Getting Assortment Strategy Right

MixMaster® Success Stories
By Greg Orth, Director

Effective SKU optimization and assortment planning should reflect actual shopper choices and switching patterns.  Incorporating shopper behavior into your retail planning can provide a distinct competitive advantage.

HRCP's MixMaster® tool is grounded by the MarketMap which incorporates both usage and purchase behaviors within a given category.  This provides the ability to analyze volume transfer between products, brands and segments when items are added or deleted, as well as the loyalty of an item or its walk rate.

The following two case studies exemplify the benefits of using MixMaster for assortment optimization initiatives.  The first outlines a consumer packaged goods category with a brand rationalization objective, while the second is  a health care category with a need for individual SKU optimization.   

 

Trash Bags

Every category is organized in a unique way.  The segmentation of products in a MarketMap often provides a good indication of how assortment planning should be approached.  The trash bag category is very brand driven.  The majority of volume is spread among two national brands and private label.  While these three brands dominate the category, there is a long tail of smaller brands which contribute little incremental volume to the category and create clutter and confusion on the shelf.

The leading national brand in trash bags was looking to understand the low productivity and incremental contribution of this long list of smaller brands within the trash bag category.  By using MixMaster® and incorporating the MarketMap and shopper behavior into the assortment work, they were able to run simulations to evaluate brand and category performance by eliminating these brands from the set.   

When the smaller brands were removed from the shelf set, category impact was minimal because these brands have low loyalty and a low walk rate.  This allows the manufacturer to show retailers that eliminating low loyalty brands and streamlining the assortment will make the experience better for the shopper without materially impacting category revenue.   In addition, by eliminating these unproductive brands, it opens up space on the shelf for innovation or expanded facings on top-selling items within the category.

Another benefit MixMaster® was able to provide was to demonstrate that the long tail of brands significantly interacted with private label.  When these brands were removed, due to their low walk rate (loyalty), a large portion of their volume shifted to private label items, benefitting the retailer's brands as well as the entire category.  
  

Medical Sutures

An industry leading healthcare company manufactures surgical sutures.  Due to their large and fragmented catalog of suture products, it has been difficult to efficiently manage production costs and profitability.   

The company was interested in finding opportunities to increase production efficiencies and reduce costs by identifying and removing unproductive items.  HRCP completed a MarketMap for the wound closure market to understand the product segmentation and loyalty within the category.  Once this behavior was understood, HRCP used MixMaster® to run simulations to provide strategic direction and specific item level recommendations for reducing assortments by suture segment.  

MixMaster® identified the most unproductive brands and segments within wound closure.  After these products were identified, SKU reduction scenarios were run to understand the impact to the manufacturer as well as the entire category.   

Due to the sheer volume of SKUs offered in the category, the best solution was a SKU rationalization approach (as opposed to deleting entire brands or segments) that eliminated items with low loyalty levels.  We found that eliminating approximately 25% of the items within the company's portfolio had virtually no impact on either the company's or the category's revenue.   This allowed our client to achieve significant operational cost savings with virtually no impact on revenue.