Leverage Destination Categories to Increase Store Traffic

The number of store visitors – the footfall in physical stores – is a crucial success driver of every retail business.

To increase the number of visitors, retailers often leverage prices and promotions (heavy advertising included). In saturated markets with pressing competition, both instruments are often played too heavily – eroding profitability whilst not really building a loyal customer base. We know how “ungrateful and opportunistic” price-sensitive shoppers can be. Once the promotion is completed, price-seekers simply switch to another retailer.

Neuromarketing reveals the reason for that.

Price differentiation relies heavily on rational responses. As in all relationships: without an emotional attachment price-seekers easily exit the relationship with the retailer and chosen store.

Loyalty and repeat purchases – the “pull power” of the store – are increased by triggering an emotional connection with the customer. The richer the emotional content of a store’s mental representation, the more likely the customer will become a loyal user. As behavioural economist Kahneman says in his TED talk The riddle of experience vs memory: “We choose between memories of experiences.”

In short: emotional responses usually override rational ones. Only tactical soundness proved by a good combination of emotional and rational triggers is a condition for a sustainable & successful retail game.

Destination categories serve as crucial marketing levers for increasing store footfall in a sustainable way.

They are the excellence points of the store where people voluntarily spend more time. They stop, browse, and engage. They share attention. Often the wide and/or deep assortment caters to more than one shopper’s sense: smells, tastes, flavours, words, colours … All combined create unique shopping experience. Just imagine the cellar with winemaker stories, cheese, sausages, samplings, spiced perhaps even with verses of poems. Thus destination categories make retailers not only different from the competition but also more valuable to the customers.

Despite the effectiveness, destination categories are still often overlooked as a prime lever to bring visitors into the store, increase foot traffic, sales, and customer loyalty.

— CONTENTS

• HOW DESTINATION CATEGORIES PULL CUSTOMERS TO STORES?
• DESTINATION CATEGORIES: DEFINITION
• HOW TO SELECT PROPER DESTINATION CATEGORIES
• INSIGHTS ON STORE CHOICE FROM RESEARCH
• 9 ELEMENTS OF PROPER DESTINATION CATEGORIES MANAGEMENT
• PSYCHOLOGICAL BACKGROUND ON DESTINATION CATEGORIES
• IKEA AND EATALY: CREATIVE WAYS FOR DESTINATION CATEGORY EXPANSION
• DESTINATION CATEGORIES AS PART OF OUR METHOD

— HOW DESTINATION CATEGORIES PULL CUSTOMERS TO STORES?

Suppose we have two customers shown in the illustration above.

Shopper A lives near grocery store A and shopper B is closer to grocery store B.

Location, location, location chirp the sparrows on the roofs of shopping malls. Related to this rule, customer A shops store A, and customer B shops at store B.

But location, location, location is not everything.

Store B might drop prices so heavily that at one point it would be insane to shop at store A (as we said, this instrument is not sustainable long-term).

But what if store B doesn’t want to lower the prices?

Then store B might offer the best selection of local & French cheeses, provide the biggest choice of fresh fish and add a provisional wine cellar where you can shop international wines. All destination categories. If those categories are valuable to customer A, the offer might attract her and lure her away from grocery store A.

Pull marketing principle which makes shoppers satisfied on a deeper, more emotional level than mere pushing of lower prices.

We can see this situation marked by a dashed line on the above illustration. Customer A drives past the nearby store A but doesn’t turn her car into the parking lot. Instead, she travels a few miles, maybe even crosses a state border (Ikea!) just to reach location B.

The principle works for other types of stores as well. From specialty shops, organic markets to shopping centres. One of them is closest to every one of us. But we don’t buy all the stuff there. Also, there is a store with the lowest prices. But we don’t necessarily buy there. One of the main reasons is destination categories (there are others but let’s leave them out for the purpose of clarity).

Back to groceries. Due to the extremely fresh fruit and vegetables, you go to a grocery store X, due to the good offer of canned vegetables you sometimes visit retailer Y, and toilet rolls and washing powders are bought from retailer Z whenever possible. All examples of destination categories.

Destination categories are thus an important generator of store traffic. They attract customers to the store and act as leverage for additional purchases.

A category role matrix comes from the Category management toolbox. We're focusing on the destination role here.

A destination category should have a high buying frequency and the potential to attract a significant share of shoppers.

— DESTINATION CATEGORIES: DEFINITION

Now, that we know something about mechanics, we might stop for a brief definition of destination categories.

Destination categories are product categories that are:

• relevant to a target group of customers
• attracting customers to come to a store or shopping center
• a powerful tool to profile a retailer
• an important promotional marketing tool

Around them, retailers can:
a) advertise special promotions,
b) organize events,
c) offer promotions and discounts as incentives,
d) prepare engaging social media content,
e) leverage data on core segments of buyers (personalization, trends, store optimization, targeted mail, etc)

— HOW TO SELECT PROPER DESTINATION CATEGORIES

The selection of the appropriate destination categories is one of the strategically most important tasks of every retailer. The retailer’s intention  must be validated by customers – the market. Customers’ feedback is the only true indicator of the suitability of the chosen destination categories.

How does the retailer select the right categories to develop them into destinations?

The first thing is to acknowledge that the selection of destination categories should be limited. Why? Because it takes time to manage the destination category. And, very importantly – it takes up valuable storage space. Thus, the retailer must resist the temptation to try to please customers in all areas at once. In this case, he quickly falls into the loop of “more is less” and gets caught in a trap of becoming average, boring, dull. Destination categories are supposed to somehow cover 5-10% of total sales, no more.

The choice of proper destination categories is helped by the following 3 criteria:

CRITERIA 1: Performance index of the category.

The market share of category X purchases from the observed retailer within the entire market. The higher the consumer demand, the more likely

CRITERIA 2: Frequency of purchase

More regularly and more frequently purchased categories are in principle better destination categories, as they tend to represent a higher long-term cost for households (eg dairy products, bread, fruit and vegetables, spreads, etc.).

CRITERIA 3: Level of penetration in households

What % of households use a certain category regularly? Despite the exceptional size of the market, tobacco products are limited to around 1/4 of households. The remaining 3/4 of households, they have no destination value. In contrast, bread, fruit and vegetables are present in more than 99% of all households!

— EXTENSION OF THE SELECTION CRITERIA ACCORDING TO SWIFT CATEGORY MANAGEMENT

With the above listed 3 criteria, we can quickly get an estimate of how suitable a particular category is to assign it a role of destination. However, the real levers come with the extended criteria. Here “smart math” and the understanding of individual categories are added to the equation. Both are an integral part of the refreshed view of category management, summarized in the principles of Swift Category Management.

For destination category success the following additional criteria should be tested:

• category share in the shopping baskets of the target group of customers: if the retailer targets afternoon customers “on the way home,” then prepared food might be a very good candidate for the destination
• categories that are often associated with other categories in the cart are better candidates (eg bread)
• priority is given to categories that better support the retail sales strategy (sustainability -> organic section; local products -> cheeses); fit with brand identity and values is linked with this as well
• how many different shopping missions does a category cover, eg mineral water appears in snacks, for dinner, supplements, meals, etc.
• scalability: can a category be scaled up or down to meet changing customer demand?
• differentiation: can a particular category serve as a unique selling proposition for customers?
• competitive advantage: are retailers able to gain exceptional advantages over competion in terms of costs, innovation, speed to market, customer service, distribution channels, etc?

These additional criteria are also closely linked to the understanding of shopping missions. If the individual destination categories start to support each other, then  1 + 1 = 3! The whole is bigger than the individual, separated parts.

Each column represents a category, a bundle of different products. Circles represent products that connect a shopping mission for a segment of customers. If the retailer manages to link the destination categories to the mission, this is a great lever for the frequency of visits and additional purchases.

— INSIGHTS FROM DESTINATION CATEGORY RESEARCH

Although the notion of destination categories has been established among retailers and suppliers for some time, the scope itself is still rather shrouded in ambiguity.

Category Positioning and Store Choice: The Role of Destination Categories by Briesch, Fox, and Dillon (2013) is one of the few studies that has used the model to measure the direct effects of increasing store visitors.

The authors collected data on nearly 400 families and their shopping habits for 80 major categories over 2 years. They were able to compare data for the 80 largest categories from 5 competing stores, including some merchandising items in the stores themselves.

Therefore, the research manages to shed new light on some facts about destination categories:

1. The four key destination categories have the same effect on store selection as the remaining 76. This means focusing on the right categories is paramount! Successful destination categories can be present in both fresh wards, dry products, and non-food categories.
2. Destination categories are not created overnight but are the result of the trader’s long-term activities. This is very different from promotional advertising, which often attracts customers to the store in the short term with “crazy” discounts on individual products. The good side of this long-term is that successful retailers permanently become the first providers of individual categories in customers’ eyes. In Slovenia, for example, French retailer chain Leclerc managed to convince customers by offering an extended range of fish, cheese, French buns, and wines. By the way: there is also a link with a unique selling advantage, as this is a French trader who uses the stereotype of world-renowned French cuisine as leverage!
3. When defining destinations, the level of penetration in households must be taken into account: tobacco products have only 23% penetration (meaning that they have zero value as a destination for 77% of customers!), On the other hand, e.g. fresh bread is present in 99.18% of households. An interesting category, which is placed somewhere in between, is certainly dog ​​food, which has a penetration of 50.8% in the research – which also our projects validate.
4. An important factor in creating “destinations” is, in addition to the frequency of purchases, also the share of income that households dedicate to each category. From the research, e.g. there is a large share of frozen products, where the income spent over a long period on frozen seafood is almost the same as for the wine category – while frozen pizzas, chickens, and ready meals are far above wine.
5. The strongest destination categories for the observed US market are fresh produce, carbonated drinks, salty snacks, fresh bread and pastry, prepared salad, crackers, beer, yogurt, cereals, coffee, frozen breakfast food, toilet paper, cups and plates, milk, dough, frozen products. With a few cultural adjustments, we can transfer this also to the Slovenian market. In this group, in particular, there is an unusual category of “ceramics cups and plates”. Over a long period, 60% of all households buy this group. Although it is not a large sales group, this group weights a destination!
6. Let’s add some large categories that are relatively weak destinations: 1) cigarettes, 2) biscuits, 3) dog and cat food, 4) cheese, 5) frozen poultry, and 6) chocolate candies. Least suitable category among the most important categories for the destination: is air fresheners! It should be noted that e.g. cheese can be an extremely good complementary destination (eg for local traders or the French trader mentioned above). The more the retailer has destinations related to their recognizable value to the customer, the stronger the seemingly weaker categories may also operate.

— 9 ELEMENTS OF SUCCESFUL DESTINATION CATEGORIES MANAGEMENT

As said, no retail success comes without cost. Destination categories require additional focus and time from the retailer’s team. Additionally, more storage space and higher inventory levels are part of the investment. However, when executed properly, this serves as a pull trigger for attracting customers, and the cost is much lower than heavy price-off promotions.

To achieve that special value which proves to the buyer the exceptionality in the field of the destination category, the retailer must combine several elements:

1. Destination categories need to be given a priority status – retailers need to devote more time to professional services, refresh planograms more often, and respond to assortment changes faster.

2. A wider and more thorough range is provided, accompanied by a faster listing of new products throughout the year; the exclusivity of individual products is also emphasized

3. More allocated space in the store. Say, coffee is your destination category. Then your store should have a wide or/and deep assortment of coffee products, underpinned with more than average shelf space. Of course, expanding on one side means shrinking on the other.

4. Stronger presence in flyers, promotional, and communications materials

5. Give special weight to those groups of products that are strongly related to the sales strategy or. a unique selling proposition. If the company cultivates an image of ingenuity, and innovation and has savoury snacks as its destination, then it is not enough to provide only dominant brands, but to also strenghten innovative products in this category, highlight different ingredients (quinoa, spinach, lentils, coconut, etc.), unusual flavors, offer additional packaging, natural lines, etc.

6. The category needs to be regularly refreshed, in-out products or special selections brought in to increase interest, and seasonality explored

7. You might build a story underpinned by influencers or expert recommendations (such as “house sommeliers” in the wine department)

8. In the physical store, the destination category should be expanded with online touchpoints (using an app, QR codes, subscriptions, etc.)

9. Destination categories also provide an opportunity to upsell with cross-merchandising

— THE PSYCHOLOGICAL BACKGROUND FOR DESTINATION CATEGORIES

When faced with a choice between multiple options, shoppers are easily experiencing information overload or decision fatigue.

Destination categories might be compared to anchors for attention.

As such they serve as mental shortcuts for customers, helping them navigate a complex set of variables influencing the store choice.

Another important factor is that destination categories are particularly important for customers. They provide a repeat satisfaction which stimulates our positive memories.

That’s why well communicated and positioned destination categories are stronger even than heavy price incentives in other categories (shown in the illustration on top).

Or with a little twist: the same price incentives have higher perceived value in destination categories compared to other categories. Though this differs from category to category based on price elasticity.

That said: let’s not forget, destination categories are strong differentiators and rewarding in itself, additional price incentives should be used selectively.

— FROM DESTINATION CATEGORIES TO DESTINATION AREAS: CREATIVE WAYS TO ADDRESS CUSTOMERS’ PAIN POINTS

In developed markets with highly intensive competition levels strictly category based destinations are not sufficient.

When grocery retailer A decides to make fresh produce as a destination, retailers B and C usually follow the leader. Soon A, B & C retailers get even. The pull power of a destination category thus diminishes.

Successful retailers know it, and upgrade categories with unique solution for customer pain points. We might talk about destination areas where the retailers play heavily around their competitive advantages. Perhaps they might leverage unique costs structure, local networks, brand reputation, better customer service, or superior distribution channels. All to differentiate more convincingly and make imitation harder.

Sometimes the categories here are joined together so that they resemble shops-within-shops.

Here is an example where categories blend together into a destination concept:

salads + refreshments + bowls + soups + sandwich options + ready meals + pastries → destination food “to-go” corner.

Once again, succesful retailers search for a particular excellence that will differentiate them from competition. They might leverage their own food preparation capabilities and thus exclude possibilities of easy imitation.

In grocery, we might say that trends lead to hybrid stores. Partially the categories are still arranged in dull, old-fashioned, grid of shelves, while specially designed destination areas allow for slowing down, more browsing, and of course emotionally charged shopper experience.

The road could lead all the way to – yes, once again – Ikea. Their stores are organized around rooms or areas that showcase different furniture styles and home decor trends. You might ask – where are destination categories in these? Well, the retailer made a task and creatively blended them together in higher concepts of a bedroom, kitchen, offices, living rooms, etc.

Another succesful example of a higher destination concept is Eataly which takes “Italian food and culture” as a destination.

— DESTINATION CATEGORIES IN #LEVERS FOR SUCCESSFUL RETAIL SPACES

The diagram above represents the destination categories by baskets marked k6, k7, and kx. They are groups of products/services in which the trader manages to take an above-average market share and become the first choice for customers.

As we said, our method #leverage for succesful store spaces is designed to help all sorts of retailers build and implement successful store layouts. Within a #leverage model, each category gets a “destination rating”. Based on this we then stretch the recommended space and assign special positions in the floor plan. Part of the model is also connecting store layout positions with category roles, which is one of the steps of category management.

Would you like to grow your business and leverage destination categories in your store project?

Order a high-quality Business Case based on input from key stakeholders that will:

1) articulate goals and objectives

2) evaluate feasibility, risks, and benefits, and lead you to an informed decision about the project

3) seriously improve ROI by providing a roadmap, setting key metrics, and optionally putting our #levers methodology to work.

I can help you in each stage of the Business Case. From understanding the business problem, gathering relevant inputs and feedback, to conducting key analyses.

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