What Retailers Are Missing Out On By Ignoring Clustering
If you’re a retailer who has yet to begin or complete a clustering exercise, you’re already at a disadvantage. Why? It’s because of the competitiveness of the retail market. Regardless of if you ignore clustering or forget about it, in doing so, you miss out on many golden opportunities to beat your competition.
There is also the point that completing such an exercise allows you to drive higher sales and profit across your retail business. Who wouldn’t want that? Of course, this is not only about increased sales and profit. It’s also about the long-term positive impact it can have on your business.
You’ll have too many products ranges and not manage them effectively
If you ignore clustering, one of the first things you’ll miss out on is the opportunity to reduce the number of ranges you have to manage.
If you don’t cluster by categories, there is every possibility that you’ll end up stocking a different range for each for each your stores. Imagine running 22 stores and having to manage a different range for each. That’s not only resource and labour intensive but also counterproductive.
Let’s say; for example, you stock a Hair Care category.
If a store is in a predominantly ethnic area, you’d want to cluster the category with other stores that are similar in this way so that the category can stock a range of products which are appropriate and attractive to this market. That will help personalise your range.
It’s the same if you have another store in a different area that has a unique demographic. You’d want to place the category in a cluster that allows it to range products specific to that market.
In both instances, you can please your customers and encourage store and retail brand loyalty.
You run the risk of range inconsistency across your stores
A knock-on effect of stocking too many products in a range - and managing them ineffectively - is that there is every chance of you ending up with an inconsistent product range across your stores.
In truth, you can all but guarantee that. After all, stocking too many products means you’re attempting to cater to everyone when instead you should pick a target market and stick with that.
Fortunately, a clustering exercise can help you to correct this.
Because you could cluster according to similarities, it allows you to spot and remove any unnecessary products in your range. That means you can customise your range according to the market you serve and not take a scattergun approach to your assortment.
In short, you take a strategic approach. By clustering according to similarities, you ensure range consistency across all the stores that cater to a specific market.
Let’s say; for example, you have six stores that stock Oral Health products and you follow the category-based clustering method. Two stores cater to LSM 7 to 10 while the other four cater to LSM 1 to 3. By not completing a cluster exercise, you’ll end up providing the same range to all stores.
In doing so, you stand every chance of stocking too much of the wrong product, which could impact your ability to make more sales and increase your profit.
On the other hand, by completing a cluster exercise, you can first figure out which range matches which store, thereby offering consistency. If a customer walks into any one of your stores that caters to LSM 1 to 3, having already visited a similar store before, they’ll know what to expect.
You’ll struggle to spot and capitalise on opportunity gaps in your range
As we mentioned above, completing a clustering exercise allows you to discover if you’ve added any unnecessary products to your range. Also highlighting possible products that you should be adding to your range
If you have, you can remove these products before they become a problem and take up shelf space better served if given to products that offer you a good return on your investment.
The converse is also true. By not completing such an exercise, you’ll struggle to spot these gaps. Even worse, you may find your store struggling with range bloat and no solutions of how to correct it.
So how can a clustering exercise help you to spot opportunity gaps in your range?
When clustering stores, you would usually combine the sales of all stores in the cluster. That results in stores that were not carrying lines that perform collectively well to begin stocking these items, which allows them to capitalise on the opportunity gap.
Also, it allows you to tailor your range according to customer needs. That means you’ll end up with an efficient range that helps you to increase your sales and ultimately grow your retail business.
Let’s say, for example, that a customer goes shopping for a 5kg bag of charcoal at one of your stores - Store A. However; the store doesn’t carry the item. As a result, they visit Store B, which is nearby to do all of their shopping. While it’s still your retail brand, only a different store, Store A still loses out on sales. The next time, they do their shopping they might consider visiting Store B first, which means they’ve shifted their loyalty too.
Considering both stores are located in a similar area, if you had clustered them to have the same range, you could have avoided the above.
By ignoring clustering, you’ll end up frustrating shoppers who enter your store
The best way to please your customers is to offer them the products they want at the right price. That much is obvious.
Of course, while choosing the correct assortment for your target market can take you a long way, it’s worth pointing out that you shouldn’t attempt any assortment planning exercise without first deciding how to best cluster your stores. That’s if you use specialised software such as DotActiv.
We’d also advise you to cluster your stores first before choosing your assortment if you don’t use category management software. The only circumstance where you might be able to get away with no clustering is if you don’t have many stores. In this context, we’re referring to having less than a handful of stores. However, that number is still up for debate.
That aside, deciding on how you cluster your stores allows you to choose a range that speaks directly to the product needs of your customers. That’s because the exercise includes looking at common demographics in the market, ensuring that you can choose a standard range that aims to serve the needs of your target market.
Only after you’ve collected all the relevant information, can you realistically decide on your product assortment.
The result is a consistent shopping experience from one store to the next. What’s more, you can meet the expectations in terms of range carries and shelf and floor layout. When a shopper walks into your store, they’ll know what to expect. Moreover, if you satisfy one customer, you can ensure repeat business.
Customer satisfaction leads to increased customer loyalty, higher stock turns, and a boost in sales and profits. And that’s only the beginning. If you’ve approached it correctly, you’ll have created product category clusters that match your strategy and goals.
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. You can do all this in DotActiv Enterprise. Visit our online store here or click below to find our more.