Posts Tagged ‘Assortment’

Why Category Definition is Critical

Tuesday, August 5th, 2014

Screen Shot 2014-03-06 at 2.31.25 PMFor retailers who follow a structured category management review, the first step is defining the category. The idea of defining a category each year may seem obvious – even redundant year after year.  But the truth is that customers’ tastes and habits change. A review of trends and changing customer behavior can catch newly emerging opportunities so that retailers and vendors can capitalize on new understandings.  For example, a retailer who habitually reviewed away from home beverage consumption as carbonated beverages versus bottled water could overlook the trend for aseptic packaged milk product consumption and water flavor additives.

The implications can transform a retail store depending on whether its management defines their category as DVD Movies or At-Home Entertainment.  In one situation, they are locked into optimizing the DVD category alone.  In the second, they can evaluate Gaming, Cable Television, Satellite Television, even bar ware!  Defining a category is all about drawing boundaries in the same way your customer does.  So, a customer will ask their family “Which DVD should we watch tonight?” less frequently than they will say “What shall we do tonight?”  Consider the differences in these category definitions: Glues and Paints versus Crafting Supplies, Water Fountains versus Water Features, Party Invitations versus Party Supplies. What should come to mind are the changes in product selection and merchandising in the store that will better anticipate customer needs for these categories.

Category definition needs to be grounded in customer insights that are gained from several sources: affinity purchases uncovered through data mining market basket transactions, primary customer observational research and self-reported customer behavior.  Frankly, affinity analyses can be misleading if retailers do not carry a wide enough breadth of product to be a full solution.  For example, if a limited assortment grocer did an affinity analysis on birthday cakes, it may discover that the customers also purchased ice cream, paper plates and candles.  It could, however, overlook that customers purchased the remainder of their needs (wrapping paper, cards, balloons and invitations) elsewhere.  Primary customer observational research is expensive and time consuming.  Self-reported customer behavior is notoriously inaccurate.

For most retailers, the most cost effective way to discover unbiased customer insights is to review the customer research of their top vendors along with customer research from emerging niche vendors. Niche vendors are usually the first to recognize and exploit new customer patterns. Established vendors less routinely recognize changes in behavior. Their focus on current product lines and customer segments can create blind spots.  Take, for example, the difference between established home cleaning mega-vendors and environmentally-focused cleaning vendors like Mrs. Myers and Seventh Generation in recognizing the growing demand for less chemically-intensive home cleaning products.

For retailers trying to glimpse the future and create a compelling selection that will meet the needs of future customer demand, actively sussing out customer and shopper trends through every resource available is an ongoing endeavor.

Category Management Planning

Friday, March 14th, 2014

candy rackMost forward-thinking retailers use some form of category management to evaluate assortments, make sales and promotion plans and execute those plans to achieve sales. This cycle usually occurs once a year – but it can be more or less frequent depending on the category’s volatility. The category plan reviews past plans and research, vendor input into future customer trends and forecasts, supply chain and financial input to verify true costs and concerns and incorporating the best investment tactics for the retailer to meet its stated financial and customer objectives. Most retailers have a framework or template for these category plans that help the top merchandising executives make trade offs and decisions about future business investments.  Nearly every category manager can find an unexploited niche that could yield some level of sales growth. But a unified category management process helps focus the organization on the top priorities.

Taken in its entirety, the process is called a Category Review.  In the review the category is defined, its role within the company or store is defined, its sales and potential is assessed and a specific budgetary goal is set. With the goal in mind, discreet tactics around adding or reducing products, changing prices, changing promotions or changing merchandising are developed to meet the goal. The costs associated with the changes are approved and the organization implements the plan. From a top down approach, it is a proven process for capturing and sharing the best information about how to succeed in the category to remain competitive.

Merchandising Issues: Customer Decision Points

Wednesday, June 12th, 2013

Screen Shot 2013-03-10 at 6.51.18 PMGood merchandisers highlight their range of assortment in a way that customers can easily see the trade offs among their choices. An efficient merchant will select the best assortment to properly give customers enough – but not too many – choices. There is a customer decision point you should be well aware of.  That is the point where a customer will abandon your store due to a lack of acceptable choices.

Here are examples:

 

    1. A customer with $1500 to spend on an engagement ring walks into an upscale jewelry store.  The lowest priced ring is $4900.  The customer will abandon the store.
    2. A customer wants a mid-range calculator with limited scientific functions.  The store offers several student calculators under $10 and old-school desk calculators with paper rolls for over $75.  The customer will abandon the store.
    3. A customer is not sure which vacuum cleaner she wants.  It must be lightweight, under $120 and have upholstery attachments.  The only models in stock are either lightweight and under $80 without upholstery attachments or commercial-grade with easy attachment choices but priced at $199.  This is the most common scenario where a retailer offers only an opening price point and a high–end choice (Good/–/Best.)  While many retailers (and their vendors) like to speculate that the customer can be sold up to the high-end model, there are studies that indicate abandoning the store is common without a relevant middle selection.  Many valuable customers who could afford to purchase the high-end model will opt to shop elsewhere where they perceive that they have more choices. (And may still buy the $199 model!!)

In fact, the best way to move transaction (total $ per purchase) up in an assortment range of $9, $19 and $39 is to move the middle selection.  Opening price point shoppers who select the $9 choice may not be able to move up to a $15 choice.  Most shoppers self-identify as moderates, meaning the middle choice will almost always be most attractive.  So a move to $9, $25 and $39 will be more effective than moving either the upper price point product or the lowest price point product.