There are only a few things more critical to your long-term success than your product assortment. That’s because of what your products mean to your store. Choose the right variety, and you’re likely to see a steady increase in sales and satisfied customers. Select the wrong assortment, however, and the opposite is true.
Unfortunately, such a mistake can happen. You pick the wrong products, your customers become unhappy, and your reputation and pocket suffer. What compounds this error further is you’re unsure of why it’s happening.
That's where this piece comes in. Below, you'll find a handful of questions. When selecting your product assortment, you need to consider them all.
1. Did you use any data?
There are no two ways around the fact that your retail store and brand is stronger and healthier when it has access to data. Of course, it depends on the type of data. In this instance, there are two types to which you need access.
The first is your POS or point of sales data while the second is your market or syndicated data.
Let’s look at the importance of your POS data first.
Your goal is simple; it is to give your customers the products that they want when they want them. That’s where your POS data comes in. By consulting it regularly, you can determine the demand for each product in your assortment across all of your categories.
It will assist you in identifying which items are fast-sellers and which are poor sellers. Over and above that, it will allow you to allocate the correct amount of space to each, according to their sales. The obvious benefit is that you’ll end up with a product assortment that works for you rather than against you.
Then there is your market data.
This type of data allows you to ensure that what you offer in your store is in line with what customers would find across the market. More than that, it’s useful when you want to see what products are selling well in competitors stores that you don’t already stock.
When you are competing with big retailers with a limited range, you could potentially lose sales of high demand items. The only way to bridge this gap is to look at the state of the external market. Also, by spotting these opportunity gaps, and then taking advantage of them, you can gain leverage over your competitors who don’t have access to or use syndicated data.
2. Did you develop a clustering strategy?
The second question to ask yourself is around your clustering. Did you develop a clustering strategy before selecting your products?
Before we continue, here’s a brief definition: clustering is “the grouping of stores based on similar store and/or demographic characteristics”. There are generally two different clustering strategies available to you: store-based or category-based. You can read more about each approach in our infographic here.
Regardless of which strategy you ultimately decide on, when approached correctly, both have the same result. They ensure that you present the right product at the right time to your customers.
Of course, there are various elements included in the creation of a clustering strategy that you can’t ignore.
Store size, store location and store format are just three such elements. Your target market is just as important. That’s because while you should offer a variety of products across many categories, you need to consider who your customer is and what they purchase. The last thing you’d want is to sit with items on the shelf that are not selling.
That leads to the second reason why you need to develop a strategy.
Clustering makes any ranging exercise easier. Here’s why: it gives a space planner a better idea of what types of products and brands should be included in the assortment to please the customer. Since not all of your stores cater to the same customer, it allows you to tweak your product variety accordingly.
Let’s take Hair Products as an example category. In Store / Category Grouping A, the majority of your customers might purchase Ethnic Hair Care products more regularly than any other hair care product within the category. You’d thus want to open up on the range.
However, in Store / Category Grouping B, the demand isn’t as high, so you’d want to reduce the range. Meanwhile, you could look at opening up on different products which are more suited to that target market.
3. Did you define your assortment planning strategy?
Assortment planning is a critical step in category management. However, it is also interdependent to all other decisions you make around category management. Any assortment plan that you create must consider your business strategy and goals.
That’s because once you’ve chosen your strategy, you’ll be able to select the merchandising tactics that will help you to achieve your goals. We’ll touch on merchandising in more detail later on in this piece. For now, it’s worth saying that the tactics you choose must consider the needs of your target customer.
So, what goes into a clear assortment planning strategy?
For one, you need to consider your data. As already mentioned, a combination of POS and market data allows you to offer the range of products that your customers want and need. You can also look at your loyalty card data if you run an in-store loyalty programme. More than that, the data also allows you to evaluate your shelf space and determine the space apportionment for each product.
The size of your category and its congestion ratio is also significant to consider since this affects your space apportionment. Your target congestion percentage depends mainly on the size of your products. The larger the product, the higher the congestion percentage can be without your shelf looking messy or overstocked.
Alongside the above, you’d also need to consider your pricing strategy and the type of products that you want to stock. While your products do need to be familiar to your customers, you also need to select those that will offer you the highest possible margin.
Of course, there are times where one of your best-selling products may be out of stock. In that case, you should also include product substitutions within your range. These are products that a customer would happily purchase if they find that their first choice isn’t available.
4. Did you align internally on the role of your category?
Before determining the product assortment for your stores, you also need to decide on the role of your category. If you were to summarise it into a question, it would be this: what do you want to achieve by stocking a specific product grouping in your store?
Once you know, you must align internally so that everyone in the business is aware of the role that you’re attempting to follow.
Why? It’s because the role you choose for a category will affect your product space allocation, the size of the range, your stock holdings, margins and more. And it won’t only affect that one category; it’ll influence what happens in every other category too. That means that any wrong move could result in shopper confusion or frustration.
Imagine a customer walking into a store - Store B - and expecting to find the same range of products that they found in another of your stores - Store A - only to be disappointed.
Let’s say, for example, that you’ve given Category A a Destination role. You would then need to provide it with enough space in your store to show the customer that you’re the go-to retailer for that product. Your range would also need to match this role so it would need to be deep. But you’d also need to plan all this with your other categories in mind.
While you’ll not give all of your categories the same role in your store, you still need to position each to satisfy as many, if not all, of your customers’ needs.
There is also the point that determining and aligning internally first will allow you to decide on the merchandising strategy that can help you to meet your goals. If you want to give your category a Destination role, you could focus on increasing traffic or defend your market share. Without understanding the role first, it would be difficult to implement such a strategy.
5. Did you build your product hierarchy based on your consumer decision tree?
Your consumer decision tree (CDT) - a graphical record of the thought process which any shopper goes through when selecting a product in a category helps you understand not only the buying behaviour of your customers. It also allows you to anticipate what they’d expect when shopping a category.
That’s why it’s critical to your assortment planning actions and for building your product hierarchy.
Of course, before you can build your product hierarchy, you do need to identify your CDT. Here’s how: think like a customer. In other words, how would you shop the category and what aspects do you look at first, second, third, and so on? If it’s the Cereals category, do you start by looking at the ‘Hot’ products before moving onto the ‘Cold’ products? Or, do you focus on price first?
As a side note, because of different consumer behaviours based on cultural, personal and social factors, it is highly unlikely that you’d only have one CDT per category.
It’s also worth analysing your data to see which products are selling in the category. This will indicate your shopping trends. More importantly, by looking at your data, you can find out if your consumers are price sensitive, brand loyal or if they purchase small units versus bulk items.
With that information at hand, you can begin building your hierarchy. Your hierarchy usually takes the same form as your CDT but stops at your sub-category. Building your hierarchy based on your CDT will also assist you in deciding whether or not to place your products according to price or brand, for example.
A final point to make is that you also need to plan your merchandising strategies based on your CDT. Ideally, when choosing your merchandising strategy, it should be done to enforce your CDT.
For example, when you have brand loyal customers who buy yoghurt, you should consider brand blocking first and then split your tubs by size and variant.
If you want to get serious about offering the right product assortment to your target market, it’s time to consider investing in specialised assortment planning software. Besides helping you to select the right products, it will help you to place them correctly on the shelf to drive increased profitability. Visit our online store here for more information or click below for a free demo.