Research consistently reveals two primary drivers behind a customer's willingness to transact with a retailer. The first, not surprisingly in today's economic environment, is price perception. Customers want to feel that they are getting good value with respect to how much they spend. The second driver, just as important as the first, is product selection. If a customer does not encounter an appealing assortment of products to choose from in-store, they are highly unlikely to engage even once with the retailer, and much less likely to become a loyal customer.
Today's retailer must deliver a relevant and personalized shopping experience. A customer-first product assortment can often serve as the foundational element of that experience, driven largely by a deliberate and strategic collection of offerings. Moving away from the traditional assortment strategy: "We have something for everyone," today's strategy should tell a different story: "We understand what you need."
Determining a customer-driven product assortment, however, is not always a simple process. There are multiple considerations, from marketing strategy and consumer targets to logistics and bottom-line financial goals. Clearly, products need to be offered that are on strategy for the retailer, whether their positioning is mainstream, low price, niche, or affluent, the assortment is critical to communicating the bundle of customer benefits. And certainly, the assortment must allow financial goals to be met. Sufficient margin must be achieved across the products to maintain a viable business.
But beyond these macro level criteria, there are a myriad of decisions to be made. Building an assortment to satisfy the complex needs and wants of the customer can be extremely complicated. In many cases, there are thousands of products to choose from, with hundreds of new items available each year and an assortment strategy is not as simple as just choosing the most popular products available with the highest sales.
Certainly, a retailer should carry products that sell, but only considering sales does not ensure that the needs, wants and expectations of the customer will be met. Frequently, niche products can demonstrate low sales but often these products have a highly loyal customer following. Items that appeal to specific consumer groups can create a similar situation for retailers; while they are not necessarily high sales items, making the decision to not offer these items can drive loyal customers to shop elsewhere. There are also key items that have mainstream appeal that will generate traffic. A customer-first assortment considers all of these dynamics.
There are three key elements to achieving an assortment that will both delight consumers and ensure that business goals will be met:
The assortment must include high performing items, but performance is defined here as more than just sales. There are several customer-based performance criteria that must be satisfied:
- Assuming that the retail strategy is not 100 percent niche, items that have mainstream appeal across a wide range of consumers are essential elements of generating in-store traffic.
- Keep items on the shelf that maintain a loyal following and are often repeat purchases. Product loyalty engenders retailer loyalty, and the consequences of not having these items available can be extremely damaging.
- Carry items that are favored by the store’s best customers. If deciding between two products that perform relatively similarly, reward the store’s best customers by keeping the item that they consistently prefer.
Accurately identifying high performance items across categories and consumer groups is a challenge. Shopper loyalty data is the best resource to measure performance at the item level and offers an optimal lens into how consumers interact with each individual product. In other cases, additional data sets (e.g., survey research, online click-through data) are useful in filling in these customer insight gaps.
Coverage of consumer needs
The mix of items offered must meet the varied needs of consumers. Some buyers seek convenience while others prioritize value. And still others have specific brand preferences. An assortment must have offerings across all of the most important consumer needs to be successful.
An in-depth understanding of the customer, their need states and usage occasions is essential. This can be achieved by a variety of means, either through survey research, or better yet, an examination of actual consumer behavior from shopper loyalty data, which provides the most granular understanding of all purchase patterns and needs. Often a combination of both provides the most complete picture.
Typically, research in this area can identify customers' key needs through an analysis of a product's substitutability. Products that are not consistently preferred by the same customers or for the same usage occasion are thus differentiated — they are resonating with different customer needs. In contrast, products that are favored by the same customers for the same usage occasions have a higher degree of substitutability and are less differentiated.
A classic example of a product with a low degree of substitutability is chocolate milk, which may be a slower moving item but is differentiated because it caters to a specific group of customers for a specific usage occasion. Chocolate milk buyers are generally not directly substituting it for skim milk, for example. Meanwhile, other milk varieties (skim, 1 percent, 2 percent, whole) may be vying for some of the same usage occasions, and thus, category dollars.
It is important to sift through and understand the substitutability patterns and therefore those product benefits that consumers really care about and meet specific needs (i.e., chocolate milk) versus those that are less important. This is critical in determining how to offer important product variety versus "me too" cannibalizing products that only deliver needless duplication in the minds of consumers.
Relevance for the right consumer targets
Products appeal to different consumer targets. It is important to ensure that there are relevant product offerings available for each of the retailer's consumer targets. Whereas "large pack size" might be an important consumer need state, affluent consumers are going to demand a different large pack than those who are value focused. To maintain appeal to both consumer types, the right product variety must be offered.
The implication of this is often twofold. First, a relevant assortment for all consumer types can mean making sure that there is a variety of targeted options on the shelf. However, it can also mean catering and customizing the assortment by store or transaction point. For example, a customer-centric retailer will offer and display more upscale products in stores that serve more affluent consumers and feature more value oriented products in stores that serve value consumers.
Customer-first retailers approach product assortment as a form of storytelling, as a way to thoroughly engage and personalize the shopping experience for their most loyal customers. This is an impossible task to undertake without a complete view of the customer. Retailers must learn to disregard their assumptions about who they think their loyal customers are and what they think they want. Further, sales figures are not the only indicator of a product's performance. As a retailer begins to study and understand who their most loyal customers are and what they need, product assortment decisions become more effective and successful. This model will help retailers achieve not only greater cross-category alignment but ultimately, a more loyal customer base.
Jeff Weghorst is director of merchandising at dunnhumbyUSA, responsible for developing customer-driven assortment strategies and promotions for dunnhumbyUSA's engagement with The Kroger Co. (Photo by Anthony Albright)