Merchandising: The Basics

Upon successful completion of this article, the pharmacist should be able to:

1. Explain the importance of product arrangement, category adjacencies, and category space
allocation.
2. Articulate the key myths and facts surrounding pharmacy revenue and shopper needs.
3. Understand how a pharmacy’s traffic pattern can be manipulated to increase front-end sales.
4. Undertake a plan of action to improve his or her pharmacy by following the principles of good
merchandising.

Upon successful completion of this article, the pharmacy technician should be able to:

1. Discuss the importance of product arrangement of the pharmacy’s products to complement health
care shopping.
2. Define and give examples of category adjacencies and their impact on the patient’s pharmacy
experience.
3. Describe how pharmacy traffic patterns can affect the patient experience.

Merchandising Defined
In a very broad sense, merchandising is any practice that contributes to the sale of products to a retail
customer. At a retail store level, merchandising refers to the variety of products available for sale and the
display of those products in such a way that it stimulates interest and entices customers to make a
purchase.

The Importance of Product Arrangement

The impression that a retail operation makes on customers once they enter the store is what determines
much of that operation’s success. The difference is simple: customers either buy and return, or they
migrate to another retailer.

Retail pharmacy is no different from any other retailer in this respect. Customers want and expect a
certain experience when they enter a store, no matter what its focus or retailing niche. Customers of
home improvement stores, for example, typically want a wide selection of products in competing price
ranges, a store that is easy to navigate (e.g., clear, unmistakable signage and wide aisles), and helpful,
friendly staff. Home improvement retailers have complied by presenting exactly the type of environment
that shoppers want.

Arguably, patrons of retail pharmacies are first shoppers, then patients. Thought of differently, patrons of
retail pharmacies are shoppers with distinct healthcare needs. This is the area where retail pharmacy can
differentiate itself. The first steps on the path to a successful retail pharmacy are to provide the products,
services, and shopping experience that aid consumers in maintaining their health and wellness. If a
pharmacy fails to do any of these things, or does them in only a mediocre fashion, customers will vote
with their feet and eventually drift away.

It can be helpful to review the following common myths about community pharmacy. Consider how many
of them you may personally believe, and consider how that belief affects the way you operate your
pharmacy. Very simply stated, community pharmacies cannot afford to fall victim to any of these myths
and expect to survive into the future.

Popular Myths about Pharmacy Revenue and Shopper Needs

Myth #1 – Community pharmacies are places customers will always visit for prescription
medicines.

Myth #2 – Some customers will always buy products from the front-end.
 Myth #3 – The amount of sales and profit earned by the front-end is insignificant relative to
overall pharmacy operation.

Myth #4 – Since pharmacies are typically located in populated areas, a steady stream of
customers is almost guaranteed.

Myth #5 – People won’t buy something unless they come to the pharmacy specifically to buy it.
Purchasing decisions can’t be influenced simply by where products are placed in the
store.

Myth #6 – Advertising your pharmacy and providing good service at the prescription counter is all
you need to do to gain and retain customers. Once a customer, always a customer.

Belief in these myths – and basing business decisions off of them – can be seriously detrimental to the
success of a community pharmacy. For example, the pharmacist owner or manager of a drugstore who
believes Myth #1 will take for granted that her prescription medicine business guarantees her store’s
continued existence. While she turns most of her attention to catering to shoppers who travel straight
from the front door to the dispensary counter, the space along the way will be neglected not only by
shoppers but by the pharmacist herself. Therefore

• the product selection will probably be inadequate to the store’s demographic base, because
no one will be focused on studying who the typical shopper is; and
• since no effort is being made to attract customers to the pharmacy for other than
prescription medicines, customers may redirect their loyalty to supermarket pharmacies or
drug chains that offer “one-stop” shopping for other needed items.

Though pharmacies promote public health and serve as a frontline healthcare provider to thousands of
people, they are still businesses. As such, they need to operate according to the principles of good
retailing: never take customers for granted and never allow the competition to define your business.

Facts about Pharmacy Revenue and Shopper Needs

The following are facts about how community pharmacies fit in among the many retail choices available to
today’s customers.

Fact #1 – Customers have many options where to obtain prescription medicines. If they choose
a food store or mass merchant, they may never enter your store unless you give them
a reason.

Fact #2 – Yours might be the community’s only pharmacy, but your community’s residents spend
a good deal of time outside their home’s immediate area, where they are exposed to
other retailers. Entice them back to your pharmacy.

Fact #3 – The overall percentage of revenue from a pharmacy’s front-end might be as low as the
single digits. However, without a well-merchandised and well-stocked front-end, the
only factor bringing customers through the door is the prescription department, which
has many agile competitors.

Fact #4 – No matter how many people live in your pharmacy’s area, you cannot afford to take
any customers for granted. The pharmacy that succeeds is the pharmacy that
monitors its competition and differentiates itself.

Fact #5 – Whether done well or poorly, product merchandising influences purchase decisions. A
product that is not seen by your customers can’t be purchased by them. Products
arranged on a prominent endcap in high traffic area are likely to spur impulse
 purchases. Therefore you have to plan carefully where to arrange products so
customers are sure to notice them.

Fact #6 – Keeping in tune with customers’ ever-changing needs in addition to providing superior
service is the best way to gain and retain customers.

Product Arrangement is Necessary to Good Retailing

In order to remain on a level playing field with competing retailers, community pharmacies can accept the
rules of good retailing and devote the necessary resources to living up to customers’ expectations. A visit
to a variety of retailers in your area will likely reveal painstakingly arranged product displays and neat,
logical arrangement of products within their departments. Clearly there is a benefit to the effort of
merchandising. Good retailers understand that how products are displayed directly impacts how
customers view the retailer and often how many products customers buy.

Category Adjacencies Explained

Simply defined, a category adjacency is the positioning of one category, or department, near or adjacent
another category because the products in each are closely related. When customers shop one category,
they are likely to see the adjacent category as well and possibly pick up related products during the same
shopping trip.

If a customer has a cold with a symptom such as nasal congestion for which she comes to the
cough/cold/allergy section to buy a decongestant, she may also want to visit the pain relief department for
a medicine to treat the fever that accompanies her cold. When you site the pain relief and
cough/cold/allergy sections near each other, you are operating according to a logical category adjacency.
When both of these categories are located within eyesight of the prescription counter, pharmacy staff can
be readily available to counsel against over-the-counter (OTC) medication errors such as accidental
acetaminophen overdose.

Other logical category adjacencies include

• Feminine Care near Family Planning;
• Diabetes near Vitamins;
• Sleep Aids near Pain Relief;
• Healthy Heart near Diagnostics.

If it has been more than a few years since you evaluated your front-end category adjacencies, take the
time now to note where you are stocking products and whether it makes sense. Multiple factors can have
an impact on how you arrange your front-end categories, including those listed below.

• Change in shopper demographics. For example, if young families now dominate

your area that was once mostly retired couples, consider decreasing or eliminating
your home health assortment. Instead, arrange baby care items within eyesight of
the pharmacy counter.

• Fixture changes or updates. Whenever you remove or replace large shelving

fixtures, it’s a good time to evaluate your category adjacencies. If you have
changed shelving styles, you may need to make decisions about category location
to accommodate the new shelves.

• Change in purchase behavior. Your customers may be purchasing more diabetes

maintenance items than in years past. Perhaps they are trending toward more
frequent purchases of vitamins and dietary supplements. Capitalize on this known
purchase frequency by giving the best visibility to the highest traffic – and highest
margin – departments.
General Principles of Presentation
Store arrangement is one of the most basic principles of how merchandise is presented in the pharmacy.
How your shelving units are arranged depends largely upon your pharmacy’s size and shape. It may be
that you are comfortable that you have achieved the optimum shelving arrangement for your pharmacy. If
not, use the principles in this module to consider how it might be improved.

For example, you do not want shelving or displays that directly block access to the prescription counter.
Since the majority of your shoppers are coming in to pick up a prescription, you want them to be able to
reach the pharmacy counter with a minimum of inconvenience. Arrange shelving units so that they flow
with how your customers prefer to navigate the pharmacy, not so they inhibit where customers want to
walk. At the same time, you will want your customers to notice the merchandise you carry on your front-
end shelves and give them reason to place additional items in their shopping basket.

Traffic Patterns
In general, pharmacies – and other retailers – are arranged according to both observed and desired traffic
patterns within the store.
• An observed traffic pattern is one that you, as a retailer, notice your customers naturally
follow without the influence of any of the store’s efforts to entice customers in one direction
over another.
• A desired traffic pattern is the pattern that a store would like customers to follow and that it
attempts to encourage through subtle arrangement of shelving and displays.

The key term in the previous sentence is “subtle.” Customers will notice and be annoyed by overt
attempts to force them to look at a display, or to travel in a particular direction. Imagine that you place a
small display of products immediately at the front entrance, where customers are forced either to walk to
the right or left in order to get around the display. The chances of them stopping to look at the display are
very small, since they will primarily be interested in getting around the roadblock. If they do stop, they will
create an impediment to other traffic attempting to enter the store.

If you instead placed that display along the natural traffic route, slightly angled in the direction of
approaching customers, you are more likely to catch customers’ attention. They are then able to pause
and look more closely, if they are so inclined. This is one example of subtlety in positioning a store’s
shelving and displays.

Prime Selling Areas

Note that your pharmacy has certain areas which can be considered “prime selling areas.” These are
locations within the store that naturally attract more notice and generate more sales than others.
Examples of prime selling areas include
• endcaps featuring promotional or seasonal items;
• small displays on main aisles dedicated to one category’s products; and
• the area around the pharmacy counter with health-focused products.

You will want to change the arrangement of products in these areas on a relatively frequent basis. Since
these are high-visibility displays your customers will come to recognize it if the exact same products are
displayed from one visit to the next. Keep customer interest high by regularly refreshing these areas – at
least every 30-45 days – either with different products or with eye-catching elements.

Allocating Space by Category

Imagine that a supermarket serving an area populated mostly by elderly people carried a very large stock
of organic produce (which research shows is appreciated much more by younger people), or shelf upon
shelf of baby food (which again would be needed by a population consisting primarily of young parents).

Now imagine a pharmacy serving a community with a known large quantity of children that only carried a
few basic first aid items – and none of the sort with popular cartoon characters printed on them.
Or consider how inappropriate it would be for a pharmacy that fills hundreds of prescriptions for insulin to
fail to carry an adequate range of ancillary diabetes care items. In each one of these examples, the
retailer has failed to allocate the right amount of space to individual categories.

“Space allocation” means simply the number of shelves, or linear feet of shelf space, devoted to a
particular category. Space allocation can either be adequate or inadequate. It is important to understand
what shoppers are buying so you can plan your category sizes accordingly.

In supermarkets, space allocation is determined in large measure by the community’s demographics.

Observation of purchasing behavior also plays a role, as shoppers who buy one type of product, for
example fresh produce, are demonstrably more likely to buy other unrefined foods. Likewise pre-
packaged meals and convenience snack foods are often found together in the same shopping basket.

Category space allocation is not something to be accomplished once and then left alone. As communities
change and demographics shift, space allocation should be re-evaluated to ensure it is always
appropriate to the people who shop the pharmacy now – not the regular customers of five years ago.

Pharmacy Has an Advantage

Pharmacies can follow the same lead as supermarkets when it comes to deciding how much to stock in
one category or another. But pharmacy has two other added advantages. One, since pharmacies are
much smaller than supermarkets it is easier to observe and track who the typical shopper is. So many
people stream in and out of supermarkets every day that it would be difficult for staff to really know who
the “typical” shopper is. Pharmacy’s smaller focus makes personal service and knowledge of one’s
customers easier to achieve.

Second, since pharmacy dispenses many more prescriptions than it sells over-the-counter or other
products (one estimate says that two-thirds of pharmacy shoppers enter the store to pick up a
prescription), the types of prescriptions filled can provide valuable clues to what types of products to carry
in the front-end. See the continuing education module titled “Linking OTCs and the Pharmacy
Department” on Pharmacist e-Link for helpful suggestions.

Putting Yourself in the Position of the Shopper

Consider the following questions – and your answers – when assessing for yourself how presentation and
display affect the success of community pharmacy:

• How do you feel when you are shopping and find products carelessly displayed on a
shelf as though they have been shoved about by dozens of other shoppers before
you?
• What does it say to you about a store when products are placed behind the wrong
shelf label, or when shelf labels are missing, making it difficult for you to find the
correct price on an item?
• Do you come away with a good impression of a retailer when products are stacked in
such a way as to make each shelf appear overloaded or intimidating to select from?
• What if the shelves are bare in certain areas, particularly where you expect to find the
one product you need to buy?
• Are you more or less likely to continue to shop where you are always or almost always
able to find what you need without having to hunt for it or to wait for assistance?

In many ways, keeping a neatly organized and carefully merchandised stock of products is the “golden
rule” of retailing.

Action Steps to Make Merchandising Work for Your Pharmacy

1. Review the pharmacy myths and facts at the beginning of this module. Are you basing any of
your merchandising decisions on a misunderstanding of retail reality?
 2. Become familiar with your community’s demographics. A good retail consultant can help you
discover who lives within five or ten miles of your pharmacy – their ages, income levels, gender
and other important factors – and can help you draw the right conclusions about how to serve
those shoppers.

3. Know your customers and create your own profile of your “typical” shopper. You may have to
create two or three “typical shoppers,” depending upon your store’s usual customer base. One
may be a thirty-something stay-at-home mom, another may be a retired woman caring for her
husband and elderly parents.

4. Review your front-end departments’ space allocation. Is it serving the customers you have today
or the customers you had five years ago?

5. Study your competition. Visit every competing retailer, with and without a pharmacy, on your
street and in your immediate area. What are they doing well? What are they doing poorly?
Observing your competition can help you understand how merchandising can best work for you.

6. Evaluate your pharmacy’s traffic pattern. Do shelving and displays route traffic past the high-
impulse purchase areas? Are there any obstructions to natural traffic flow?

7. Review your front-end OTC product assortment, department by department and item by item.
Here a good retail consultant can be of utmost importance in helping you determine which items
you need to stock for maximum profitability. Without assortment guidance, the best you can hope
to do is guess what products your shoppers want to buy and what products will offer you the best
return on your inventory investment.

Useful Web Sites

www.instoremarketer.org
The Web site of the In-Store Marketing Institute has a wealth of content mainly available to Institute
members, but does allow non-members to view other content. In particular, view their Shopper Marketing
Glossary.

www.narms.com/
The National Association for Retail Marketing Services offers merchandising ideas and resources for
retailers of all types.

www.retail-merchandiser.com
Retail Merchandiser magazine’s online presence serves not only retailers but every segment of the
retailing industry.

Case Study 1

Paula M., a registered pharmacist with 16 years of experience managing a busy independent pharmacy,
believed her prescription department would always sustain her pharmacy’s sales. In the late 1990s, two
chain drugstores opened within one mile of her pharmacy, and one nearby supermarket added a
pharmacy to the front of their store. During Paula’s tenure, the front-end had typically contributed an
average of 13% of her store’s total revenue. As new competition opened – one of which promoted
extremely low-cost generic drugs to the public – Paula made it a point to visit each of these retailers at
least once per quarter. Based upon her observations, she made a series of educated assumptions about
the impact on not only her business but her competitors’ businesses. She also adjusted many things in
her pharmacy, as shown in detail below. She was able to maintain her front-end’s revenue, gain new
customers, and sustain her business by finding the right balance between the front- and back-ends of her
pharmacy.

Observation Assumption Adjustment to Pharmacy

Extremely low-cost generics Increased traffic and Extra attention and staff training
& very busy pharmacy staff reduced customer service regarding customer service

Large, almost overwhelming Confused shoppers and Work with consultant to determine
OTC displays reduced inventory turns ideal OTC product mix

Long walk from store No “pharmacy only” Special discounts and promotions
entrance to pharmacy customers, just one-stop to pharmacy customers on
counter shoppers products from the front-end
Well-stocked but not overstocked
shelves; a quick paint job on
Bargain-focused existing shelves to create a
High shelves and
shoppers satisfied with “boutique” atmosphere; new
“warehouse” atmosphere
“no frills” emphasis on specialty wellness
products not found at chain
retailers

Case Study 2

For this case study, read the pharmacy description below and complete the chart with your own
assumptions and planned adjustments to the pharmacy based upon the information provided in the
description. For contrast, observations of the competitor’s operation have been filled in for you.

Pharmacy Description

Location and Demographics

Goodall’s Pharmacy is located on the main thoroughfare in Dixon, the county seat of a suburban area.
The nearest large city is approximately 30 minutes away by car and has a population of 400,000. Dixon’s
population is approximately 15,000. The total population of Dixon plus the immediate surrounding
communities is close to 45,000.

Approximately half of the people who live in Dixon are employed in blue collar positions and work within
15 minutes of their homes. Roughly 30 percent of the population works in white collar professions. Most
of this group commutes to work in the large city, traveling past Goodall’s on the way to and from work.
The remaining 20 percent of the population consists of retired people living in their own homes, stay-at-
home parents, and children under the age of 18. There is no public transportation in Dixon. The vast
majority of residents travel by car.

Physical Appearance/Details
The pharmacy operates in a 2,000 square-foot space on the end of a long strip mall. It has one main
entrance on the extreme end of the shopping center, whereas all of the other businesses have doors
opening directly out to the main parking lot. Goodall’s also has a door on the “front” side, but it has been
locked and papered over in an attempt to funnel traffic through one door only, thus reducing the need for
staff to observe two entrances. The current entrance was used as a drive-through pick-up window during
the 1980s when the pharmacy was new, but it was converted to a doorway because the drive-through
was seldom used by customers at that time. A lighted sign on the “front” of the pharmacy says “Goodall’s
Rx and Gifts.” The entrance side has no sign but rather small red stenciling on the door itself that says
“Goodall.” Both the front and the side of the pharmacy have large display windows, all of which have been
papered over from ground- to eye-level to offer more privacy to shoppers inside the store.

Revenue Statistics
Goodall’s relies on prescription sales for 60% of its revenue. Twenty percent of revenue comes from
general merchandise such as greeting cards, gifts, toys, and cigarettes. Ten percent of revenue comes
from sales of over-the-counter health and beauty products. The remaining ten percent comes from sales
of snacks, candy and beverages.

Current Customers
Local school children often stop by Goodall’s on their way home from school to buy candy, chips and
soda and to browse among the toys. They are sometimes rambunctious, leading the pharmacist to post a
sign on the door advising that only one student may enter the store at a time. Many regular prescription
customers work in Dixon, close to Goodall’s, or are retired or do not work outside the home. Very few
“white collar” residents of Dixon shop at Goodall’s. There is a general sense among them that Goodall’s
does not offer the same OTC health and wellness products that can be obtained at “the pharmacy
downtown.” For prescription purchasers who commute to and from downtown, Goodall’s lack of drive-up
service is an inconvenience.

Interior Layout
Upon first entering Goodall’s, customers see a large display of seasonal items on their left and food and
beverage coolers and displays on their right. The entryway leads directly into one wide aisle that serves
as a “bowling alley” directly to the pharmacy counter in the back corner of the store. In this aisle are gifts
and other general merchandise. OTC and personal care items are accessible to shoppers who take a
sharp left turn upon entering the store, or who wander into the OTC area after leaving the pharmacy
counter.

Product Selection
Goodall’s offers national name brands of OTC products, though usually only a small selection of flavors
and sizes – usually “medicine cabinet” sizes rather than “stock up” sizes. Their out-of-stock rate is quite
high, with typically 15 percent of health and wellness items absent from their designated places on the
shelves. New items are underrepresented, as it typically takes Goodall’s from three to six months to add a
new item to its assortment. In addition, Goodall’s carries very few private label alternatives to the national
brands.

The categories of health and wellness products carried by Goodall’s include cold and allergy, digestive
health, a very small selection of diabetes care products, only a few smoking deterrents, feminine care, a
small shelf section of first aid with eye and ear care products interspersed in it, a small section of vitamins
with weight control items included in it, a combined small section of skin care and hair care, oral care, a
combined section of shaving and deodorants, and a mid-sized section of pain relief.

Observation of Assumption Adjustment to

Competition Goodall’s Pharmacy
Busy drive-through window,
serving 12 cars per hour
Bright, easy-to-read signs at
all entrances; clear way-
finding signage leads the
way to the pharmacy area
OTC area “tucked away”
within high shelves of
seasonal items and other
unrelated merchandise.
 Hard to find and hard to
shop due to heavy foot
traffic and cut-throughs from
the main aisles.
Out-of-stocks in the
OTC/personal care area are
not an issue. A wide variety
of flavors and sizes are
available.
Private label is heavily
represented in the
OTC/personal care aisles.
New items are prominently
displayed and well-signed
on end caps in the OTC
area.
The store is large,
impersonal, usually long
lines at the check-outs,
noisy and confusing
Caters mostly to the “blue
collar” population of Dixon,
with a limited selection of
higher-end OTC and
personal care products
“Off the beaten path,” a
destination store rather than
a location on the main street
through town. The
commuter population
usually shops this store only
on the weekends.
Easy to recognize from the
street, easy to park and
enter, but the path to the
pharmacy area requires
walking “against traffic”

About the Author

The retailing experts at Hamacher Resource Group combine the art of creative and strategic development
with the science of market analytics to enhance the profitability of health, beauty and wellness
manufacturers, distributors and retailers, including more than 20,000 independent pharmacies operating
nationwide. Pioneers in category management and offering strategic business development solutions
including store assessments and insights for performance improvement, objective data analysis, targeted
market research, creative marketing services, retailing strategies and more, HRG is headquartered in
Milwaukee.