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Assortment Management: Perfect Implementation

Assortment Management: Perfect Implementation

Assortment Management: Perfect Implementation

Effective assortment planning helps optimize the number of products, meet the demand of the existing audience, attract new customers, reduce storage costs, and increase profits. Here’s how to organize processes to achieve these advantages.

Define the Role of the Category

At a basic level of assortment planning, category roles are defined for various objectives: expanding the range, introducing private labels to increase margins, improving sales volumes, enhancing customer service quality, and more. 

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 products, meat, and more. This organization helps shoppers quickly locate what they need, reduces search time, and increases overall satisfaction.

Additionally, categories assist in managing the assortment through effective planning, control, and sales data collection.

Identify the Needs of the Target Audience for Categories and Subcategories

Analyzing customer needs is a critical part of assortment management. This process involves understanding the specific needs and preferences of different customers, segmented by age, gender, lifestyle, and income.

When determining needs, consider:

Demographics. This is a fundamental analysis indicator that reflects the impact of age, gender, income, profession, marital status, and socio-economic status on consumer preferences.

Interests. This complements demographic indicators and reveals customer interests more subtly. Factors to consider include hobbies, favorite sports, books, music, movies, and possibly political preferences and personal values.

Consumer Behavior. It is essential to understand how and what factors influence people’s purchasing decisions. This insight not only aids in assortment management but also enhances the marketing strategy.

To identify the needs of the target audience, the Jobs-to-be-Done (JTBD) technique can be applied. This framework is used to understand the fundamental reasons why customers purchase a product or service. It focuses on the goals, motivations, and desired outcomes for customers.

The core idea of JTBD is that customers buy products or services not because of their features but because they need to solve a problem or accomplish a task. By understanding what the buyer is trying to achieve, you can create an optimal offering and marketing messages.

The JTBD framework includes several steps to understand customer jobs:

  • Understand the task or problem the customer is trying to solve.
  • Group customers based on their needs.
  • Understand the desired outcomes customers expect when purchasing a product.
  • Know how competitors address customer jobs.
  • Use the information gathered in the previous stages to create an assortment that meets customer needs.

When searching for products for the assortment and determining the strategy, focus not on the products but on the needs of the target customer.

Instead of saying: “I buy organic products to eat only natural and safe food,” say: “Since I started exercising, I want to maintain my physical condition with only healthy and safe food.”

This information can be used to create an assortment that includes more organic products, low-calorie alternatives, and vegetarian dishes. This will help address the needs of this customer group and enhance their satisfaction with their choices. та вегетаріанських страв. Це допоможе відповісти на потреби цієї групи клієнтів та зробити їх задоволеними вибором.

Develop a Global Category Strategy

The category management strategy depends on the specific goals and needs of a business. However, there are certain typical elements that ensure profitability and stability. The most important aspect is to define a detailed cost structure for each segment.

Developing a strategy may include the following steps::

  1. Analyze the Current State of Category Expenses: Assess the volume, number of suppliers, contract durations, and the significance of each contractor. Evaluate how critical each supplier is for a particular category and the challenges faced when working with them.
  2. Risk Assessment: Create a list of critical issues in each category, evaluate each risk in terms of probability and significance, and develop a matrix.
  3. Identify Alternative Suppliers: Study the market situation to locate and assess the product offerings of other manufacturers or intermediaries.
  4. Create a Step-by-Step Plan to Achieve Goals: Outline the sequence of actions across different time horizons: short, medium, and long-term, detailing the tasks and responsibilities of each team member.

What to Consider When Working on a Global Strategy? Global trends are essential as they dictate future actions. These may include:

  • Market Expansion: Tactics such as price dumping, intercepting competitors’ suppliers, etc.
  • Moderate Growth: Slow procurement dynamics and avoidance of cannibalization.
  • Preventing Decline: Shifting sales focus and seeking new product categories to capture additional target audiences.

Additionally, it’s crucial to understand that the target audience is not static; it can grow or shrink based on demographic changes.

Determine the Limit on the Number of SKUs

To define the maximum number of SKUs, it is necessary to analyze product demand, assess sales volumes, and consider other factors influencing the assortment.

Further considerations include:

  1. Capacity of Retail Equipment: (Refrigeration, shelving, etc.) Knowing the specific dimensions for placement and product parameters helps understand how many units can be displayed in the sales area. This also involves considering the concept of facing.
  2. Calculation of Economically Justifiable SKU Quantity: This is based on the ratio of SKU shares, sales, and profit.
  3. Number of Responses to Demand: (The number of product variants within a specific customer request.) The traditional model involves three responses to demand: in high, medium, and luxury price segments. For example, a supermarket in the medium segment might offer five or more options, ensuring a distribution based on price and quality.

Implement a Quantitative Category Strategy Based on Characteristics

Create a strategy for planning the number of SKUs across multiple characteristics for a specific time period. It is essential that the first characteristic in the hierarchy follows the category.

The category tree should be built based on the logical sequence of actions taken by the shopper in the store, considering the reasons for purchasing products (for example, if a shopper is looking for wine, their selection might follow this path: Wine / White Wine / Dry Wine / Price up to $30, etc.). This sequence may vary depending on the target audience, so it is crucial to understand the network’s audience as fully as possible.

Planning is necessary to ensure that the assortment matrix meets the needs of shoppers. It is known that over 50% of repeat customers make their second purchase in the same product category as their first. If you notice the absence of certain price segments or subcategories, it may indicate the need for an additional audience that is not yet visiting your store due to an insufficiently broad assortment. Additionally, it is essential to consider overall statistics: the likelihood of selling to an existing customer is 60-70%, whereas for a new customer, it is only 5-20%.

Furthermore, planning the number of SKUs can help avoid sales cannibalization. Category managers often try to fill the low-price segment, but expanding the assortment within one price range can lead to the cannibalization of sales from another SKU if the purchasing power of the audience remains at the same level.

At the end, ensure that this plan is aligned with the financial plan for the category.

ABM Assortment helps formalize the category strategy by providing the necessary analytics for balancing the category and determining the number of SKUs for each segment. It can be beneficial for businesses in the retail sector, as it enables informed decisions about which products to sell more of and which to sell less, as well as what changes can be made to the product assortment to enhance its effectiveness and profitability.

Create an Assortment Matrix Based on Quantitative Strategy

To do this:

  1. Select products for the assortment based on characteristics and classification in the hierarchy.
  2. Regularly update the assortment matrix, as demand, competition, and other factors change.
  3. Evaluate the impact of the planned assortment on sales and margin. This can be done using sales analysis and product margin analysis methods.
  4. Determine priorities for assortment development. For example, develop a plan for launching new products: identify what needs to be removed from the assortment, which products should be emphasized in advertising campaigns, etc.

With ABM Assortment, you can manage the product matrix by assigning statuses to products for each store where they are sold. This will allow you to easily track the availability of specific products in each store, their alignment with strategy, and their ability to meet customer needs.

Create a Seasonal Calendar

To develop a seasonal calendar, you need to:

  1. Follow information triggers. These can include weather conditions, holidays and events, fashion trends, and the emergence of lasting trends that change consumer behavior.
  2. Identify seasonal sales peaks. Analyze product sales throughout the year and consider periods when demand for certain products or categories increases.
  3. Take market trends into account. Study competitors’ experiences and their sales strategies during different seasons.
  4. Determine periods when prices for products should be increased or decreased. This may apply not only to products that are relatively seasonal but also to others that may be linked to specific events (e.g., the academic year).
  5. Create a purchasing plan. Based on the information gathered in previous steps, determine the quantity of products needed for each season.

After launching the seasonal calendar, it is crucial to monitor the results and analyze the effectiveness of the strategies. This will help identify shortcomings and make adjustments to the plan for future seasons.

Review Categories Using Reporting

With ABM Assortment, you will track the sales performance of each product in the assortment matrix and understand whether it meets the needs of the audience in a specific store.

In summary, to ensure success in assortment management, we recommend:

  • Analyzing sales and demand for products.
  • Understanding your customers’ needs.
  • Keeping an eye on market trends and new products.

And don’t forget to utilize modern tools for assortment analysis and making informed decisions moving forward.

Improve assortment management

Request a free presentation today to see how ABM Assortment can benefit your business!

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