manner.
2.2.5 Sample products
Product demonstrations, trial products and providing consumers with free samples
during shopping are strong instruments for making people aware of new products and giving
them a sense of what the product tastes like. Thus the consumers gain experience before
buying a product thereby reducing the uncertainties they might have about the product
(Heiman, McWilliams and Zilberman, 2001).
Most of the times, sample products and product demonstrations are provided by staff
of the producing company or by external offices specialized in promotional activities and can
be easily provided in various environments. The simplicity with which product
demonstrations can be given and the presence of a salesperson at the shopping floor make it
an effective in-store marketing tool which simplifies the communication with interested
consumers and answering questions.
2.3 Sales of new CPGs
Companies’ frequently introducing new products are of course interested in whether
their products are being accepted by consumers or not as it is risky to innovate due to the fact
that the majority of all new products fail in the marketplace (Goldenberg, Lehmann &
Mazursky 2001; Golder & Tellis 1993; Steenkamp & Gielens 2003).
Therefore it is extremely important to know for manufacturers what aspects of in-store
marketing can increase the possibility that their product will become a success, and thus
ultimately are being bought by the consumer.
2.4 Consumers’ risk avoidance
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Risk avoidance refers to the mind-set that induces a prevention focus (Higgins 1997,
1998), that is, a disposition to minimize the negative consequences of decisions with little
consideration given to possible benefits (Briley & Wyer, 2002).
With consumers being part of any kind of group or culture, calling consumers’
attention to their cultural identity can make them aware of their membership in a group and,
therefore, can induce a group mind-set. This mind-set leads them to make decisions that
minimize the risk of negative outcomes to both themselves and others. The effects of this
mind-set generalize over both group and individual choice situations (Briley & Wyer, 2002).
Since this research is interested in the effects of several in-store marketing tools for
sales volumes of new CPGs, it is interesting to investigate how risk avoidance of individual
consumers’ moderates this relationship.
To summarize, risk avoidance in this paper will be defined as making decisions which
minimize the risk of negative outcomes to both themselves as group members, instigated by
personal beliefs that one can be potentially harmed by his/her decisions (Brewer et al., 2007).
Chapter 3: The effects of in-store marketing for the sales of new CPGs
Gathering information about precuts and processing it is part of the process taking
place before a consumer actually decides to buy a new product. Normally, when picking a
certain product, consumers will do some information collection to get important product
information before actually making their purchasing decision. In case of grocery products,
this could be information from past experience, printed information on product labels or from
other information at hand.
However, the problem with newly introduced consumer packaged goods is that the
consumer does not have access to information from past usage as the product simply did not
exist before. Furthermore, he might not be willing to rely completely on information from the
product label or information available from out-of-store marketing tools such as
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television/radio adds as the producer of the product always might have the intention to
mislead the consumer in order to sell his product. For this reason, making use of free sample
products and giving in-store product demonstrations could be useful in-store marketing tools
in order to convince the consumer to pick a newly introduced CPG.
In the literature on marketing and advertising, several papers identify and describe
methods how in-store marketing tools can influence the acceptance, and thus sales numbers,
of existing products (Chandon et al., 2009; Hamister & Suresh, 2008). In the light of this
paper, we are interested in how the methods found by previous research will influence the
sales numbers of newly introduced products instead of already existing ones. We will take
into account the in-store marketing tools as described in section 2.2 of this paper namely:
shelf facings, pricing, price promotions, in-store displays and finally sample products.
In this chapter, the roles of the in-store marketing tools on consumers’ choices for
newly introduced products will be handled. First of all, section 3.1 will shed its light on the
role shelf facings have on the success ability of a new product. Then section 3.2 and 3.3
respectively will take a closer look at the effects that pricing and price promotions have on the
sales numbers of new CPGs. Finally, in-store displays and sample products are treated in
section 3.4 and 3.5 respectively and a short chapter conclusion will be given in section 3.6.
3.1 Shelf facings and the effects for sales of new CPGs
When you as a consumer go to a shop in order to buy some retail goods, have you ever
asked yourself the question why retail employees are constantly pulling products to the front
of the shelves? That is because retail managers are constantly trying to keep their store
looking perfectly, in order to attract the attention of possible buyers. Behind the composition
of a shop, and the way in which products are placed at the shelves goes a complicated plan in
order to find the best possible division. This complicated plan, which is called a planogram, is
set up by the retailer or his/her headquarters in order to make the composition of the store as
efficiently as possible in creating high turnover rates and it is here where the concept of shelf
facings comes in the picture.
Research literature suggests that increases in total shelf space have strong effects on
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brand sales (e.g. Bemmaor & Mouchoux, 1991). It is suggested that the number of shelf
facings has an impact on attention and evaluation of brands / products. It is this increased
probability of attention for and evaluation of new CPGs which is of importance for producers,
since a new CPG that is visible for consumers will be bought more frequently than those not
being noticed.
However there is a drawback for increasing the number of shelf facings for a new
CPG. The relationship between increasing the number of shelf facings and increased sales
volumes must be treated with caution, as there is a maximum shelf point for every product, at
which no more sales are produced even if the space is increased (Calvo and Reinares, 1999).
So, in order to keep the planogram as efficiently as possible in creating high sales volumes, a
retailer must be aware of the maximum shelf point for every product, such that he will not
waste some of his costly shelf space which could have been used to increase sales of another
product.
From this knowledge, it can be concluded that there exists an inverted U-relationship
for the number of shelf facings, which tells us that after the optimum shelf point, increases in
number of shelf space may lead to lower instead of higher sales volumes per shelf. An
explanation for this might be found in the fact that when more than the maximum shelf space
is allocated to a CPG, sales per shelf will reduce since maximum sales per meter where
already reached in an earlier stadium.
In short, it seems that increasing the number of shelf facings up to the maximum shelf
point positively influences the sales volumes of new CPGs as it influences the observation,
visibility and reexamination of products.
3.2 Pricing and the effects for sales of new CPGs
In retailing, the important question retailers have to ask themselves is: How much
should be charged for a new product? In order to be able to answer this question, it is
extremely important for managers to know and understand what the influences of a given
price can have on the probability that a new product becomes a success and how consumers
use this price in purchase decisions (Mulhern, 1997). So it is obvious that setting the right
price for a new product is a complex process, which can make or break the new product.
Now let us first take a closer look at how consumers use price in their purchasing decisions,
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and thereafter elaborate on the effects of charging a price too low or too high on the sales
volumes of a new CPG.
Dickson and Sawyer (1990) found by directly questioning grocery customers
immediately after a purchase that only 58% of shoppers claimed to have checked the price of
an item purchased. The remaining 42% of shoppers declared that they did not check the price
of a product because of being under time pressure or since they believed prices to be quiet
similar. By another study, Krishna, Currim and Shoemaker (1991) found that many
consumers did not know the retail prices of merchandise they purchased, which is in
accordance with the results found by Dickson and Sawyer.
However for newly introduced CPGs, price may still be an important factor in
consumers’ purchasing decisions, since they are not familiar with the product and it may
increase trial probability. Therefore, it is useful to take a look at what the effects of charging a
too low/high price are for the number of sales of a new CPG.
According to Marn, Roegner and Zawada (2003), charging too much for a new
product is dangerous, but charging too little is even more dangerous since a company may
forego significant revenues and profits, but it also fixes the product’s market value position at
a low level. This low market value position is for the producer part of the marketing mix
decisions he has to make before introducing the product at the market, from consumers’
perspective it means that they perceive the product to be of low quality, and could thus be
harm causing for the new CPG. When linking the results found by Marn, Roegner and
Zawada to the sales of new CPGs, it may be concluded that when a retailer charges too little
for the new product, it may lead to lower sales instead of higher sales since consumers might
perceive the product or the ingredients / components to be of low quality and thus may
ultimately lead to lower sales of the new CPG.
On the other side, when a retailer charges a price too high – especially during the
introductory stage of the product – this may lead to lower trial probability of new products
even when the consumers perceive these product to be of high quality, since in this case they
will stay with their current brand product. This lower trial probability of the new product due
to too high prices may lead to lower sales volumes, and thus as well as with too low prices
may lead to product failure.
To summarize this paragraph about the retailer setting the price for a new CPG, we
can say that implementing the right price for a new product is a difficult but very important
process. From the figure at the right hand side presented in an article by Krishnan, Bass and
Jain (2003), we can see that it is optimal to introduce a new CPG with a medium price level
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for the first year. This is due to the reason of low level market value position for too low
prices and low consumption in the case of too high prices. Thereafter, prices should be
slightly increased up to 3 years after introduction in order to strengthen the market value
position of the new product and increase the returns from it. Finally, when the market for the
product has became tight or outdated prices will drop in order to keep selling the product.
This situation ultimately will lead to highest sales volumes for new CPGs according to
Krishnan, Bass and Jain (2003).
Finally to conclude, it seems reasonable to state that it is better for retailers to
introduce a new CPG with a slightly above low price or medium price level since this
stimulates trial probability and will thus lead to increasing sales volumes in the first few years
after product introduction.
3.3 Price promotions and the effects for sales of new CPGs
In the CPG industry, price competition between brands and products is largely
conducted using promotions. Promotions typically contain a pricing component and are
present at the point of purchase (Shankar & Bolton, 2004). The effects of price promotions
can take several forms including direct effects, substitution effects, cross-category effects and
overall store effects (Mulhern, 1997). In the special interest of this paper is the direct effect a
price promotion has on the sales of new CPGs.
Normally, most of the products promoted are established, frequently purchased items,
but we are interested in the promotional activities with regard to new products. Further
looking at price promotions, it is widely known that consumers are accessible for price
promotions and that they influence the consumer at the point of purchase since the consumer
might be tempted to buy the product by the temporal decrease in price of by the fact that they
simply cannot withstand the offer. Thus, in this way price promotions will lead to higher trial
probability and thus increases in sales volumes in the short run for the promoted products.
Ultimately, a price promotion on a new CPG may lead to higher sales volumes in the long run
since consumers become familiar with a product they never would have bought without the
price discount.
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However, promoting a product with (extremely) low prices could be dangerous since
consumers might come to adopt the low introductory price as a reference and consider the
regular price to be unacceptably greater than the price they expect to pay (Doob et al., 1969).
This adaptation of the low introductory price as a reference will be harmful for the new CPG,
since when the price promotion ends consumers will not be willing to buy the CPG anymore
because of their feelings that the regular price of too high.
Another point for the retailer to take care of is the amount of discount given during a
period of price promotions. Kalwani and Yim (1992) found that there exists a region of
relative price insensitivity around the expected price, such that only price changes outside that
region have a significant impact on consumer brand choice behavior. In other words, the
discount offered with a price promotion has to be large enough in order to attract the
consumer to buy the new CPG, due to the fact that when the price during the price promotion
falls in the region of relative price insensitivity consumers will not perceive the discount as a
promotion. The end result then will be that the promotion has no significant effect for the
sales volumes of the new CPG.
So finally, it is reasonable to state that price promotions are an effective in-store
marketing tool in promoting products provided that promotional prices are not set below a
certain lower boundary but are large enough to fall outside the region of relative price
insensitivity.
3.4 In-store displays and the effects for sales of new CPGs
Products’ normally placed within the endless rows of products available on the shelves
may not being noticed by consumers. In avoiding this problem of not being noticed by
possible buyers, in-store displays are an important tool to make consumers aware of (new)
products. As in-store displays represent the final contact point of marketing communication
(Mulhern, 1997) they can definitely be seen as an effective method for promoting new
products and thus are crucial for retail and product performance because consumers make
most brand decisions in the store, and the time consumers spend making those decisions is
extremely short according to Dickson and Sawyer (1990). Effectively managing the way in
which in-store displays are presented and the distribution of them over the retail shop can
have substantial effects on store performance (Mulhern, 1997) and thus is of importance for
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both the retailer and the producer of the new consumer packaged goods.
In the light of new consumer goods, and looking at the results from previous research,
we can conclude that in-store displays are an important tool to influence people’s purchase
decisions. In the market segment of newly introduced products this can be of importance since
many new products are bought intuitively.
3.5 Sample products and the effects for sales of new CPGs
Sample products and product demonstrations are introduced with the main goal of
making shoppers familiar with the new CPG in order to take away possible distrust and
questions about the product. According to Laroche and Brisoux (1989), the intention to buy a
particular brand is positively affected by attitude toward the same brand and negatively
affected by attitudes toward other brands in the decision set. In other words, they found
evidence that consumers will prefer products from brands they already have a feeling with
over products from newly established producers.
Because of the fact that consumers are indeed influenced by a certain kind of
familiarity with products in their purchase decisions, it is in the best interest of the producer to
minimize the negative effects of unfamiliarity with the newly introduced CPG. As David
Gefen (2000) stated in his paper: “Familiarity is an understanding, often based on previous
interactions, experiences and learning and reduces uncertainties consumers have.”
Furthermore, Luhmann (1979) has found that familiarity is a precondition of trust. From this
it has been concluded that the influence of familiarity and trust are especially strong on
people’s intentions to purchase (Gefen, 2000). For this reason, producers decided to come up
with free sample products and started giving product demonstrations in shops in order to
increase familiarity with the product / brand among customers and to be able to take away any
doubts customers might have about the new product, all for the higher goal of increasing sales
volumes of new CPGs.
So in short, product demonstrations and sample products are an effective in-store
marketing tool since they make customers aware of new products and give them the
possibility to become familiar which in turn will lead to trust in the new CPG and higher sales
volumes due to successive future sales.
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3.6 Chapter overview
All in all, from the overview of in-store marketing tools provided during this chapter
we can conclude that all of them can have a positive effect, if used correctly, on sales numbers
of new CPGs. As we have seen, familiarity and trust in a new product could be obtained by
organizing product demonstrations and providing consumers with free sample products. This
is probably the most important step in creating a bond with the consumer for the new CPG.
Since consumers tend to reduce their risks and thus are in some way risk avoidant, trust and
familiarity with a new product may help in convincing the consumer to buy the new CPG.
Once familiarity and trust have been created via product demonstrations and free
samples, the consumer could be tempted to buy the product by setting a good retail price, and
temporarily offer a price promotion for the new CPG. This could lead to higher trial
probability as it positively influences the consumer at the point of purchase and thus
ultimately leads to higher sales volumes of the new product.
Finally, observation of new products in a shop could be increased by way of
increasing the total number of shelf facings and by presenting them on catchy looking in-store
displays delivered by the producer in order to increase the chance that people will buy the
product.
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Chapter 4: Moderating influences
This chapter will describe the moderating influences with respect to the effects in-store
marketing has on the sales of newly introduced CPGs. The moderator of interest for this
research will be consumers’ risk avoidance. We will elaborate on the moderating influences
of consumers’ risk avoidance on the relationship between some of the in-store marketing tools
described in chapter 2 and 3 and sales of new CPGs.
The in-store marketing tools of interest for this chapter are new CPG price, price
promotions and product samples. Paragraph 4.1.1 will discuss how consumers’ risk avoidance
can moderate the effects of price for sales numbers of new CPGs. Then paragraph 4.1.2 will
treat the moderating effect consumers’ risk avoidance has on the relationship between price
promotions and sales of new CPGs. Thereafter section 4.1.3 will do the same for the
moderating effects on the relationship between sample products and sales of new products.
4.1 Consumers’ risk avoidance as a moderator
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The impact of price, price promotions and sample products on consumer purchase
decisions for new products and thus for sales numbers of new CPGs is in part dependent on
the risk avoidance of consumers. For the purpose of this study, the broad term consumer is
split up into two separate groups namely the Risk Avoiding Consumer (RAC) and the NonRisk Avoiding Consumer (NRAC). The RAC could be typified as perceiving changes and
new products as a threat, combined with a personal belief that one could be potentially
harmed (Brewer et al.,2007) by the product. This perceived risk affects people’s risk attitudes,
which in turn determines their behavioral intentions towards that risk (Brewer et al., 2007). In
contrast, the NRAC could be described as curious, and open for trying new innovations.
4.1.1 The moderating effect of consumers’ risk avoidance on the relationship between price
and new CPG sales
As was already mentioned in section 3.2, the relationship between price and sales is an
inverted U-relationship. That is, sales will be optimal at a given price and for prices lower or
higher than the optimum price, sales will be lower. Now it is interesting to see what the
effects of a higher price are for the sales of new CPGs under RAC and NRAC.
With the common economic assumption that quality (hence value) and price are
positively related, and thus a higher price reflects higher costs of production per unit
(Steenkamp and Hoffman, 1994), with lower quality items costing less (Schwartz and Wilde,
1985) in mind, it is reasonable to state that a higher new CPG price will have a less negative
effect for sales in case of a RAC than for a NRAC as long as the new CPG price will not be
higher than the optimal price. A reason for this could be found in the fact that the higher price
will be perceived by the RAC as a kind of certainty that will (partly) take away their feelings
of risk and distrust with the new product, while the NRAC could be discouraged to buy
because of the high price.
4.1.2 The moderating effect of consumers’ risk avoidance on the relationship between price
promotions and new CPG sales
With regard to price promotions, earlier in this research defined as a temporal
reduction, large enough to fall outside the region of relative price insensitivity of the regular
price level, a distinction can be made between the effects on sales numbers of new CPGs for
RAC and NRAC as well. In the case of the risk avoiding consumer, a price promotion will
have a bigger positive effect on sales than for the non-risk avoiding consumer.
An explanation for this could be found in the fact that the price promotion for a new CPG in
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which the RAC normally would not be interested in due to his feelings of uncertainty about
the product will weaken the risk perceived by the RAC. That is, the personal belief that one
can be potentially harmed (Brewer et al., 2007) by a new product will be weakened since the
temporarily lower price means that the risk of spending money on an unknown product will
drop and may convince the RAC to try the product.
For the NRAC, a price promotion might have a positive effect as well although not as
positive as with the RAC. This could be explained by the fact that the NRAC already could
have been buying this product before the price promotion was instigated because of curiosity
and his tolerance to new innovations.
4.1.3 The moderating effect of consumers’ risk avoidance on the relationship between sample
products and new CPG sales
With the main goal of providing sample products and product demonstrations being
bringing the new CPG under interest of the consumer, and making them familiar with the
product, it is probable that they play a positive role in the sales volumes of new CPGs. Now it
is interesting to take a look at what the effects of them are for the purchase decisions of RAC
and NRAC. In case of the risk avoiding and somewhat reserved consumer, sample products
and product demonstrations can play an import role. Therefore it is reasonable to state that a
free sample will have a larger positive effect on sales of RAC than for sales of NRAC.
This conclusion is based on the fact a free sample or product demonstration will take
away the risk perceptions, which often depend on consumers’ interpretations of the situation
at hand (Pennings, Wansink & Meulenberg, 2002). The risk perceptions of the RAC will be
declined by sample products / product demonstrations because these marketing measures give
them the opportunity to experience and learn about the product, which in turn are fundamental
issues in becoming familiar with a product.
For the NRAC, familiarity and trust in product are not of that importance in their
purchasing decisions, since they might be willing to buy the new CPG without a free sample /
product demonstration as well due to their curiosity.
So to conclude, when someone is a RAC, providing consumers with free samples will
have a more positive effect on new CPG sales than is the case for NRAC.
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Chapter 5: Conclusions
In this final chapter the conclusions, a discussion about the limitations of this research
and some managerial implication will be given. First of all, the conclusions drawn from the
literature research done will be presented. The second paragraph will provide limitations of
this research followed by some suggestions for future research. Finally, section three will give
the managerial implications drawn from the results of this study.
5.1 Conclusions of the study
The central question under investigation in this study is: How does in-store marketing
contribute to the sales of new CPGs, and how does consumers’ risk avoidance influence this
relationship?
In the literature about in-store marketing five tools were identified, and their
influences on product sales were described. Those five in-store marketing tools are frequently
used in combination with each other, in order to strengthen the effects the tools have
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separately.
It was found that all five tools have their positive contribution to new CPG sales,
although it must be said that some of the tools might have negative contributions when not
used properly. This is especially the case for the determination of the retail price, price
promotions and the number of shelf facings for a new CPG. The inverted U-relationship for
the number of shelf facings told us that when too much or too little space is allocated to the
new CPG, sales of this product might suffer under it.
For pricing, there seems to be an inverted U-relationship as well. Even though setting
the retail price is a function of demand and supply, a retailer must be careful in the decision to
implement a certain price for new products. As well as with shelf facings, a price being too
low may release a feeling in consumers which tells them that the product is of low quality.
Besides that, a new CPGs’ price being too high may lead to lower sales volumes as well, since
consumers are unwilling to spend lots of money for a new, unknown product.
The relationship between three in-store marketing tools (price, price promotions and
sample products) is moderated by consumers’ risk avoidance, since the effects for new CPG
sales of the in-store marketing tools for risk avoiding consumers (RACs) are different from
the effects for non-risk avoiding consumers(NRACs). It was found that the effects for RACs
are less negative in the case of higher prices, and more positive in the case of bigger price
promotions and sample products / product demonstrations.
5.2 Limitations and suggestions for further research
In this paper, the focus of the research was limited to the effects in-store marketing has
on the sales numbers of new CPGs. In-store marketing in this research has focused on the well
known marketing tools available at the shop floor. However, the recent developments in hightech in-store advertisement methods like multi-touch screens, Smart Networks, 3-dimensional
projections and even speaking shelves have not been incorporated in this paper.
Another limitation is the fact that this research has focused on the normal retail shops
and products. Discounter retail shops have not been incorporated in this research.
For future research it is suggested that the somewhat contradictory findings on the
exact effects of increases in the number of shelf facings on consumer attention is tested to see
how strongly it actually influences the sales volumes of new CPGs.
Furthermore, it will be interesting to investigate what changes the new high-tech in-
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store marketing tools, as mentioned above, will cause in the sales volumes of new CPGs. The
effects of those high-tech in-store marketing developments have not been researched yet.
Although it is reasonable to belief that they will have positive influences on sales as well,
research will be needed in order to state things with certainty.
Finally, it will be important to expand this research in order to find out what the
effects of the in-store marketing tools mentioned in this paper for the sales of products sold in
discounter retail shops will be.
5.3 Managerial implications
In-store marketing has been found to be an effective tool in increasing sales of (new)
products. Because of this, retail managers should be familiar with the ways in which in-store
marketing tools can provide higher sales volumes for new CPGs in order to increase the
complete shop turnover. Therefore it is suggested to them to guide the introduction of new
products frequently with marketing methods. First of all, it is advisable not to introduce a new
CPG for dump- or excessively high prices and to promote the product temporarily with price
promotions in order to attract consumers which initially were not buying the new CPG.
Furthermore, managers should be aware of the fact that the amount of space a new
product gets does influence the sales volumes of it. It is advisable not to place new CPGs
besides well running products and not to attach too much shelf space for the new CPG.
Regardless of the amount of space, managers also should think about the effects of where at
the shelves the product will be placed.
Finally, retail shop managers should be aware of the cultural aspects of the consumers
visiting the shop. When consumers are so called risk avoiding consumers (RACs), it might be
a good idea to provide them with sample products or to organize product demonstrations in
order to make them familiar with the product and to take away their distrust such that. When
nothing is done to take away this feeling of distrust among RACs, the manager might see the
positive effects of in-store marketing efforts made to promote the new CPG to diminish.
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