Tuesday, September 28, 2010

The Shift Toward Customer-Focused Assortments

Assortment management is an ever-evolving field. Many in our industry are old enough to remember the development of the supermarket format, its mission being to provide all things to all customers. The last decade saw the coming of age of a more consumer-centric discipline that, with the help of new science, is now achieving widespread acceptance.

Certainly, every large retailer still wants to show its shoppers a selection that eliminates any reason to go to another store to meet all their needs. But they've learned -- and the Recession has been a tough instructor for some -- that maximizing variety can lead to diminished returns.

Three Trends Leading Assortment Planning into the Consumer-Centric Future
Assortment management has traditionally been focused at the product category level, the aim being to provide a depth of assortment across a wide variety of categories. But this view of categories is moving steadily in a consumer-centric direction. Three trends exemplify this change:

Categories used to be defined primarily by product attributes -- purpose, ingredients, temperature ... even package form. Now the mindset is evolving toward a focus on solutions and consumer need states.

Merchants and manufacturers continually ask the question:

What does the shopper really need and what different products can address that need?
Where the shopper need used to be "fresh chicken," today it may be "convenient meals." Where it used to be "liquid floor cleaners," now it may be "home cleanup solutions."

Retailers are increasingly looking at groups of categories in an effort to provide shoppers with solution centers.

Retailers are revisiting the basic business question:

What other categories should I be offering?
Category space allocation has been relatively stable for quite a few years and, as a consequence, so has the number of categories offered.

In years past, merchandisers and grocers added whole departments, like florists, banks, video rentals and dry cleaners, to name a few. Now, more are asking what other items should be offered to better meet shopper needs. Are there new opportunities in nontraditional categories, like jewelry, green products, kids’ clothing, gift cards, hardware?

A new emphasis on "big picture thinking" gets to the core of Space and Assortment and how they are intertwined. Retailers are reconsidering how much space to give to each category or solution area, and how to manage variety within that space.

In order to get at that question comprehensively, they need to understand the marginal benefits from each new category and each item within each category.

Instead of making assortment choices solely within categories, they take a comprehensive, cross-category view. The new question becomes:

How much profit do I get out of one more SKU in this category versus one more SKU in the next category?
Only by understanding the marginal contribution of each SKU can retailers reallocate space to be more efficient -- on a section, aisle or store basis.

Shelf space is a finite resource. When considering which SKUs to add or eliminate, retailers run directly into dimensional constraints. Different SKUs may occupy different amounts of space. Faster-turning items may require more facings to meet demand.

It is evident that retailers need a space-aware assortment process. This objective is greatly aided by tightly linking assortment planning tools and methods with space planning tools and methods.

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