Optimizing Your Product Assortment: Design for Growth

By John Porter

Trends in the marketplace – busier-than-ever shoppers, localized competition, and the impact of digital – are making the retail environment more complex. Deciding which products to have in-store and online continues to be a universal challenge for both manufacturers and retailers. Manufacturers know that product availability is the key to product selection, while retailers are trying to hone their offerings to maximize baskets and sales. Both are motivated to understand what shoppers want and to make it available in the right locations.

There has been a significant shift in how companies view product assortment. The pushstrategy that moved a set of products into all stores is no longer viable – “one size fits all” is dead. Effective assortment optimization is now driven by a pull strategy, which identifies the items that consumers value so that assortment can be designed to drive category sales.

While it’s not easy to get product assortment right, there’s no doubt it’s vital for manufacturer and retailer success. For example, almost half (46%) of all CPG sales are in urban markets, paving the way for small format stores in those areas. But this means less shelf space for manufacturers and retailers to work with and more competition for that space.

With shopper demand varying significantly across channels, regions and neighborhoods, CPG companies need assortment optimization analysis that take the guesswork out of what to put on shelf by leveraging information that evaluates howpeople are actually purchasing in-store for specific retailers. The location of the store can give you some idea of the demographics of the neighborhood but it doesn’t tell you anything about who’s actually in the store and what they’re buying.

Instead, advanced algorithms should leverage sales data to identify key product attributes (flavor, pack size, brand name, etc.) and quantify relative importance to shopper decisions. By assessing the true contribution of each product in a category, manufacturers and retailers can take a fresh look at the impact of the items on shelf, physical or virtual. This includes understanding which brands or products drive the highest incremental sales for the category and how products interact, via demand transfer, to understand today’s portfolio and pull in the right products to create future growth. Companies can also use these insights to anticipate where new products may have their best impact.

Working together, manufacturers and retailers can make very specific product assortment decisions to bring the right product/s into the store, which will engage customers and drive profits. Finding opportunities to regularly enhance their assortment helps companies continuously optimize their product mix, select products more objectively and efficiently, and track business impact.

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