Effective assortment management helps to optimize the number of products, meet the demand of the target audience and attract new customers, reduce storage costs, and increase profits. We'll show you how to organize processes to maximize these benefits.
1. DEFINE THE ROLE OF THE CATEGORY
At the basic level of assortment management, the role of categories is defined for different purposes: expanding the assortment, introducing a private label to increase margins, driving sales, improving customer service, etc.
One of the main roles of categories is to help customers find the products and services they are looking for by organizing the assortment into logical groups. For example, in a grocery store, categories are organized by type: vegetables, fruits, dairy, meat, etc. This organization helps customers find what they need quickly, reduces search time, and increases overall satisfaction.
In addition, categories help manage the assortment through effective planning, control, and collection of sales data.
2. IDENTIFY THE NEEDS OF THE TARGET AUDIENCE OF CATEGORIES AND SUBCATEGORIES
Analyzing customer needs is a critical part of assortment management. The process involves understanding the specific needs and preferences of different customers, categorized by age, gender, lifestyle, and income.
The following should be taken into account:
- Demographics. This is the main indicator of the analysis, which involves the influence of age, gender, income, profession, marital status, socioeconomic status on customer preferences.
- Interests. This is an addition to demographic indicators that more subtly reveal customer interests. You should take into account hobbies, favorite sports, books, music, and movies, and possibly political preferences and personal values.
- Consumer behavior. You need to understand how and under the influence of what factors people make purchasing decisions. This will not only help you manage your assortment, but also improve your marketing strategy.
To determine the needs of the target audience, you can use the Jobs-to-be-Done (JTBD) technique. This is a framework used to understand the main reasons why customers buy a product or service. It focuses on goals, motivation, and desired outcomes for the customer.
The basic idea of JTBD is that customers buy products or services not because of their features, but because they need to solve a problem or complete a task. By understanding what the customer is trying to achieve, you can create the best offer and marketing messages.
The JTBD framework involves a number of steps to understand the customer’s objectives:
- understanding the task or problem the client is trying to solve;
- grouping customers based on their needs;
- understanding the desired results that customers expect when they buy a product;
- knowing how competitors solve customer problems;
- using the information obtained in the previous stages to create an assortment that meets the customer's needs.
When searching for products for the assortment and determining the strategy, focus on the needs of the target customer first before the products.
Not: "I buy organic products so that I can eat only natural and safe food".
But: "I started doing sports and I want to maintain my physical condition only with healthy and safe food."
You can use this information to create a product range that includes more organic products, low-calorie alternatives, and vegetarian options. This will help to meet the needs of this customer group and make them happy with their choices.
3. DEVELOP A GLOBAL CATEGORY STRATEGY
The category management strategy depends on the goals and needs of a particular business. However, there are certain typical elements that ensure profitability and sustainability. The most important thing is to define a detailed cost structure for each segment. Developing a strategy may include the following steps:
- Analysis of the current state of expenses by category: their volume, number of suppliers, duration of contracts, importance of each counterparty. It is worth assessing how important each supplier is for a particular category and what difficulties arise when working with them.
- Risk assessment. You need to create a list of critical issues in each category, assess each risk in terms of probability and importance, and create a matrix.
- Search for alternative suppliers. It is necessary to study the market situation and determine the location and product offers of other manufacturers or intermediaries.
- Create a step-by-step plan to achieve the goal. It is necessary to write down the sequence of actions from different perspectives: short, medium and long, listing the tasks and responsibilities of each responsible specialist.
What should be taken into account when working on a global strategy? Global trends – because they determine the way forward. This can be:
- market expansion (dumping, interception of competitors' suppliers, etc.)
- moderate growth (slow dynamics of procurement amounts and avoidance of cannibalization)
- restraining the decline (changing the focus of sales and searching for new product categories to reach an additional target audience).
Additionally, it should be kept in mind that the target audience is not constant. Demographics can grow, shrink, and change dynamically.
4. SET A LIMIT ON THE NUMBER OF SKUS
To determine the maximum number of SKUs, you need to analyze the demand for goods, estimate sales volume, and other factors that affect the assortment. Additionally, you need to take into account:
- Capacity of commercial equipment (refrigeration, shelving, etc.). Knowing the specific dimensions of the points for placement and the parameters of goods, you can understand how many units can be placed in the sales area. The concept of facilitation should also be taken into account here.
- Calculation of the economically feasible number of SKUs based on the ratio of SKU shares, sales, and profits.
- The number of responses to a need (the number of product variants within a specific customer request). The traditional scheme is three responses to a need: in the high, medium, and luxury price segments. For example, a supermarket on average offers five or more responses, providing a distribution by cost and quality.
5. Replicate the category's quantitative strategy by characteristic
Create a strategy for planning the number of SKUs by several characteristics for a certain period of time. It is important that the first characteristic in the hierarchy is the one that follows the category. The category tree should be built based on the logical sequence of customer actions in the store, taking into account the reasons for buying goods (for example, if a customer is looking for wine, their choice is likely to be as follows: Wine / White wine / Dry wine / Price under $30, etc.) This sequence may differ depending on the target audience, so it is worth understanding the audience of the chain as thoroughly as possible.
Planning is necessary to ensure that the matrix assortment meets the needs of customers. Typically, more than 50% of regular customers make their second purchase in the same product category as their first. If you find that certain price segments or subcategories are missing, this may indicate the need for an additional audience that has not yet come to your store due to an insufficiently wide assortment. It is worth considering the general statistics: the probability of selling to an active customer is 60-70%, while the probability of selling to a new customer is only 5-20%.
In addition, planning the number of SKUs will help to avoid sales cannibalization. Category managers often try to fill the low price segment, but expanding the assortment in one price range can lead to cannibalization of sales of another SKU if the audience's purchasing power remains at the same level.
Finally, be sure to link this plan to the category's financial plan.
Assortment Performance by LEAFIO helps to formalize the category strategy by providing the necessary analytics for balancing the category, determining the number of SKUs for each segment. It can be useful for businesses operating in the retail industry, as it allows you to make informed decisions about which products should be sold more and which should not, and what changes can be made to the product mix to increase its efficiency and profitability.
6. CREATE AN ASSORTMENT MATRIX BASED ON A QUANTITATIVE STRATEGY
To do this:
- Select products for the assortment based on characteristics and classification in the hierarchy.
- Update the assortment matrix. This should be done regularly as demand, competition, and other factors change.
- Evaluate the impact of the planned assortment on sales and margins. For this purpose, you can use the methods of sales analysis and product margin analysis.
- Determine the priorities for assortment development. For example, you can develop a plan for the implementation of new products: determine what needs to be removed from the assortment, which products need to be strengthened in the advertising campaign, etc.
With LEAFIO Assortment Performance, you can manage your product matrix by assigning product statuses to each store where they are sold.
This will allow you to easily track the availability of specific products in each store, information about their alignment with strategy, and customer satisfaction.
7. CREATE A SEASONAL CALENDAR
To develop a seasonal calendar, you need to:
- Follow the information triggers. These can include weather conditions, holidays and events, fashion trends, and the emergence of sustainable trends that change consumer behavior.
- Identify seasonal sales peaks. To do this, analyze sales of goods throughout the year and take into account periods when demand for certain products or categories is growing.
- Take into account market trends. It is also worth studying the experience of competitors and their sales strategies during different seasons.
- Determine the periods when it is worth raising or lowering prices for goods. This can apply not only to products that are relatively seasonal, but also to others that may be associated with certain events (for example, the school year).
- Create a procurement plan. Taking into account the information obtained in the previous steps, you need to determine the number of goods to be purchased for each season.
- Develop a marketing plan that identifies advertising channels, promotions, and other activities to promote products on the market.
After launching the seasonal calendar, it is important to monitor the results and analyze the effectiveness of strategies. This will help you identify shortcomings and make adjustments to the plan for future seasons.
8. CHECK CATEGORIES WITH REPORTING
With Assortment Performance, you will monitor the sales performance of each product in the assortment matrix and understand whether it is suitable for the audience of a particular store.
To summarize, to ensure success in assortment management, we recommend:
- analyze sales and demand for goods;
- understand the needs of your customers;
- keep track of trends and new products on the market.
And don't forget to use modern tools to analyze the assortment and make further management decisions.