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Gene
Ponti
Director, Business Development
Assortment & Merchandising Center of Excellence
ACNielsen
Joe
Bucherer
VP, Managing Principal
Assortment & Merchandising Center of Excellence
ACNielsen
Historically, much of the retail industry has managed category
shelf sets with a simple rule of thumb: one in and one out.
This concept would drive the assortment decision process for
retailers in evaluating an item's success: Using a measure
such as dollar sales and/or movement (velocity) of an item,
the retailer would rank the items and remove the last on the
list, replacing it with a new item. Little real consideration
was given to the overall impact on the category.
However, today's changing retail and market environment has
created increased challenges for both retailers and manufacturers.
Many companies in the industry are merging or consolidating,
causing a need for several product assortment and merchandising
strategies within “one” company. These various
strategies tend to create the need for a broader, more inclusive
understanding of categories overall, the role of individual
items within the category and the consumer that shops these
categories.
This process starts with understanding market structure. A
key element is understanding the consumer. The way shoppers
approach the category helps in developing a “consumer-meaningful”
approach to merchandising and assortment. Some key issues
include:
- Meeting the needs of the current customers to secure
a category base and current dollar sales;
- Expanding current assortment to the base customer; and
- Expanding assortment to bring new customers to the category.
We recently completed
a case study with a retail organization and two manufacturer
partners to address the issues outlined above. In this instance,
our retail partner's goal was to improve sales, realizing
that there might be an opportunity to increase assortment.
First, we tested the assumptions about how the category operates
in order to assess the proper assortment and impact [See chart
1]. Our first question was, What is the correct view of the
world? Once an understanding of the category's structure was
established, the importance of product attributes can be utilized
to rank the important aspects of product category purchase
decisions.
From here, we developed a consumer-driven approach to assortment
and merchandising planning. Such an approach can help determine
the strength or potential opportunities for brands, segments
and stores.
After analyzing the structure of consumer purchasing, we determined
that product size—not product position—was the
most important portion of the category purchase decision.
This was followed by type, brand and flavor decisions. Based
on this, we developed weighting for the importance of each
attribute. When this was input into assortment decisions,
the higher-weighted attributes were given more importance
in the decision process.
Our determination was that a better merchandising plan was
required. It needed to maximize product movement, and more
importantly, sales. Top performers could be better placed
in strategic locations to maximize sales opportunities while
similar products could be positioned nearby to help drive
additional impulse purchases [See chart 2].
Note that for specific categories or retailer environments,
these recommendations could change based on merchandising
parameters or fixture restrictions. These were addressed via
ACNielsen's Spaceman merchandising tool.
For example, using Spaceman, the merchandising flow was repositioned
to keep individual segments close together. This would help
target specific consumers and encourage them to shop the section
rather than just search the section—one of our goals.
We also determined that many top-moving items, as predicted
in our modeling, were “extremely under-stocked,”
creating a low service level. Sufficient shelf inventory must
be allocated to maximize sales potential while maintaining
a high service level. Inventory replenishment must be factored
into an analysis of this sort, to minimize out-of-stocks based
on the retailer's rule sets.
Next we evaluated sales and profit. The top performing items
in sales and profit were not strategically placed, while under-performing
items were in key positions. Item-level calculations were
additionally factored in, to determine key areas such as a
brand's worth to the overall category and an individual item's
worth within the category.
Recommendation: Success
This optimized assortment was then score carded and reported
through graphs and charts to deliver a comprehensive view
of changes and effects. As a result, the following changes
were made within the same square footage of the store:
- Relocated 14 SKUs that were considered part of the original
category to a new section. This was essential in maximizing
assortment and category structure while not compromising
potential sales from these SKUs.
- Added 37 SKUs to the existing section. Category leaders
were added to increase selection and segment coverage, and
new items were added as competitive advantage against other
channels.
- Developed a new custom fixture to increase linear space
without increasing the size of the section.
Finally, based on
the changes suggested, we were able to forecast the impact
of the recommendations [See chart 3]. We were able to tactically
implement a solid merchandising plan that is anticipated to
drive sales and profits for the retailers while generating
increased turns and portfolio strength for the manufacturer
partners. In doing so, we met consumer demand without duplication,
and have helped make the shopping experience more “consumer-meaningful.”
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