Canada: Assortment Optimization – Making An Impact In 12 Seconds Or Less

Last Updated: July 10 2012
Article by Alain Michaud

Consumers currently spend an average of 29 minutes per visit in stores, hunting for value and focused on products that provide both convenience and quality. Even more crucial, they take an average 11.9 seconds to make product decisions. Are you confident you have the right assortment optimization strategy in place to capture the most value from those fleeting seconds?

Many retailers and consumer packaged goods manufacturers are looking to assortment optimization (often referred to as consumer or shopper development) to address widespread slumps in sales, profits and gross margins investment. Consumers are increasingly in the driver seat, making calculated decisions about their purchases. Private labels are becoming progressively more popular. So are local products. Big box stores are expanding, offering an ever-growing range of products. Add in the profound influence of social media on demand for products (both positive and negative) and retailers are forced to sift through a variety of factors to truly understand their consumers, and ensure they have the right items in stock to please shoppers and boost sales.

Relying solely on intuition, traditional ranking reports and numbers is not going to cut it anymore. At the same time, reducing the clutter may only produce short-term results. The bottom line: retailers and manufacturers that develop agility in SKU assortment will come out on top in this new, slow-growth environment.

Understanding the new consumer

Today's consumers demand more choices. Across the industry there has been a proliferation of SKUs that retailers have to carry and manufacturers have to inventory and source ingredients for.

The influence of social media (think blogs, Twitter, Facebook, etc.) is powerful: at any minute, demand for a product can soar, just as quickly as demand can drop. A simple blog post on a toy can create an instant sensation among kids. On the other hand, product defects can spread like fire through word-of-mouth. Retailers and manufacturers need to keep their pulse to the ground to keep up with consumer trends and reactions to products on social media platforms.

Don't underestimate the impact of the shopping and buying habits of all consumer demographics. The purchasing power of "tweens" has grown measurably within the past decade and is an increasingly important stand-alone consumer segment. Many cell phone providers, for example, are reacting to this, offering unique phones and plans aimed at this target group.

Success is knowing how far to cut and what to add

Begin by reviewing each category segment by segment. Rank products by sales for each segment; then set a bar for the segment. Every SKU below the bar is a candidate for being dropped. Keep in mind, the height at which you set the bar should depend on the store strategy, as well as the strategy for the category. High-growth or destination categories should receive special treatment, including more facing space.

Follow the 80/20 rule: 80% of the assortment should be core. If your store is part of a chain, these same products would appear in every one of the chain's stores. Localized products fall into the remaining 20%, as well as products selected based on the geodemographics of the store's location

Leverage consumer data to its fullest. Manufacturers can supply consumer and shopper data while retailers provide data from loyalty cards, point-of-sale registers and other sources. Insights from consumer data can influence where the bar is set and help determine when a slow-moving SKU should be retained. A high-market basket rating, for example, might be enough to keep a SKU above the retention bar. Ditto for high-loyalty ratings or a tie-in to the target customer.

Lean on manufacturers. Manufacturers can offer a category perspective rather than simply a brand perspective, which includes a deep knowledge of the consumer and engagement in driving category growth. This may lead manufacturers to trim SKUs long before retailers do (and are aware they should). Be ready to identify your own slow turners for elimination if you truly want advice from manufacturers on which products to add to have credibility with the customer.

Offer customers what they want, when they want it—and remove the distractions. People will continue to make choices based on highest perceived quality, best value and greatest convenience. New products that fit these criteria will likely support higher margins.

Facts to consider when sorting through SKUs

Consider keeping an unprofitable or slow-moving SKU if:

  • Selecting the SKU generates a larger basket (customers tend to buy accompaniments for the SKU)
  • The SKU is important to the store's core customers.
  • The SKU is important enough to customers during certain stages of their lives.
  • The SKU differentiates the store from its competitors or is offered exclusively at that store.

Consider adding a SKU if:

  • You need to differentiate yourself in the marketplace or simply to compete with similar stores.
  • Your target consumer segments want it.
  • It will improve your sales, profits, turns or competitive edge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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