As your marketing and e-commerce teams will undoubtedly affirm, it takes a tremendous amount of time, money and creativity to drive traffic to stores and websites.
In light of that reality, retailers are under incredible pressure to maximize conversions and market basket size for every shopper’s visit — an objective that is as old as retail itself.
However, as retail has grown more complicated with expanding geographies, channels, store formats and consumer expectations, it has become harder to know exactly what combination of product-place-price will motivate consumers to buy more and more often. In essence, it has become harder to know your customers and what drives their purchase decisions.
Fortunately, advancements in data-driven technologies, specifically, in assortment planning software, are allowing retailers to develop customer-centric assortments that make it easier for customers to say yes to your merchandise when shopping in store and online.
While assortment strategies are still largely dependent on the creativity and instincts of merchandisers and buyers, assortment planning software empowers these teams with valuable consumer insights that help perfectly align merchandise offerings with customers, markets, channels and locations.
And while the benefits of creating customer-focused assortments have been talked about by retailers for some time now, most retail companies still rely on some combination of intuition and Excel — held together through manual processes and tribal knowledge — to manage this critical activity.
The urgency to implement localized, customer-centric assortments is now imperative as the reach of Amazon or other digitally nimble competitors (with endless assortments and endless customer data) continues to loom.
To bring localized, customer-centric assortments to your organization, here are four major processes that require increased focus and discipline:
1. Assortment Strategy
The goal of an assortment strategy is to marry the product requirements to the understanding of the customer needs on a market-by-market basis. Understanding local customer needs is achieved through the use of analytics then with clustering tools that define the attributes of customer groups in a manner that can be related to the attributes of products. Grouping customers by characteristics allows the merchants to understand how many and what type of products are required by location or location type. The end result of the assortment strategy is a proposed shopping list of choices for each unique store or cluster, thus creating the buyer’s guide to how many of which type of product and for where.
2. Product Selection
With the guidance of the assortment strategy, merchants can start outlining the items in the quantities that will fill the needs of that shopping list. Some of the needs may be filled from existing continuity products, while some may be found in replacement products that are “similar” to last year. Other customer choices will require net new product development. Depending on the retailer’s business model, supplier/market product lines may also provide choices, all these options following the guidance of the assortment strategy. This is an iterative process. Perhaps, after some research, the buyers just can’t find or don’t believe in the product list that the strategy has suggested and want to modify the strategy. As the assortment build out continues, the buyers will assemble a list of candidate products (usually a longer list) that the strategy requires.
3. Product Distribution/Fulfillment
This phase of the assortment management process is more straightforward — based on the strategy that dictated which products should be designated to which locations, channels or clusters that satisfy the local customer needs. This “distribution process” will establish product/location eligibilities as well as suggest quantities for the merchants to consider in refining the shopping list. In this phase, it’s important not just to understand what the numbers indicate, but also to have visual representation of exactly what the customers will see when they walk into the store or view products on a web page.
4. Product Quantification
With a now narrower product candidate list, designated locations and a strategy to balance to, the next task is to determine the potential quantities of the products to be ordered, the exact color and size requirements based on the location destinations (with reference to their individual size and color preferences), and the delivery timing that makes sense to achieve the original merchant vision and financial constraints including planned sales, inventory levels, space capacity, some small but critical additional factors. Quantification may get more detailed (i.e., weekly values) if the product will be carried longer term and ordered frequently (vs. a “one and done” buy).
Locking in Success
These four processes are iterative, with retailers starting the process at different points and continuously adjusting all four areas until they are confident that the assortment meets the customers’ needs by location and matches the merchant vision as well as the financial needs of the organization.
By following these processes, retailers will be able to offer curated, local assortments that make it easier for the customers to say yes to buying (multiple) products, wherever and whenever they shop, while reducing inventory costs and improving margins.
Peter Charness is a retail software executive with global experience in innovating solutions for the retail and CPG industries. Peter has held executive roles with various retailers, running the merchandising and planning functions prior to moving into the software industry, where he has led the product initiatives for several major software companies with a focus in the areas of BI, merchandise, and supply chain planning as well as other retail systems. He currently serves as SVP, Merchandise Lifecycle Management at Aptos.