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4 Rules For a Successful Merchandise Mix

DotActiv Team
by DotActiv Team on Feb 25, 2017 3:49:32 PM

 

Merchandising Mix.jpg

For an increasing number of retailers, figuring out which products to sell, how much to sell, when to sell and at what price is a challenge. With so many different assortment planning strategies and multiple opportunities for profit maximisation to choose from – it’s been easy for retailers to match up with a plan which doesn’t fit them or their market or both.

But, not all is lost. Using data-driven insights to select merchandise and plan assortments, retailers are reaching tremendous success. To get even deeper, within assortment planning lies the merchandising mix, the width and depth of the products a retailer carries. Laser-like focus on the assortment depth and width of their stores is one-way retailers are maximising profit, and often the result is significant.

Wondering if your stores can produce such results?

Consider these four rules for a successful merchandise mix:

Rule 1 - Have your data platform in order

Only 22 years ago Windows became mainstream and the advent of mobile as we currently know it hit the scene only ten years ago with the release of the first iPhone. Retailers have experienced more dramatic and disruptive changes in shopping behaviour during this 22 year period than ever before, and the only thing which is certain is that the next decade is going to move even quicker. Retailers need to get onboard with the latest technologies or risk losing against their competitors.

Before adopting these new technologies, retailers need to start at step one: The data platform. Data, the raw facts and statistics measured and recorded during a business’ activities, is the key input which makes these technologies useful – allowing for informed decisions. For example, assortment planning, which depends on several separate data sets, requires a data platform which can receive internal data sources as well as integrate third party data when necessary.

Another example is when you are determining your merchandise mix. Merchandise mixes, which identify the variety of products and the variation of products a store should carry, need accurate product data which includes classifications as per the consumer decision tree. The good news is that an accurate product classification is no more than a few data entries. Here’s a quick example: A product falls within the “coffee” category and “instant coffee” subcategory and finally the “decaffeinated instant coffee” segment. This is no more than three simple fields of data, but they are critical.

Rule 2 - Have a Deep Understanding of Your Category Roles

Next time you visit a store, look closely at the retailer’s merchandise mix – it will tell you a story. The merchandise mix selected by the retailer displays what the retailer feels based either on data or pure intuition, will be of true value to its customers. Now, regardless of whether the merchandise mix is narrow and deep or broad and shallow, true success will come from the strategic decisions taken in defining category roles. Before any strategic decisions about category strategy and tactics take place, category roles must be defined according to how the retailer wants a category to be viewed by their customers.

For example, consider the following four category roles used at grocery retailers:

Destination category: this is a category with which the retailer wants to profile himself towards his target consumers and differentiate himself from competition. It aims to place a retailer as primary category provider and helps define the retailer as the store of choice by delivering consistent, superior target customer value. “I go to this store because they offer the best selection of … This store offers better value in this category.”

Routine category: this category aims to provide consistent and competitive value for the consumer’s everyday needs and place the retailer as one of the preferred category providers. It helps develop the retailer as the store of choice by delivering frequent, competitive target consumer value. “I buy these products all the time for my daily needs, so I look for the store that offers me the greatest value and consistent shopping experience.”

Seasonal category: this category refers to products which are not purchased on a regular basis but occasionally. Seasonal categories play a secondary role in delivering profit but can be used by a retailer to differentiate himself from competition during a certain period of the year.

Convenience category: a convenience category includes products which you wouldn't ordinarily find on a regular shopping list. This category aims to guarantee a one-stop-shopping and plays an important role in margin enhancement.

Once category roles are established, and there is internal alignment as to how they relate to each other, you can now implement category tactics around your strategies.

About your merchandise mix, having a thorough understanding of your category roles will give you a reference point when deciding on the breadth and width of your assortment.

Rule 3 - Have the right merchandising toolset

You’ve got your data platform in order. Your categories and their roles are defined. Your next step is to select your merchandise and plan your assortments across your stores. To do this, you will need to have the right merchandising tools.

Assortment Planning Software

Successful assortment plans with the highest return on investment consider not only your financial objectives but customer satisfaction as well. What makes assortment planning so vital to having a successful merchandising mix is that during the assortment planning process, the greater your assortment variety, the greater your inventory costs. Therefore it is paramount to have a robust assortment planning solution which allows for the integration of multiple data sets, including but not limited to individual product attributes such as product classification, brand, size, style, colour, function, price and stock keeping unit performance which can be optimised to address customer preference and needs.

Because planning localised assortments is a data-intensive task, an effective assortment planning solution will be based on an SQL data platform which integrates with shelf and floor planning software. It should enable you to quickly and accurately plan localised assortments which are based on your strategies. Using this solution, you will be able to define the products that make up the category, subcategories, segments and subsegments as well as optimise shelf space.

It’s also important to consider how your assortment planning solution has an impact on the suppliers you have relationships with. The cornerstone of category management is collaboration between retailers and suppliers, and it's not going to be practical to collaborate if your solution is unable to communicate with other solutions which are similar in nature. For example, DotActiv software can open and edit a host of competing planogram file formats. It can also convert its native files into the native file format of other planogram software programs.

Rule 4: Communicate and execute on your merchandise plan

The last element of a successful merchandise mix is making sure you get the right product to the right customer. You’ve selected the right merchandise, and your assortment plan is ready for implementation but without the right planogram software, it is very likely that your carefully selected merchandise wont alway end up being properly displayed on shelves for shoppers to see.

Planogram are simply a visual representation used to plan, communicate, implement and maintain a retailer’s merchandising strategy. It’s a model or diagram which describes placement and positioning of products on shelves, as well as the number of facings allocated to each product.

What makes planograms so valuable? About your merchandising mix, planograms truly shine when integrated with accurate data. Once integrated with an assortment planning solution, a planogram houses all the information you require to fill your shelves correctly and provide the customers with what they want. It also gives executive management more control over how products are displayed and implemented in their stores and allows them to maintain and review shelf layouts based on the performance and success of their planograms.

Conclusion

Although there are other variables which impact a successful merchandising mix, having an organised data platform, understanding your category roles, and having the right tools will prepare your stores to be one step ahead of the competition.

Want a winning merchandise mix? Book a demo, and we’ll show you how our tools can help you.

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