Strategic rearrangement of retail shelf space allocations: Using data insights to encourage impulse buying

Abstract

Brick-and-mortar retailers are struggling to compete with online retailers, who increasingly use customer-generated data to provide highly customized experiences for their patrons to drive impulse purchases. Although brick-and-mortar retailers cannot offer such customization, they must identify innovative ways to transform their own point-of-sale transaction data into increased customer impulse buying. We propose a shelf allocation-relocation scheme for rearranging storewide product allocations over time to maximize impulse buying behavior. The proposed method provides a roadmap for optimally allocating shelf space when routine rearrangements of a retail store take place per store policy. To the best of our knowledge, this represents one of the first periodic storewide rearrangement studies to use customer tendencies with the current shelf arrangement as the basis for the subsequent one. We also introduce a novel approach for incorporating past transaction data insights of cross-selling elasticity into the Shelf Space Allocation Problem (SSAP) to encourage long-term new business creation through impulse purchases. The method applies insights from association rule mining to group highly affine and profitable product pairs, optimize the assignment of departments to store aisles, and determine the optimal within-aisle space allocations for the products of each department. Our major finding is that, based on the potential of generating multiple forms of impulse purchasing (visibility-driven purchasing, present-shelf impulse, and past-aisle impulse), our strategic rearrangement technique consistently outperforms visually rearranging shelf space allocations and several existing allocation techniques that utilize multi-level association rule mining, while, in many instances, exceeding the profit potential of a more traditional unchanged (one-time optimal) shelf space arrangement, depending on the nature of a retailer's target market. Our results also highlight the importance of a retailer selecting the most appropriate shelf space rearrangement strategy that fits the characteristics of its customers, especially their discretionary income level and their familiarity with the store layout.