In the not-so-distant past, store layouts were often designed from an operational perspective, with a focus on business efficiency and space management. This approach at times did not integrate the consumer and how their experience impacts sales, positively or negatively. The increased adoption of planograms has had a significant impact on this. It was discovered that shelf utilization, product placement, and visual appeal of a layout impacts consumer behavior. This led to creating retail space around consumer behaviors and needs, directly impacting sales and margins while improving the customer experience.

When creating a retail program, the planogram is often one of the last milestones along the way. For this reason, planogram creation is often a rushed process as timelines get compressed in the very valid interest of ensuring manufacturing lead times, order dates, fixture/signage creation, packaging creation and approval, reset availability, and many other items impacting one’s ability to roll out a program. But when you think about it, there are several things the consumer actually sees after a program is executed: product, pricing, packaging, signage, and planogram. The latter is an item the consumer sees without realizing what they are seeing. It is part retail science and part retail magic. It is part paint by numbers and part Bob Ross. It is the hidden 3D image inside a bunch of colored dots. For this reason, we thought we would slow down a bit and focus on the planogram, which often pulls a program together.

What exactly is a planogram?

Merriam-Webster defines a planogram as, “a schematic drawing or plan for displaying merchandise in a store so as to maximize sales.” Put simply, a planogram is a visual merchandising tool that focuses on product placement. They provide a visual representation of aisles, displays, and point-of-sale, and show the exact shelf where an item will be placed. Planograms help plan the use of retail space and can help gather data to improve visual merchandising choices to help drive sales and margin.

The complexity of a planogram may vary with store size, needs of a retailer, and software available to assist with planogram creation. They can be as simple as a photo of a preset section or more complex to include numbered peg holes and shelf notches to show the exact placement of each product.

With 70% of purchase decisions being made in stores, and 38% of unplanned sales coming from point-of-purchase (POP) displays, there’s a lot of opportunity to influence consumer decisions. A planogram is an important part of the consumer’s journey—the final tool to engage them and sway their buying decision.

How Are Planograms Used?

Big box and larger retailers may have their own visual merchandising specialist on staff to develop planograms. If an internal role is not warranted, sometimes third-party experts can play a role by leveraging their skills and experience to execute planograms.

From the retailers perspective, when planograms are informed by localized demand forecast data, they can be optimized by store to better meet shopper needs at every store in the network. Planogram creation also provides an opportunity to have a second pair of eyes to look through (such as suppliers) and comment on what can be done or is being done by other retailers to yield an improved return. This perspective can be invaluable.

For suppliers, planograms are used to show the amount of space they feel retailers should allocate to various brands based on product popularity, sales, and margin. Even though a retailer may not ask for input, suppliers often create versions of a planogram to show ideas on how products can be displayed. Planograms can also play a role in inventory control, helping determine the amount of inventory to keep on hand per the shelf space allocated to each product.

What Benefits do Planograms Provide?

Product placement impacts purchase behavior and therefore can be used to create strategies to capitalize on sales opportunities. Taking into account historical sales data, comparing that to a planogram to see which products sold most, and where they were located can help plan product placement. Balancing the historical data with market and product category trends can be important in communicating these trends via a planogram.

Better product placement and improved sales and margin are just a few reasons planograms are utilized. Planograms provide many other positive benefits as well:

• The ability to assign selling potential to each square/lineal foot of space

• Tighter inventory control and reduction of out-of-stocks

• Improved product replenishment for store teams

• Better comparable product positioning

• Enhanced visual appeal for consumers

• More effective communications of displays

• Have a positive impact on product development by considering planograms and space restrictions ahead of product development, thus enabling suppliers to achieve optimal product dimensions to best serve retail execution

What Are Some Best Practices for Creating Planograms?

Knowing the consumer, the market (local, regional, national, global, etc.), and measuring performance can be quite informative on how a planogram is created and iterated.

As retail has consolidated, understanding the consumer has become increasingly challenging because there is not “the”, but it is more likely to be “they”. Often, a planogram has become the swiss army knife of retail, serving the needs of many consumers from the format of one. To balance this one size fits all mindset retailers have started adopting market/zip code/demographic-based planograms, often referred to as “market assorting”. While this has become a hot trend in retail, serving the needs of many by needing to explain how retail can effectively compete with e-commerce, or reduce inventory, or increase sales through improved relevancy, many retailers have started realizing the downsides such as increased complexity, increased item count, increased lead times to make changes, and difficulty to show tangible gains. In many cases, the pendulum is beginning to swing back towards the center. While it makes sense that rarely one planogram can serve the dynamic needs of all consumers, it is becoming increasingly concerning how many planograms are needed to serve one retailer’s consumers.

When it comes to data, adding basic item-level performance data (information on how a product sells) to a planogram helps differentiate one product from another, beyond product dimensions. Forecast data can also be combined with historical data. Forecast data takes into consideration the expected future behavior based on certain factors, including price sensitivity, seasonality, and promotional events.

When deciding on where to place products, keeping several factors in mind will help maximize the efficiency of a planogram:

• Price point progression

• Type of product grouping

• Brand grouping

• Application/solution grouping

• Size grouping

• Like item grouping

• Good, Better, Best (and sometimes Premium) quality grouping

On average, a store set will be 8 foot wide by 8 foot high store set, equating to 64 square feet of space to work with. This can be an overwhelming amount of space for the consumer. By optimizing space utilization, this can help the consumer narrow their selection down to a 4 foot by 4 foot (16 square foot) section, ultimately reducing their search area by 75%. To do this, items can be grouped by type, application, and problem solution. It can be narrowed even further to a 2 foot by 2 foot (4 square foot) section, by focusing on product color, how retail price moves from high to low, and how brands are laid out to help in consumer selection. It’s important to think about it from the individual product level as well and understand that packaging, QR codes, individual item pricing, and brand can all impact buying decisions.

Planograms are most effective when they maximize all dimensions of the space. It’s not just the left to right and top to bottom, but depth as well. Some methods to utilize depth are:

• Waterfall racks

• Different peg depths to allow for product depth without having to sacrifice breadth

• Utilizing the bottom shelf to accommodate larger length and weight items

• Utilizing areas of the planogram that are typically out of the consumer’s reach to execute signage in the interest of helping consumers narrow the selection

• Utilizing the sides for signage and or additional products

Consumers and products are not one size fits all scenarios when it comes to price point. Even the role price plays in consumer decision-making across product categories is varied. Making decisions within a planogram such as to merchandise by brand, whether to separate by putting national brands together and then private labels in a different section of the planogram, or to intermingle brands, affects how a consumer perceives the retailer and the product category. As retailers continue to attempt achieving higher average tickets to cover fixed overhead such as brick and mortar structures, accomplishing this via planogram excellence creates significant opportunity.

With the growth of e-commerce, considering “ship to customer” options is a relatively new decision point when creating a planogram. Not every product that is offered has to be included in the set and will depend on the product mix. When considering this option, some things to consider are whether this is a viable option for products and what the cutoff would be for what goes online versus in-store. The “ship to customer” option also creates challenges in how to best communicate its availability to consumers.

What are the Challenges that Come Along with Creating Planograms?

It’s important to understand the challenges that may be faced when creating planograms. Here are a few to be on the lookout for:

• Product features - The more features a product has, the greater challenge in creating a planogram. It will be important to determine which features are most valuable to consumers and help them filter out the many options.

• Brand relevancy - The more brands in a category, both national and private label, make it harder for consumers to filter the options

• Retail price differences along the product continuum (Good, Better, Best (and sometimes Premium) quality grouping)

  • The greater a spread from the top retail price to the opening price point (lowest-priced item in the line) creates challenges for the consumers to justify moving to the “Best” product, making it more critical to provide the consumer with the information that will help them make a decision

  • The smaller a spread from the top retail price to the opening price point creates challenges for the consumer to move off the opening price point, making it critical to have clear product delineation (brand, packaging, feature sets, etc.) for the consumer to see value in moving to higher quality products

• The number of levels of product quality

  • Too much selection can frustrate and confuse consumers and cause the loss of a potential sell

    • We recently walked a set with a client and pointed out how the set had 6 levels of quality (good, gooder, better, better-yet, best, and bestest), with product all in one color and for one application. This was causing a lot of unnecessary confusion for their consumers.

    • By reducing the quality levels, introducing a national brand in the set, and creating larger gaps in the price progression gives the consumer an improved understanding of each product’s purpose. 

• Managing sets appropriately

  • Not all sets will need the full 8 feet

  • When it comes to product placement, some product groups don’t mesh well together based on dimensions

  • Some products will be lengthy and eat up space with little room for flexibility, like brooms (skinny handles, wide ends)

There’s no denying that a lot of planning and effort goes into creating a planogram. But the benefits that it yields far outweigh the required effort. Not only does a planogram help maximize space and increase sales and margin, but it also helps focus efforts on the needs and desires of consumers.

As you are developing or improving planogram efforts, if any questions arise along the way, we’re here to help.