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Selecting The Right Assortment: Session 8

The document discusses selecting the right product assortment for retailers. It covers: 1) Merchandising is the primary activity for retailers and selecting the right products from millions of options is key, especially for brick and mortar stores with space constraints. 2) Aspects of balance include variety, assortment, stock depth, and how these vary across categories. 3) The process of assortment planning involves setting goals, allocating resources, and dealing with problems in projections, especially for fast-changing categories. Techniques like dynamic reorganization and analyzing relative sales can help.

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Ethan Hunt
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67 views10 pages

Selecting The Right Assortment: Session 8

The document discusses selecting the right product assortment for retailers. It covers: 1) Merchandising is the primary activity for retailers and selecting the right products from millions of options is key, especially for brick and mortar stores with space constraints. 2) Aspects of balance include variety, assortment, stock depth, and how these vary across categories. 3) The process of assortment planning involves setting goals, allocating resources, and dealing with problems in projections, especially for fast-changing categories. Techniques like dynamic reorganization and analyzing relative sales can help.

Uploaded by

Ethan Hunt
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Session 8

Selecting the Right Assortment

11/24/2020 RV | IIM Lucknow | 2020-21 1


Merchandising

• The primary activity- thrust area- for any retailer is buying and selling merchandise
• Selecting the right products from a universe of millions is key
• This is particularly important in Brick & Mortar with space constraints
• However, as we discussed in the last class, even online retailers have some kind of
product line rationalization
• Merchandising, though, is a much broader function
• Assortment Planning
• Buying systems
• Visual merchandising
• Pricing and Promotions
• Markdowns and clearance

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Aspects of Balance

• Variety and Assortment – Are they same?


• Variety – generically different categories or classifications of SKUs that a retailer carries – women’s
apparel, men’s apparel, Kitchen, Home Improvement, Grocery – or maybe even narrower
classification
• Assortment, or stock breadth – Range of choice of selection within a particular classification – within
men’s shirts– range of prices, styles, colours, materials, patterns
• A combination of variety and assortment determine strategic level of merchandise
planning
• Stock depth – The amount of inventory for a particular SKU, shelf space
• The rhythm of assortment planning varies across categories – consider grocery, shoes,
consumer electronics, floor tiles, piano

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Process of Assortment Planning
• Typically, assortment planning begins with setting goals for each category – sales, market
share, revenue, profit etc.
• Resources (primarily store space, purchase dollars, manpower) are differentially allocated
based on history and projections.
• But there are problems with projections, almost always

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Source: https://petapixel.com/2014/12/15/chart-shows-badly-digital-
camera-sales-getting-hammered-smartphones/

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• This frequently occurs in fashion categories – history can lead a buyer to exactly wrong
direction in a short time!
• But even in fast changing environments, some level of attribute level forecasting helps.
Having some forecast is always better than none!
• Another way to make systems adaptive is by making a dynamic assortment re-
organization
• Borders, before getting disrupted by tech, was pretty good at this
• Remember? Borders case? Relative sales per title?
• RST = sales in a category in a store over a specified period/number of titles in the
category in the same period
• Can this approach of borders be improved? Discuss

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• Okay, if we know how many SKUs to hold in any category, how do we pick those?
• Assume, for example, Best Buy decides to have 80 different flat panel TVs in their
assortment. Buyers have a tough task selecting which ones.
• Also, how do you assess a new SKU in the space?
• One crude way, the Gin Rummy strategy
• Assortment is not always about maximizing profit on every single SKU
• Loss leader
• Signalling wide assortments
• Price reference setting
• Specific customers
• Localization, issues of control. Who gets to decide?
• Assortment management is both an art and science

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One technique
• Most times, a customer looks for a set of attributes and not a product
• Take as examples - bed sheet, TV

• Can we use sales of existing products to forecast demand for attributes and in turn, new
products?
• Can I find an adequate replacement for an obvious slow mover?
• What is the likelihood that customer will substitute one product for another?
• Does localization actually help? For which categories? How to create them?
• In this example, we consider automobile tires as a category.

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1. Understand attributes
• Important attributes – brand, mileage warranty, type and size. This comes from
judgement of the category manager
• Brands – 7 national brands, 3 house brands (1. premium, 2. mid-level and low-end)
• Mileage warranties – 3 levels (low 15,000- 40,000, medium 40,000 to 60,000, high > 60,000)
• Only six combinations of the above were considered- National High, National Medium, House 1
high, House 2 high, House 2 medium, House 3 low. Others made no sense!
• 64 combinations of tire type and size. Out of the 384 combinations thus, only 105 were carried in
many stores.
• Which of them will be readily substituted if unavailable? What fraction of customers
will substitute?
• A detailed article, ‘Which products should you stock?’ is procured and distributed in your
hardbound notes. Read the technique in detail from there and then go to the next
slide.

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• Modelling consists of carefully choosing attributes – functional, price and taste attributes
• Grouping of close attributes makes statistical sense
• The most important, often overlooked, point is that the assortment currently offered
affects sales
• More elaborate techniques – conjoint analysis, AHP
• We did not even consider stockouts in the example, we assumed high in-stock rates!
• We used revenue as our objective – can there be others? Gross margin? Percentage
margin? Or any other metric

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