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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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