Consumer-Driven Category Assortment Will Optimize Conventional Shelf Sets

Traditional approaches to optimizing assortment rely primarily on straight-line trending of item volume and share. The data employed has nothing to do with how consumers actually choose and use the product, or what they are substituting an item for.

What's more, traditional practices overstate the incrementality of adding SKUs. As a result, retailers make critical assortment and merchandising decisions based only on what they ship from the warehouse to their stores – not on actual consumer behavior.

There is a better approach.

Consumer-driven category assortment is an "outside-in" view of categories and products that is aligned with how consumers use and purchase products. A critical component is a behaviorally-defined market structure that provides direction for key purchase drivers. This market structure shows why and how products satisfy consumer purchase and usage occasions; why and how consumer preferences dictate loyalty and substitutability; and how these factors affect net volume flows across SKUs within a segment or category.

Why is consumer-driven product assortment more important than other methods of assortment? What are the elements of good assortment and how should it be measured?

In the current environment, the data for category segments may not be aligned the way the consumer organizes or shops the category. A category market structure derived from both consumer usage and purchase patterns is required to align segments with consumer shopping behavior An example of this is analgesics which are aligned by ingredients like ibuprofen and acetaminophen. But consumers purchase analgesics based on ailments like headaches and body aches, not based on ingredients.

Consumer-driven assortment looks at where the volume flows in the category when an item is added or removed. Does the volume stay within a given brand set, flow to a competitive brand set, or leave the category altogether? Consumer-driven assortment also identifies where the segments of growth are emerging or creating new partitions in that structure that provide an incremental source of business that did not exist before. An example of a new partition in the structure would be the emergence of a convenience product that adds a benefit to the category, such as Campbell's Soup at Hand.

We were able to help a client save a dinner kit product at Wal-Mart by sharing the distinct consumer segments with the buyer and demonstrating that, while this item was not the highest velocity in the category, it was the number one item in this mainstream box dinner segment. Removing this dinner kit product would have resulted lost volume for the category or – worse – lost customers.

Here is another example. One might assume that wet and dry dog foods are very separate segments. However, when retailers understand that wet dog food is often used as a mix with dry, one could argue that a brand block with wet dog food directly above its dry counterpart could increase sales based on how it is used.

Good consumer-based assortment consists of tools that:

• Build optimal retail assortment based on the integration of consumer preference/ switching information and considering how the segments are structured, aligned with corresponding POS data.
• Optimize SKUs across key segments of the consumer purchase structure based on velocities, profitability and product loyalty.
• Incorporate consumers' actual switching behavior to track volume flow from new or deleted items.
• Produce asset management (ROI and GMROI) reports for both manufacturers and retailers.

MixMaster®, HRCP's proprietary tool for developing optimum assortment, creates in-store product assortments based on actual consumer behavior; that is, by usage and shopping patterns such as purchase, velocity, loyalty and actual switching. This data yields a much deeper understanding of panel data. It goes beyond traditional practices by providing a consumer-driven analysis to help you make assortment decisions with greater accuracy and confidence.

This consumer-driven approach provides meaningful, fact-based direction, while aligning marketing, sales and the retailer around how the category is organized. This information enables you to optimize retail SKUs for maximum return on investment (ROI).

Conducting consumer-based category assortment requires a usage and purchase-driven market structure that defines how the category is organized and a logic-based analytical tool that captures switching behavior and consumer preferences. The benefits are that retailers will get the most productive items on the shelf, space will be allocated based on each consumer segment's contribution, and the layout will be consistent with how consumers shop that category.