The Fascinating Dynamics of Strategic Product Placement

In the fiercely competitive world of retail, capturing consumers’ attention and enticing them to make purchases is a constant challenge. One powerful tool store owners have at their disposal is strategic product placement. By carefully positioning products and leveraging price promotions, you can create a domino effect that influences consumer behavior and drives sales.

The Proximity Effect in Strategic Product Placement

Recent research published in the Journal of Marketing sheds light on the proximity effect in product displays. The study reveals that the location of products within a display can significantly impact consumer demand (and thus sales), depending on their substitutability with the promoted item.

Negative proximity effect

When proximal items (those placed near the promoted item) and distal items (those set further away from the advertised item) are strong substitutes, a price promotion on the targeted item decreases the sales of proximal products relative to distal products, termed the negative proximity effect.

In other words, when two products are very similar and can be used in the same way, like two different brands of potato chips, for example, the price promotion on one bag of chips can make people buy less of the chips that are placed nearby. This is called the negative proximity effect.

Positive proximity effect

On the other hand, when proximal and distal items are weak substitutes, the promoted product increases the sales of proximal products, known as the positive proximity effect.

But if the products are not so similar and don’t compete with each other, the price promotion on one can actually make people buy more of the products that are placed nearby. This is called the positive proximity effect.

For example, imagine you’re browsing through a display of t-shirts in a store. There’s a price promotion on a particular brand of graphic t-shirts. Other t-shirts placed right next to the promoted brand are different designs or styles that are not direct substitutes but still appeal to the same target audience.

Due to the price promotion on the promoted brand, it attracts more attention from shoppers. As a result, people who are initially interested in discounted t-shirts might also notice the neighboring t-shirts with unique designs or styles. The increased attention and interest in the promoted brand can spill over to the proximal t-shirts, leading to an increase in their sales.

In this scenario, the positive proximity effect occurs because the price promotion on the promoted t-shirts not only increases their sales but also benefits the proximal t-shirts by drawing attention to them and generating additional purchases. The complementary nature of the designs or styles of the t-shirts positively influences consumer behavior.

This leads us to the next concept, attention spillover and consideration sets.

Attention Spillover and Consideration Sets

Contrary to the conventional belief that price promotions draw attention exclusively to the promoted brand, the study indicates that attention spills over to the brands surrounding the advertised product. This means that consumers not only focus on the promoted item but also become more aware of the products in its vicinity.

Moreover, the analysis challenges the assumption that consumers form a single consideration set. Instead, it suggests that a price promotion can impact the likelihood of proximal or distal products entering a consumer’s consideration set.

Perhaps you’ve experienced this for yourself. Have you seen a product with a bright orange sales sticker but decided to buy another product near it instead? In this case, the discounted price may not have been as good as the alternative, or you may have been more attracted to the packaging of the nearby products.

Leveraging Proximity Effects for Success

The findings of this research present exciting opportunities for store owners and retail managers to harness the power of strategic product placement. Here are some actionable insights:

1. Exploiting Positive Proximity Effects: By understanding the positive proximity effect, managers can strategically place products within subcategory boundaries to exploit this phenomenon. For example, positioning butter cookies and chocolate chip cookies next to each other and offering a price promotion on one of the brands can draw increased attention to the less substitutable proximal item, potentially leading to a positive proximity effect and increased sales.
2. Directing Attention to Higher-Margin Brands: The positive proximity effect can also be utilized to draw attention to full-priced, higher-margin brands. For instance, placing a price-promoted refrigerated yogurt alongside refrigerated desserts can increase the likelihood of consumers considering and purchasing these higher-margin items.
3. Maximizing Loss Leaders’ Potential: Retailers often use loss leaders, heavily discounted products, to attract customers and increase exposure to other product categories. However, these products can also serve as a gateway to introduce customers to new items within a category. Discounting a product like almond milk and surrounding it with novel flavors/versions of non-promoted items, such as oat milk and soy milk, can drive trial and increase exposure to other high-margin items in the product category.
4. Leveraging Price-Level Organization: In categories where substitutability is defined by price, managers can strategically place lower-margin items close to price-promoted items during promotions. By strategically placing lower-priced wines next to price-promoted wines, the store increases the chances of selling those lower-priced wines as well, capturing the attention and interest of consumers who are attracted to the discounted cabernet.

Paradux Media is your partner for sales success.

Whether your company sells products in person or online, we can help you achieve your goals. Our team at Paradux Media Group has spent decades in marketing, helping companies in various industries develop marketing strategies and implementing plans that work. We will work with you to understand your strategic goals and help you implement budget-minded marketing initiatives to achieve success. Give us a call today to get started.