Skip to content
Assortment Optimization: How To Balance Breadth And Depth
DotActiv TeamSep 29, 2023 3:45:00 PM11 min read

Assortment Optimization: How To Balance Breadth And Depth

Effective assortment optimization is both an art and a science. And it's easy to find yourself grappling with this central challenge: how do you strike the perfect equilibrium between assortment breadth - the variety of products - and depth - the quantity stocked? This balance is not only critical for inventory management but also shapes the very identity of your store and your relationship with your customers.

Quote On Assortment Optimization

Why is this balance so pivotal in assortment planning? A retailer's product mix reflects its understanding of consumer desires. Lean too heavily towards breadth, and you risk overwhelming choices. Focus too much on depth, and you may find slow-moving items monopolizing your valuable shelf space. Striking the right product mix balance is more than inventory management; it's about resonating with and anticipating your customer's ever-evolving tastes.

So, how do retailers navigate this product assortment tightrope? It begins by tuning to market signals, utilizing advanced analytics, and being receptive to consumer feedback. This process, while intricate, equips them with the insights to harmonize breadth and depth, ensuring products not only find their place on the shelves but also align with the shifting sands of consumer demand.

Breadth Vs. Depth Setting The Stage

Breadth vs. Depth: Setting the stage

You could argue that two terms often dictate the strategy behind what products line the shelves and in what quantities: breadth and depth. Understanding these terms in the context of a retail assortment is crucial for anyone aiming to optimize their inventory and cater effectively to their target audience.

In the context of assortment optimization, breadth refers to the variety or range of products a retailer offers. 

For example, a bookstore with a broad assortment might carry titles spanning from fiction and non-fiction to graphic novels, cookbooks, and children's literature. The key advantage here is that such a store can cater to a diverse set of customers, ensuring that almost everyone walking through its doors finds something of interest. However, the challenge is that while the store might carry a wide variety of genres, it might not have a comprehensive collection within each genre.

On the other hand, depth pertains to the number of units of a particular product or Stock Keeping Unit (SKU) that the retailer keeps in stock. To continue with our bookstore example, a store with a deep assortment in, say, fiction, might carry multiple copies of every title from popular authors, ensuring they never run out of stock even during high-demand periods. 

In assortment optimization, depth ensures that popular items are always available, increasing customer trust and loyalty. The trade-off, however, is the risk of overstocking and having capital tied up in inventory that doesn’t move quickly.

The implications of leaning too heavily towards either breadth or depth in assortment planning are multifaceted and complex. 

If you focus excessively on breadth in your product mix, you might attract a wider audience. However, this approach could present challenges with inventory turnover and result in missed sales opportunities due to insufficient stock of popular items. Imagine you're a clothing store that offers countless styles but runs out of popular sizes quickly; it would frustrate your customers and could lead to missed sales opportunities.

Conversely, overemphasizing depth in your product assortment without sufficient breadth could mean that while you never run out of a particular product, you might fail to attract a broader customer base. Using our bookstore example, a store that stocks hundreds of copies of a few bestsellers but lacks variety might lose out on the diverse clientele looking for niche genres or new authors.

The balancing act between breadth and depth is a strategic decision you must make to ensure assortment optimization, understanding of your customer base, market dynamics, and financial constraints. The optimal mix is not a one-size-fits-all but requires nuanced understanding and constant adaptation to changing market needs.

The Allure of Breadth Catering To Diverse Needs

The Allure of Breadth: Catering to diverse needs

Breadth in a retail assortment is akin to a lavish buffet spread at a luxury hotel - offering something for everyone, from the discerning gourmet to the experimental foodie. At its heart, a wide-ranging product variety ensures that the vast spectrum of customer tastes, preferences, and needs find representation on the store shelves.

You can cater to diverse needs

One of the primary benefits of embracing breadth in your product mix is the capacity to cater to diverse customer demographics. 

Consider a large department store like Macy's. Within its walls, you can find clothing for men, women, and children; a wide variety of cosmetics; home goods; and even electronics. This breadth ensures the store can attract families, singles, the fashion-forward, the pragmatic shopper, and more, all under one roof. It's about maximizing foot traffic and ensuring repeat visits because customers believe they can find 'something for everyone' there.

But you can overwhelm customers with choice

However, this wide net of product variety isn't without its challenges. There's a fine line between offering choice and overwhelming a customer. 

A study on consumer choice by the University of Washington revealed a compelling insight into assortment optimization: when presented with 24 varieties of jam at a tasting booth, consumers were less likely to purchase when compared to instances where they were offered six varieties. The paralysis of choice is real and retailers must be strategic about the breadth they offer to ensure it doesn’t deter purchase decisions.

You can become a one-stop shop

Breadth also plays a crucial role in addressing a broader set of needs. 

Let's take the example of a pharmacy like Walgreens. Beyond merely dispensing medicines, they offer a broad product mix that includes health and beauty products, snacks, office supplies, and more. This strategy ensures that a person coming in for a prescription might also pick up a pack of pens, a moisturizer, or a bag of chips, addressing diverse shopping needs in one visit.

But you can strain your inventory management processes

Moreover, managing a vast product assortment spanning countless items can strain inventory management processes, making assortment optimization a critical task. Stocking a little of everything means a higher likelihood of some products turning into dead stock, especially if proper demand forecasting isn't in place. 

Misjudged breadth can also lead to stockouts of high-demand items, which, in turn, can result in lost sales and disappointed customers.

While the allure of breadth in product mix is undeniable in catering to customer needs, it demands an astute assortment planning strategy and meticulous inventory management to harness its potential benefits without succumbing to its inherent challenges.

Delving into Depth Ensuring Availability

Delving into Depth: Ensuring availability

Depth in your product assortment is much like the comforting assurance of a well-stocked pantry during a festive season, emphasizing the importance of assortment optimization. It promises abundance, ensuring that the demand, especially for top-selling items, is consistently met without the anxiety of shortage. In the context of retail, depth signifies the commitment to keeping products not just in stock but in ample quantity to satisfy customer demand.

You can build trust

A primary advantage of depth in your product mix is its potent ability to build trust and loyalty. 

Think of a coffee shop like Starbucks. If every time you craved their signature Pumpkin Spice Latte during fall, they ran out, you'd likely grow disillusioned and might even consider alternatives. A consistent stock ensures customers can rely on you to provide their favorite products whenever they desire, reinforcing brand loyalty.

But you could tie your capital in excess inventory

However, there's a flip side to this assortment optimization strategy. Overemphasis on depth can lead you to tie up your capital in excessive inventory. 

For example, a toy store that overstocks a particular toy based on a fleeting trend might sit with a surplus once the trend wanes, leading to markdowns or write-offs. Such situations strain cash flow and can compromise the ability to invest in other areas of the business.

Moreover, managing depth in assortment planning requires a nuanced understanding of demand. Retailers need advanced forecasting tools, real-time sales data, and keen market insights to strike the right balance. Overstocking ties up capital. But it also demands additional storage, which might escalate costs.

You can avoid out of stock situations

A significant pitfall that depth helps retailers avoid is stockouts. Stockouts are not merely an inventory problem; they represent missed sales opportunities and can tarnish your reputation. 

A study conducted by IHL Group revealed a startling insight into assortment optimization:t globally, stockouts lead to over $1 trillion in missed sales annually. The damage isn't just immediate. Customers finding you don't have items could abandon their purchase and rethink future visits, impacting your long-term sales. Ensuring depth, particularly for in-demand products, safeguards against these missed opportunities and reinforces customer loyalty.

While depth is a cornerstone of ensuring availability and bolstering customer trust, it's a delicate balance. Retailers must deftly navigate between the assurance of abundance and the potential pitfalls of overstocking, always keeping an eye on the ever-changing pulse of consumer demand.

Data-Driven Strategies For Product Assortment Decisions

Data-driven strategies for product assortment decisions

Today, you no longer need to rely solely on gut feeling or historical trends when making crucial assortment planning decisions. Data analytics has emerged as a powerful ally, enabling you to scrutinize past performance, predict future trends, and optimize your assortment planning strategies with precision.

At the heart of this evolution in assortment planning is the understanding that customer preferences, market dynamics, and seasonal trends continuously change. 

For example, a clothing retailer might notice that pastel colors, which were in fashion last spring, have been replaced by earthy tones this year. By leveraging data analytics, you can observe this insight as the trend emerges rather than during or after, allowing you to adjust your assortment breadth in real time.

Beyond insights on product variety, data also plays a pivotal role in optimizing depth in your assortment optimization strategy. Tools that measure metrics such as days of supply (DOS) - how many days a product lasts in-store before you must restock your shelf - provide valuable insights. A high DOS indicates a product is in demand, suggesting you should increase depth for that particular item. Conversely, a low DOS might indicate overstocking or waning demand, signaling the need to dial back.

Another essential metric is the inventory turnover rate, which measures how often your inventory is sold and replaced over a chosen period. For example, if a bookstore has a high turnover rate for specific titles, it implies consistent demand. On the other hand, a low turnover rate might suggest that the depth is too significant or that the breadth needs recalibrating, perhaps by introducing newer titles or genres.

Demand forecasting tools and software have become indispensable assets in modern assortment planning. These consider historical sales data, market trends, seasonality, and even socio-economic indicators to predict future demand. 

A toy store, anticipating a surge in demand for board games during the holiday season, could leverage these assortment optimization tools to make informed decisions on how much to stock, ensuring they neither run out nor overstock.

Adapting To Changing Market Dynamics

Adapting to changing market dynamics

Retail, much like life itself, remains in constant flux. Whether it's the rise of a new fashion trend, the release of a groundbreaking tech product, or a global event that shifts consumer behavior, the retail landscape is ever-evolving. Agility in retail assortment planning is not just a competitive advantage; it's an operational necessity.

Consumer demand continually changes

Consider the massive shift in consumer behavior during the Covid-19 pandemic. As individuals sheltered in place, there was an unprecedented demand for home exercise equipment, DIY craft kits, and home office furniture. Retailers who could rapidly adapt their assortment to this shift profited immensely, while those rigid in their approach struggled. This example underscores the need for agility.

Consider the impact of seasonality

Seasonality is another crucial factor. For a store specializing in outdoor equipment, summer might mean stocking up on camping gear, while winter would call for ski equipment. 

Understanding these shifts and adapting your product mix in terms of breadth and depth is paramount for successful assortment planning. 

If such a retailer were to overstock on camping gear in winter, it would not only tie up capital but could also result in aged stock by the time summer arrives.

Keep up to date with market trends

Market trends also play a pivotal role in shaping your product assortment. The rise of sustainable and eco-friendly products in recent years is a testament to this. Retailers attentive to this shift began incorporating more sustainable options in their assortment, broadening their reach to environmentally-conscious consumers. 

Those who lagged not only missed out on sales but faced potential brand image challenges among the eco-aware demographic.

Factor in consumer feedback

Consumer feedback is an invaluable asset in assortment optimization. 

In an era of online reviews and direct consumer-brand interactions via social media, your customers are more vocal than ever. 

Let's say, for example, you're a footwear retailer. You receive feedback about a particular shoe style causing discomfort. It's an immediate signal to re-evaluate the depth of that product, possibly introducing alternative designs that address the concern.

Strategies for continuous adaptation include investing in real-time data analytics tools, fostering open communication with consumers, and staying updated with industry news and market research. 

Regular inventory checks together with periodic assortment reviews, can also help you gauge the effectiveness of current strategies.

Adaptability is vital in assortment optimization. Commit to continuous learning, evaluating, and iterating to ensure your product assortment remains relevant, enticing, and in tune with what your consumers demand.

Conclusion

Assortment optimization is not just a strategy but is crucial to your longevity and success as a retailer. As market trends ebb and flow, having the right tools and strategies is paramount. Experience the difference firsthand; try a free trial of our software today and elevate your assortment planning efforts to meet tomorrow's consumer demands with precision and confidence.

avatar

DotActiv Team

The DotActiv team comprises category management experts lending their retail experience and knowledge to create well-researched and in-depth articles.

RELATED ARTICLES