While it’s all good and well creating clusters for your retail stores, we don’t recommend you do so without understanding the knock-on effect. Why? Because cluster management directly impacts your assortments, planograms and floor plans. What’s more, clustering is a valuable exercise that allows you to personalise your assortments and category tactics. That’s why proper cluster management is essential.
Store-Based versus Category-Based Clustering
If you want to understand the interdependencies of clustering, it is vital first to understand the primary clustering methods that you can implement in your retail business.
There are two - store-based and category-based clustering.
We’ve already explained each in detail before, and you can read this article and infographic to compare the two methods. In brief, store-based clustering is the exercise of grouping your stores based on various characteristics. These characteristics include size, customer profile or LSM and geographic location.
Meanwhile, category-based clustering refers to the specifics. While store-based clustering takes a high-level view, category-based clustering digs into the details, allowing you to group according to category across multiple stores instead of entire stores.
For the sake of this article, we are focusing on the latter. That’s because with category-based clustering you can offer a deeper level of personalisation to your customers.
It’s also the method that DotActiv recommends. Why? It comes back to the interdependencies. Clustering has a direct impact on everything from your assortment planning to your planograms and floor plans.
That means one thing: if you want the best possible outcome; if you want a positive impact on your bottom line and to improve your store brand reputation, you can’t separate them. It’s the same when it comes to completing these exercises using the software.
You’d be positioned better if you manage your clusters alongside your assortment planning, planograms, and floor plans in the same software package.
The impact of cluster management on your assortment planning
As we have already noted above, clustering allows you to group your stores based on similarities.
However, what does that mean for your assortment planning? Better yet, what type of influence does clustering have on your final assortment? It’s simple. You can’t separate the two.
It would help if you didn’t even think about creating your product assortment without first setting up your clusters. Why? Imagine attempting to stock your store with products without knowing what your customers want? It’s certainly possible to do, but it’s not worth it.
Meanwhile, grouping your products according to various factors and characteristics means you can create clusters with clear distinctions. That naturally affects the type of assortment you stock across your stores.
Let’s say, for example; you run four stores, stock hair care products in all of them, but cater to LSM 1 to 3 in Stores 1 and 3 and LSM 7 to 10 in Stores 2 and 4. After looking at your retail data, you find that in Stores 1 and 3, Product A sells well, but Product B doesn’t. You’d thus focus on stocking more of the product that sells. Meanwhile, in Stores 2 and 4, you’d find the opposite.
The best move in both instances is to tweak your assortment so that all four stores stock the variety that caters to customer demand.
So how do you do assortment planning at a cluster level? Consider the GIF below, which shows you how to run a cluster that we’ve already set up in DotActiv software.
Once you have decided on your clusters, you can run the range optimiser tool within DotActiv. That allows you to update your planograms, within each cluster, based on the new range selections.
The impact of cluster management on your planograms
If clustering has a direct impact on your assortment planning, you can say the same for its effect on planograms.
Here’s why:
By first Identifying your clusters - which allows you to choose the right products for your assortment - the knock-on effect is that it makes the creation of your planograms that much easier. Straight-forward even.
It’s easier to merchandise your products. It’s easier to pinpoint your high and low sellers. It’s also easier to decide how many facings and how much shelf space to apportion to each of your products.
Now attempt to build a planogram without completing a clustering exercise. While you can certainly do that, it would be a mistake. Similar to the error of choosing your assortment without first clustering, you’ll put yourself at a disadvantage.
There are two other reasons why it’s not a good idea.
Firstly, software such as DotActiv follows a specific naming convention for its planograms that you need to follow. By not following the naming convention, DotActiv won’t find any linked planograms. Thus, building your planograms without setting up your clusters can impact the result.
Secondly, you’ll be guessing as to how much space to give to your products. What ends up happening is you’ll find a product that doesn’t sell well receives more shelf space than a product that sells out quickly.
However, if you update your assortment at a cluster level, and you update it correctly, it can have a positive impact on your planograms for that cluster.
That’s because you can push changes to your assortments into the related planograms via the ranging functionality found in DotActiv software. What’s more, as you can see in the GIF below, you can automatically add or remove products from planograms based on the assortment changes.
From there, you can open your planograms and reposition the products on the shelf as and when needed.
The impact of cluster management on your floor plans
Because your floor plans are directly influenced by your planograms, which are, in turn, connected to your assortment, any decision you make at a cluster level also impacts your final floor plan.
How? It’s the knock-on effect. Once you’ve set up your clusters, that influences your assortment, which helps you to create data-driven planograms. With your data-driven planograms, you can set about creating spatially accurate floor plans that speak directly to the product needs of your customers.
Without setting up your clusters at the beginning, you’ll have floor plans that don’t take your assortment or planograms into consideration. More importantly, you have no data to fall back on, so it’s difficult if not impossible, to correct the mistake.
The result is you have no way of evaluating your floor space or how to merchandise your planograms. Also, any decisions you make will be guesses at best.
So how do you ensure you connect everything?
If you have set up your clusters in DotActiv, syncing the correct planograms to your floor plan based on the key market field - Store Code, for example - is easy.
When creating a floor plan, navigate to the ‘Space Planning’ tab and select New Floor Plan. From there, you can choose properties and input a store code. Doing so ensures that you select all planograms linked to the store, as seen in the GIF below.
From there, select ‘Add Gondolas’. Under ‘Grouping’, you can add gondolas to your floor plan according to the decided hierarchy. Once you have chosen your grouping, it appears in the box on the right. It’s here where you can select or deselect the flows and order you want them to appear on your floor.
It’s worth pointing out that the naming convention of the planograms follows the same naming convention rules within clustering. For DotActiv, that’s Category_Format_NOD.
If your floor plan has the incorrect naming convention, DotActiv won’t find any planograms linked to the database for your chosen category in the store.
Conclusion
Conducting a clustering exercise is vital because of the knock-on effects it can have on your retail business. Not only does it allow you to cater directly to shoppers’ product needs, but you can also provide a better shopping experience for your customers. What’s more, you can do all this in DotActiv Enterprise.
Looking for advice or need a category management solution that can help your business? Visit our online store here for more information or book a custom exploratory consultation.
