Does your assortment approach only allow you to add, remove or replace SKUs? If so, you are most likely missing the benefits of considering how price and facings can impact consumer choice and sales. Be happy if your current approach considers price and facings, but know that you are most likely still unable to evaluate innovation opportunities and how to place these innovations on the shelf. More importantly, you probably can’t be confident that your assortment plans really address the way consumers shop.
In fact, if you care to note each of the elements we just described—price, facings, innovation launches and shopper behavior—you will find that what we are considering is not so much how to optimize assortment, but, rather, how to architect a category for maximum sales and incrementality. It is the latent, pervasive but often unmet need to architect categories that makes current assortment solutions fall short of delivering true value.
All this brings us to the question, “what does a solution have to look like to enable category architectures?” Well, for one it has to reflect the way consumers shop: whether the solution leverages an existing Consumer Decision Tree (CDT) or Market Structure or has to generate one internally, the solution has to map out the consumers’ decision process. It must also account for the corresponding consumer utility: how does preference change in the face of changing alternatives? And then, the solution needs to have the wide breadth of coverage that is only possible to attain with point-of-sale (POS) data. Although other data sources are acceptable, the reality of the matter is that POS data has a level of coverage and accuracy that is unmatched by other types.
But, let us take a close look at the other elements that are necessary in solutions that enable category architectures:
- Comprehensive item coverage – It goes without saying that a robust solution must account for slow moving items or items with low category share. These may be your items, or they may be the items that have the most incrementality. Failing to account for all items is bound to result in an incomplete view of how consumers shop the category and may leave money on the table.
- Flexible category definition – A solution should represent your categories the way you see them: if you see your cookies interacting with crackers, or if coffee interacts with energy drinks, the approach should be able to gauge and account for these interactions. This aspect is particularly important if you plan on launching innovations that will be in the outskirts of your category definition (we’ll cover this in detail in an upcoming post).
- Address innovation launches – A robust solution should assist in deciding which innovations to launch, forecast their incrementality and transferrable demand and also make a strong and clear case for why a retailer should allocate them shelf space.
- Price and Facings – These two elements can change the decision process: preference for private label can be circumvented by pricing brands low enough to make them attractive by comparison. Brands with great share of shelf tend to attract the most sales (all else being equal) and these subtle changes to the consumer decision process need to be considered to fully address consumer needs and maximize sales.
All in all, what we see is that manufacturers and retailers have much deeper needs than simple assortment recommendations. They need to be able to architect categories, which is only accomplished with solutions that account for far more factors than just adding, removing or replacing items on a shelf.