Sourcing and Procurement
Unlocking success – Strategic assortment in category management
The retail industry structure has evolved significantly, comprising physical and online stores. Both mediums require a seamless blend of technologies such as artificial intelligence (AI) and machine learning (ML) to build customised assortment plans.
According to a study, 47% of customers prefer to shop in a physical store. While 73% of them expect businesses to understand their needs and unmet expectations, degrade their experience and year-on-year sales.
This article explains the concept of assortment planning in retail, how it works, and its importance, components, tools, and models.
What is assortment planning?
Retailers use assortment planning to group and allot the inventory based on parameters such as styles, seasons, price bands, sizes, colours, etc. It is a tactical activity in response to sudden shifts in demand and other market parameters.
The assortment planning process provides complete and accurate data on products and their parameters. It also helps in increasing sales, profitability, and cash flow.
What is the difference between assortment planning and category management?
Both category management plan and assortment planning are related with interdependent steps. The key differences are –
- Tactical vs. strategic planning
- Performance measurements
- Complementary functionalities
Category management is a strategic process to manage product categories and meet the retailer’s business objectives. It optimises the entire category’s performance using product selection, pricing, promotion, and placement. Assortment planning is a tactical approach to managing specific products within a category.
Businesses use product category management to drive the profitability of different products. They use technology to understand market share, purchasing behaviour, category size, sales growth, conversion rate, and profitability.
Assortment management solutions help businesses select the right product at the right price, in the right quantity, and at the right place. They help in inventory forecasting, planning, and optimising.
Businesses can merge these solutions to optimise space, match assortments with the fixtures and space available, and maximise performance, sales, profits, and returns.
Category management uses market insights to give recommendations and product analysis to make top-down plans for different categories.
Assortment management helps put the right product in the right place, create localised market assortments, and increase sales, margin, and return on investment. It provides item-level visibility for efficient management.
How does assortment planning work?
Assortment planning starts several months before the season, irrespective of the industry. It uses a wealth of data from past sales and transactions, online and offline. When the season for sales arrives, the stores are ready with the right inventory.
For example, a fashion retail brand may want to stock up on colours and styles of jackets based on the season, geography, and sales history. An aviation brand may offer special meals and add-ons to flyers of different cultural backgrounds and geographies.
What are the key parts of assortment planning?
It takes careful thinking to implement assortment planning, including product variety, variation, and balance:
- Product variety
- Product variation
- Product balance
This refers to the assortment’s span of products, types, styles, etc. For example, a fashion brand may have formal pants, jeans, and cargo pants as the types of pants. This works when the store is selling to a range of shoppers who prefer different choices, premium brands, and bargains.
This refers to the depth of a single assortment. For example, a fashion retailer may have five brands of shirts in seven colours and four sizes. Variation makes the assortment rich but can leave the customers overwhelmed. Businesses must know their customers to strike the right balance between variety and variation.
Retailers balance their assortment according to the colour, size, type, and seasonal demand or trend. For example, a fashion retailer may mix men’s summer shirts, including button-downs and flower prints. Similarly, traditional prints are always in demand and fit well with the trendier ones.
What are the methods of assortment planning?
You need tools and methods to implement assortment planning effectively. Some of the effective methods are:
Consumer segments
This includes groups of customers or shoppers with similar preferences based on financial, personal, and physiological factors. People looking for specific brands may have lower economic concerns than those who are looking for seasonal deals.
Store clustering
Clustering similar stores together based on size and volume simplifies assortment planning. You can design a common plan for each cluster, thus reducing rework and saving time.
Consumer decision trees
Most businesses group their products based on a hierarchy that imitates a path buyers may take in decision-making. For example, a buyer may see a parent category of a mobile phone. Under this category, there may be devices grouped under different budgets, brands, and features.
Seasonal financial goals
Businesses that offer seasonal products do assortment planning based on festivals, economy, weather, holidays, and special events such as birthdays and marriages. For example, a store near a beach may not want to stock up on sweaters during summer.
How can Infosys BPM help your business with category management?
The Category Control Tower (CCT) at Infosys BPM is a genome-based solution offering actionable insights to help category managers. The benefits include proactive alerts, real-time decision-making ability, and platform-agnostic nature.
Read more about category management planning at Infosys BPM.
