Assortment Strategies

What are Assortment Strategies?

Assortment strategies involve product selection, pricing, and display methods to optimize variety, availability, and profitability in retail or manufacturing contexts.

Getting footfalls in the store and getting the same footfalls to convert into sales are two different playing fields for retailers today. Assortment strategies, also referred to as merchandise mix, are the answer to this problem.  

When entering a supermarket such as Walmart or Target, ever wondered how they decide on which products to keep on display, how many brands and varieties to showcase, or how do they realize which products the customer is looking for?

Well, all these decisions are linked to a carefully curated assortment strategy. A holistic strategy heavily makes for the brand identity, contributing to the achievement of financial and inventory targets.

This strategy has multiple facets associated with its formulation, from components to categories. The product mix is the steering wheel, leveraging which many retailers have become household names. As a result, merchandising decisions are often a succession of product mix decisions.

While the right product assortment can be milked immensely into success factors, even a slightly off-product mix can have a detrimental impact. 

Successful companies such as Kodak and Nokia are now in the graveyard of doom because they chose not to keep up with the changing consumer wants, rightly explaining the effects of an outdated assortment mix.

Understanding the assortment strategy

These strategies are strategic tools that define the range and variety of products offered to customers. It is a catalog of products, sub-varieties, and manufacturer mixes that a retailer displays on its physical and digital shelves. 

Consumers interact and make purchase decisions based on the display in front of them, making the product mix a key area of attention for the retail industry.

Every retailer has a unique product assortment, which changes based on the demography, consumer needs, and market demand in its zone of operations.

An optimal assortment mix leads to visible gains on two frontiers: 

1. It helps boost sales and improve margins
2. Widens customer base by impacting customer experience

Making your shelves look exactly like your customers want is the key to reducing dead stock. Assortment optimization is the right tool to reduce losses from dead stocks. It results in lowered costs of holding unnecessary inventory, better negotiations with vendors, and a simplified supply chain. 

Customer experience is impacted right from the moment the customer enters a store. Easy-to-navigate layouts, the seamless discovery of products, and the trust that the same product will be available on the next visit are the factors that shape this experience. 

Customers expect outlet owners to understand their needs and expectations and tweak their offerings accordingly. A targeted assortment strategy is just the way to do it.

On the flip side, if the mix is not right, it can substantially affect sales. For example, if the offerings do not appeal to the masses or there are too many similar products on the same rack that are confusing while making a purchase decision, the customer might react negatively. 

Components of Assortment Strategies

While analyzing this strategy, it is important to strike a tradeoff between product width and product depth. An overview of this will help us understand the types of strategies better. 

1. Product Width

Product Width or product breadth is the range of product lines a store offers. A representative of the categories a customer could find at the store. 

As we all know, Walmart offers everything from groceries to clothes, shoes, lamps, and electronics. This variety available makes up for its product width. 

A wide product assortment has many different types of products; however, the variations or sub-categories underneath are quite limited. This aspect makes it lucrative for global and bigger markets but makes it tricky to capture the niche segments.

2. Product Depth

Product depth refers to the range and number of variations offered under each product line available. Variations can be in color, size, material, taste, brands, and flavors. 

A classic example showcasing a deep assortment will be that of an ice cream parlor; it has just one key offering - ice cream; however, customers have the option to select from a plethora of flavors, sizes, and toppings. 

In simpler words, unlike a wide assortment plan, there are fewer product lines but more variations within each line of offering. Ideally, the target segment is a compact customer group that is passionate about its demands and makes repeat purchases. 

Balancing width and depth is a crucial decision to be made by retailers, generally driven by revenue and profit projections. Another major influence is the size of the store. Usually, small shop owners tend to give up on either the width or the depth due to store space constraints.

Types of Assortment Strategies

To draft the right assortment strategy for your business, it is pretty crucial to understand the various types of assortments that exist, study the aspects and applicability of each, and choose after that. Some of the types are:

1. Wide Assortment

Wide assortment, alternatively known as broad assortment, is used when many categories are offered, with fewer variations within each category. In brief, its lesser depth and greater product width. 

A wide assortment aims at providing multiple products on shelves; however, a customer might find barely one or two popular brands within each product category visible. Typically used by business owners desiring to become a one-stop shop for all consumer needs.

2. Deep Assortment

A deep assortment strategy looks at offering a large number of options and variety to choose from within each category. The focus here lies on a smaller number of product lines. 

This kind particularly is adopted by retail stores that emphasize serving a dedicated and loyal niche of buyers. 

3. Scrambled Assortment

Herein, products outside the core business areas are offered to bring customers from different markets outside the established target segments. Usually, complimentary product offerings are selected to serve as a natural extension to the main operations.

For example, a cafeteria starts selling grounded coffee beans to attract customers who wish to have a cafe-like coffee experience at home.

The depth for extended product categories might not be similar to that of a specialty store, but it is enough to induce customers into purchasing while they are there.

4. Localized Assortment 

Localized assortment allocates the mix on two main factors being:

1. Local preferences
2. Geographic Characteristics

It adapts to the local community's needs, providing a touch of personalization to this strategy. 

By tweaking inventories according to requirements and likings of the mass across various regions, localized assortment strategies aim at increasing sales. 

5. Mass Market Assortment

Typically adopted by mass retailers with huge storage capabilities, the mass market assortment is the one that appeals to broader demographics by offering as many product categories and variations underneath as may be possible. 

This approach is wide as well as deep, as is rightly seen in the operations of Walmart, Target, and Amazon.

How to build an effective product assortment strategy? 

Leading retailers often adopt a five-factor planning tool to determine their assortment mix. The five factors can be understood as follows:

1. Design similar assortments for similar stores 

One size fits all approach, popularly known as cookie cutter assortment, is often the reason for high inventory costs and overstocking issues. 

Grouping retail locations by common attributes such as sale trends, demography, geographic features, consumer behavior, seasonality, and the like. Every retailer will have a different list of criteria and develop clusters accordingly. 

The product mix within each cluster displays a similar tone of width and depth. This cluster approach makes it easier for retailers by optimizing resources and sales.

2. Assortments revolve around product families

When a retailer does not consider the features of every product before grouping them under one product line, it often leads to cannibalization and overstocking. Thus, product attributes must be the primary consideration when forming product families. 

Families comprise substitutive products, sharing a similar combination of characteristics desired by the customer and inducing the customer to purchase from within the family.

Too few products within a family might drive away sales, whilst too many products lead to upfront cannibalization. Hence, a balance needs to be an important aspect of the strategy. 

3. Taking into consideration the changing consumer preferences

We have noticed many businesses that have sunk because they did not keep up with changing needs. Consumer preferences change every day, and modern retailers use analytical tools to track consumer behaviors.

Integrating changing customer demands in strategy formulation aids businesses to scale swiftly and leanly. 

4. Deploy specialized tools for planning the assortment mix 

Once the strategy has been narrowed down, the next step is to take a deeper look at the merchandise assortment. This step involves defining the product variations, styles, sizes, flavors, colors, etc., that must be stocked at every retail location.

Advanced technological tools and software are used to sort the SKUs based on the multiple decided attributes.  

5. Decisions to be based on careful data analysis

Minus the right tools, retailers often frame assortments based on educated guesses and gut instincts. However, data-backed decisions usually contradict instincts.

Leveraging machine learning and AI tools, as discussed earlier, to use historical data, future predictions, trend analysis, and shopping patterns provide confidence in deciding which product families to expand and which to shrink. 

Best-in-class retailers gain a market advantage by creating effective assortment strategies.

tips for retailers to build the right assortment

Coming from a blank slate, new retailers often get lost in formulating the right product mix for their customer base. Sticking to the tips below can act as a good starting point for framing a competitive assortment strategy. 

1. Understand, review and build on your inventory data; it holds many clues about the performance of all past strategies deployed. 
2. Complementary to inventory data is customer data. Understanding customer data helps realize why one product performs well, and the other does not. 
3. Account for seasonality and provision for flexibility, basis holidays, events, and weather changes that impact customer demand.
4. Balance loss leaders and staples. Loss leaders, although not profitable, attract new customers to the shop. This allows retailers to sell them other relevant products and increase basket sizes.
5. Pay attention to trends by observing and tweaking the product assortments as swiftly as possible to avoid phasing out your business.
6. The right assortment mix means providing customers with everything they need in one place. Complementary products are the best enablers of this goal. Products that work well together help customers reach their goals. 

Using these tips and curating them to your requirements and environment may be a powerful aid in framing an exotic strategy for your business.

future of product assortment

Understanding the present state of product assortments and their precedences makes it essential to see what the future appears like. Peeping into the future, two retail assortment trends come across as the most influential. 

1. Endless Aisles

Endless aisles allow in-store shoppers to order their products online before visiting the store in person. The goal is to provide the best customer experience, reducing wait times and diminishing boundaries.

Retailers have successfully implemented it via interactive kiosks and OR codes. This approach flips the assortment strategy, promoting lower inventory levels and limiting risks associated with limited space.

Although operating on minimal inventories, stores with endless aisles maintain a wide and deep product catalog for addressing almost all customer needs. This is the upside because this strategy has recently gained immense popularity. 

2. Omnichannel shoppers

About 2 billion plus people use the internet to make purchase decisions and place orders online, coming in the category of "Digital Buyers." Even for small local stores, offering seamless online and in-person services is pivotal in today's world.

Options such as buy online, buy online, pick up in-store, virtual shopping, and contactless transactions are driving the demands of today's consumers. However, all such options must be connected at the back end, offering inventory and product insights.

Conclusion

To conclude, one does not need to offer everything available on earth. Instead, one needs the optimal number of products and variations underneath to make customers' shopping experience a cakewalk. 

A happy customer accounts for increased sales in more than one way. Start with what customers need, understand what the data says, carve in the other considerations, and keep making changes as you go.

Building the right strategy can be viewed as an experiment to produce an increased return on investments with unseen impacts as the consumer spectrum matures.

Researched and authored by Krupa Jatania | LinkedIn

Reviewed and edited by Raghav Dharmarajan

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