Assortment Planning for Endless Aisles: Choice or Compulsion?
Due to the constraints of physical space, pure brick-and-mortar retailers are forced to operate within a carefully balanced triad of Availability-Variety-Aesthetics. In contrast, online channels offer the promise of endless aisles, making online assortment planning no longer an option but an imperative.
The figure below presents an overview of the key differentiators of online assortment planning with a focus on the overall performance improvement of the top and bottom line.
Looking Beyond Stacking Up
Merely uploading products online without sufficient focus on the best fulfillment alternatives in terms of time and money is a sure-fire way to margin leakage. Rather than focusing on procurement alone, retailers must define an integrated omni-channel approach that also covers inventory handling and fulfillment strategies across channels.
Some of the key factors that retailers must consider are:
- Customer fatigue vs. endless aisle: With endless aisles, there is a temptation to ‘stack up’. Retailers need to optimize the search to display limited but highly relevant choices to avoid overwhelming customers.
- ‘Searchandising’: With conversion rates hovering between 2–5% on an average for most retailers, aligning merchandising to the item discovery process is important. Many ecommerce sites have implemented ‘searchandising’ to allow customers to navigate through search results by using a set of product characteristics such as the brand, color, or size. Retailers can generate near real-time analytics on attributes such as review/rating or the overall navigation path from search to payment. This data can be used to redefine the ‘searchandising’ taxonomy to display products based on the customer’s profile and preferences.
- Drop-ship vs. In-house fulfillment: Although drop-ship vendors help retailers expand their product lines without the overhead of stocking inventory, margins are relatively lower. Stocking vs. drop-shipping decisions must take into consideration the impact on margin leakage, availability, service levels, and the brand promise.
- Item profitability: Retailers must understand the profitability of the items being sold online and make assortment decisions based on the risk involved. All the cost components involved, right from setting up an item for sale to the last mile,become crucial to ensuring a sustainable business model.
Play Smart, Win Big
While retailers need to maintain consistency in their identity and business promise, analytics will help them to quickly experiment with possibilities and measure results in real time. Given below are a few imperatives for retailers to be successful in their omni-channel pursuits.
- Keep the brand promise: Retailers must deliver on brand promise and image—be it variety, quality, value, or convenience—irrespective of the channel. The customer experience for the brand must be seamless. Drop-ship vs. In-house fulfillment decisions should be aligned to the brand promise.
- Break the operational silos: Retailers need to leverage synergies across all channels to prevent margin leakage. While deciding on store assortments, retailers should consider the online performance of products, and vice-versa, when determining online product assortments. Item performance in terms of sales, profitability, and margin across channels will provide crucial inputs for more optimal cross-channel assortment planning.
- Complete the shopping basket: The goal of assortment planning should be to complete the shoppers’ basket irrespective of the channel—by understanding shopping behavior, channel preference, and the ‘why’ behind the choices made. Retailers worldwide have invested in platforms to capture customer data that can be leveraged to gain a 360°degree view of the customer and support assortment decisions.
- Leverage insights to drive assortments: Here is how retailers can derive actionable insights to adjust their own product mix and pricing with accuracy:
- Understand the category/item role: Categories/items play different roles across channels. For example, diapers can be traffic builders in the brick-and-mortar context but a one-off sale online. Retailers need to consider shoppers’ sentiments and the role of in-store and online items when analyzing sales margins.
- Perform item diagnostics: Most often, low item performance is because of seemingly innocuous aspects such as poor searchability, missing images, or poor product ratings, rather than product features. Tracing the right cause and addressing the issue requires very granular analysis in real time.
- Identify hot items: Increasing the market share and keeping the channel exciting requires intelligence that allows retailers to identify new items for roll-out and retirement of non-performing items. It can be done based on market rating, social media buzz, and the past performance of items with similar attributes.
- Drive item enrichment: Attributes emphasizing product details such as reviews, ratings, images, videos on product usage, and content description gain precedence for an online shopper as compared to traditional store-only attributes such as size and style. To break the shackles of siloed operations, the modern item management system needs to evolve to host new attributes and support dynamic additions. A unified and enriched item master can lay the foundation to conduct integrated analytics around similar products, perform click stream analysis, and determine the contribution of abstract attributes such as image and content to the sale.
- Identify choice sets: Knowing the shopper navigation path and the item choice sets for both in-store and online assortments is crucial for identifying which items need to be displayed and how customers can easily find them. This can be determined by leveraging shopper browse tree analysis for digital channels, and video and basket analytics for stores.
Focused analytics with renewed and holistic rigor is the key to omni-channel assortment planning. It is also important to incorporate granular-level data and be able to react in real-time.
Information proliferation owing to smart devices and granular details about customers, competition, products, and business rules bring in the need for scalability through platforms like Big Data, especially in the pursuit of agile, smart, and highly localized assortments.
As retailers go full throttle to maximize gains through investments in multiple channels, they need to break the operational silos across channels and adopt an integrated product management, business planning, and analysis regime. This will help elicit standardized rules for unique analytics such as item diagnostics and item presentation, apart from singling out potential sources of margin leakage due to operational inefficiencies. In addition, it is important for retailers to abide by the core values and brand promise when adopting an integrated approach.
To summarize, the pillars driving omni-channel assortment decisions include a holistic customer repository beyond traditional information about past purchases, a defined set of rules to run standard analytics, a scalable technology platform, a unified vision, and agile underlying systems such as a common Item Master.
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