If you want to maximize sales and please shoppers, there is one thing you must do. You need to offer shoppers the products they want at the right price, in the right place (location), and at the right time. Of course, it is complicated, and we won't shy away from that - there are nuances to optimizing your product assortment. However, this fact remains: assortment optimization benefits everyone involved.
Don't believe us? Consider this: the rise of online shopping (the National Retail Federation believes 2023 will be a banner year for e-commerce) and increased competition means that not optimizing your assortment puts you at a significant disadvantage. In reality, you're wasting your time without a detailed assortment plan explaining how you will cater to consumer demand. Yes, that's dramatic. But it needs to be said.
Fortunately, there is a solution. It comes in the form of specialist software and professional services such as that provided by DotActiv. More specifically, it's down to distinctive features that form part of the software and help us to drive meaningful impact through our service offerings.
What is assortment optimization?
Understanding and implementing assortment optimization best practices is the way forward for long-term success. But what is assortment optimization?
As stated above, it’s the process of determining what products you need to offer in a particular category to maximize your sales. This process includes analyzing customer demand and behavior - what do your shoppers want and how are they making buying decisions?
There is also the point that you need to understand the retail landscape and market trends. How is your competition meeting demand and acting in the face of market trends?
When you put that all together, it enables and enables you to create a product mix that appeals to your customers. They want to buy what you offer. But it’s not only that. By meeting their product needs, you maximize your sales and minimize your costs.
You can take several approaches to assortment optimization, including completing data analysis, segmenting your customers into appropriate groups, and machine learning.
Data analysis
Data analysis involves examining your sales data, any feedback from customers, and market trends in an effort to identify patterns and optimization opportunities.
Customer segmentation
As mentioned, customer segmentation comes down to dividing your customers into groups based on behaviors and preferences. With that information, you can tailor your product mix to match their needs.
Machine learning
Using specific algorithms, machine learning allows you to analyze large amounts of data while identifying patterns and trends. The trends and patterns can inform any current and future assortment decisions.
Why does assortment optimization matter in retail
By now, it’s clear that assortment optimization is worth the time and effort. Of course, saying that doesn’t get you far. It’s critical to explain it further, showing why it matters.
1. You can optimize your shelf space
Shelf space is often limited and is one of your most valuable commodities. If specific product categories perform better than others, you can stock more of these items in your stores. On the other hand, if product categories aren’t performing well, you might want to consider devising markdown strategies for these products to clear stock.
2. You can improve customer satisfaction
Assortment optimization also improves customer satisfaction. By stocking top-performing products, you can provide your customers with the products they want to see on the shelf. It originates from our original point in this article - you can offer products your customers want at the right price, location, and time.
Selecting the correct product assortment requires you to understand buying behaviors and preferences of your customers. By focusing on their needs and wants, you can improve the shopping experience.
3. You can prevent out-of-stock situations
By optimizing your assortments, you also prevent out-of-stock situations. How? By analyzing your product data, you know which products are top sellers. With this information, you can ensure sufficient stock is available to accommodate high demand.
Meanwhile, you can remove items that aren't selling, which could lead to dead stock as you struggle to move it out of your store.
4. You can have a product range that suits your space
Following on from preventing an out-of-stock situation, efficient and strategic assortment planning, and optimization ensures that your stores have a wide and deep range that considers your space.
That means you reduce the possibility of overstocking your stores with items that won’t sell. Again, that can lead to dead stock situations, which has a far-reaching impact.
How can DotActiv help you optimize your product assortment?
When it comes to optimizing your product assortment using DotActiv, we have a specific tool. Known as our Range Optimizer tool, we designed it to help you determine your full range based on the rules you apply.
1. Unpacking DotActiv Range Optimizer's features
You can use these pre-set rules collectively to form a template to create a suggested range that considers your space limitations.
So how does this tool speak to help you optimize your assortment? There are multiple ways, including through the following features:
Range caps
This feature limits the number of products for a category or cluster and helps you ensure your products fit on your gondolas. You can thus use your available shelf space to justify your range caps.
Because we visually show you this while you range, you know how items look on the shelf before placing them there. You thus have an opportunity to spot range gaps.
Product performance
This contains various functions such as Points Highlight and KPIs, which you can use to analyze the performance of your products.
Brand profiling
By correctly labeling your product, you can offer your customers a range of products according to a customer profile and market. Once you’ve profiled your range within Economy, Mid-Tier/Standard, or Premium, you can modify it to suit the region based on the location of your store.
We use Living Standard Measure (LSM) as a rule as a measuring factor to understand what the range should look like for a particular store. The DotActiv software enables you to classify product lines and brands within the LSM levels by comparing similar clusters within different regions.
Latest sales
Using the latest sales data allows you to understand what customers are buying. You could also consider this to anticipate future trends and cater timeously. It also allows you to justify the space you allocate to products.
In short, you can ensure that only products that deserve the space get the space. You can also streamline your inventory management. By only keeping high-performing or fast-selling items, you can improve your return on investment, experience fewer out-of-stock situations, and avoid overstocking poor-performing products.
Range / Summary Grid / Hierarchy / Planogram views
With your Range view, you can see your proposed range and understand performance data, points, range recommendations, POG indicator, supply indicator, and more for each product.
You can view your proposed range across your clusters in the Summary Grid view, thereby allowing you to compare your various indicators - POG, Supply, and Disc alongside your product information.
The Hierarchy view function provides a view of which categories may be over-ranged, under-ranged, and perfectly ranged, allowing you to tweak where necessary.
Finally, in the Planogram view, your proposed range will appear as your linked planogram with a red shelf across each cluster to delist products and a green shelf to add new lines to the planogram.
2. Diagnosing assortment problems with DotActiv software
The DotActiv software helps you diagnose problems. With this information, you can optimize your assortment effectively and timeously.
It does this through various indicators, namely:
- There is a warning highlight that shows when a product has no classification
- If the score is low when running rules in the Range Optimizer, it’s a bad sign
- If the supply column is red, it means you’ve chosen too many items
- Congestion indicators show if the product is congested. Congestion happens when each product on your gondola has one facing and the percentage of space is high. In reality, you’d want to have at least two facings on your gondola to give your products a fair chance to perform.
3. Delivering impact with DotActiv’s Assortment Optimization service
Optimizing your assortment is critical to your long-term success. That much is true. However, as a provider of category management solutions, software isn’t your only option. We also provide category management services.
To ensure range optimization, we offer an Assortment Optimization service and follow a set process to deliver meaningful results. This process forms part of our internal BPVC for Category Planners.
This BPVC equips us with a well-documented process, and when combined with our proprietary software, shows the true impact of a DotActiv category management solution.
Here’s a high-level overview:
First, we review and understand the context of your account. This is all about getting buy-in and ensuring we are all aligned.
Next, we study the assortment performance objectives. During this stage, we collect any necessary data, set up and prepare the objectives and present them for sign-off. Following that, we optimize the clusters.
When delivering our services, we advise that clustering takes place prior to assortment planning efforts because it will affect your product assortment. Once we’re done with the above steps, we run our Range Optimizer and analyze the results. We also present the final suggestions for internal sign-off before consulting with our clients on any final range suggestions.
All of these actions form part of the four consultations that we host. These consultations apply to all of our service offerings. It is also how we manage to deliver quality and convenience to our clients.
But how do we measure impact?
That’s where the software comes in again. And the answer is twofold.
Firstly, there is the Impact Analysis function. With it, our experts can predict the impact of any changes to your range. The Analysis Grid shows sales percentage, sales loss (if any), KPIs, and average sales, units, and profit for a chosen period.
It also shows changes to sales of products that we removed and increases in sales for those that remain in your range.
Secondly, we conduct a post-performance analysis. We usually complete this six months after implementing the new range to give it enough time to settle. This analysis allows us to determine if there are any improvements in product and/or category performance.
We have published a range of case studies across different categories that explains client goals, the solution we provided, and DotActiv’s impact on sales. On our Resources, you can filter by Case Studies to find them.
Conclusion
You can never go wrong when you choose a product assortment that meets consumer demand. Everyone wins. Of course, how you choose your assortment matters. Optimizing what products you place on the shelf is best done with help from a specialist assortment planning tool. One like what we offer at DotActiv.
With DotActiv’s assortment planning tool, you can create assortment plans that are more attractive to local shoppers while improving the profitability and efficiency of your different product categories.
Are you looking for advice or need a category management solution that’ll help you with both? Book your complimentary consultation with a DotActiv expert today and we’ll show you how we can help you achieve that and more. You can also browse our various software editions and services on our online store.
