By Steven Boon, firstname.lastname@example.org
As retailers strive to be competitive in the current economic environment, many are considering the use of new software solutions to more effectively identify their customers’ wants and desires – and better determine what products they need to have on their store shelves to maximize sales and minimize wastage.
This journey towards customer centricity can benefit consumers, who are offered the types of products they want on a consistent basis at their particular store, and retailers, which can generate customer loyalty, repeat sales and maintain a more balanced, profitable inventory of products.
Whether a large or a small store chain, it’s obvious that retailers have many choices when it comes to planning their stores.
Although it would be nice if each retailer had some generic ‘silver bullet’ when it came to maximizing a store layout, it’s important that retailers consider every product category separately to most efficiently and accurately develop its store plans.
Planograms: One size doesn’t fit all
For decades, retailers have relied on planograms to guide their placement of products. With the development of sophisticated automated optimization and production planogram software over the last 15 years, it has made it much easier for retailers to ensure the right products are in the right place in the right quantities at the right time – and on a store-by-store basis.
Further, retail consultants have synchronized both assortment and space considerations into the software, resulting in very concise plans that are executable in one or several stores.
With all the choices available to them, it’s important that retailers wisely select the type of planogram they need. To do this, they should keep product categories top of mind to avoid wasting time and effort where it may not be necessary.
Know your planograms
There are several types of planograms at use today, with each offering specific benefits depending on the retailer’s goals.
As the name infers, generic planograms are a one-size-fits-all option used when working with simple product categories that show no real variation in sale from store to store, and products where most consumers will purchase one brand over another based on need rather than price or brand loyalty. Generic planograms are best applied to slow-moving categories like batteries. These planograms assume that all store fixtures and demand are the same leading to poor execution of the merchandiser’s vision and use of the available store space.
Cluster-level planograms offer a “build-your-own” type of planogram option for the retailer, which can be used to cluster stores that have products that behave (sell) the same way across store chains. More space can be given to items that outsell poorer selling items so therefore stores will more accurately reflect consumer demand.
A CLASSI planogram provides a planning method that groups product assortments in varying degrees dependent on the store’s location. The CLASSI planogram approach is typically used when retailers carry a similar assortment of products in a specific range at each store, but may carry more of one type of product from store to store. For example, a retailer that displays three facings of soft-drinks throughout a chain of stores may have two facings of Coca-Cola at one store and one facing at another. Likewise, one store might display more canned soup of the vegetable variety while another has more facings of cream of mushroom.
In the case of a CLASSI planogram, the retailer gets roughly the same economy of scale while taking into account the regionality of each store location and the customer behavior within clusters of stores within a chain.
And finally there’s the store-specific planogram, which is used for product categories that are more diverse. Whether it’s based on geographic location, customer type or some other criteria, store-specific planograms should be used when selected stores carry markedly different assortments of products and where inventory levels vary as well.
From generic- to store-specific planograms, retailers have many choices – but a one-size planogram does not fit all the applications within a store.
Category variation should guide the planogram choice
To determine which level of planogram to use, a retailer first needs to focus on the variation within the product category.
This is when the use of a retail solutions provider is important, because while the sales pattern of each product in a store can be tracked manually, it is extremely difficult and time consuming to do so. However, sophisticated software can be used to review the sales of each individual product and determine the diversity of sales within each category.
In addition to sales, software applications can also identify seasonal trends within those categories. It can require six to 12 months of sales data to establish seasonal trends, but that information can be extremely important in determining what products show a variation in sales over the course of a year.
The retailer will use software technologies including demand intelligence, analysis, reporting and behavioral clustering to determine the category variance and demand for products within a category Traditionally this would have been carried out using a manual approach by simply using an Excel Spreadsheet, however this would be a time consuming and inefficient way to carry out analysis on a large scale.
It is important to understand the dynamics of the categories and how much variance exists within them. This diversity and variation within each category guides the retailer in determining which type of planogram and inventory model to select. Likewise, by selecting the correct model, the retailer also can achieve the best return on investment (ROI) for its effort.
Taking the smart path to the customer-centric journey
For many retailers, there’s a tendency to immediately think that store-specific planograms and store specific inventory offer the only way to develop the most efficient match between products on the shelves and the wants and needs of each customer shopping in their stores.
However, there is no need for a retailer to invest the time and money for developing store-specific plans for every category. Instead, retailers should focus on those categories of products that have the most value and the most potential to provide a fast and substantial return on investment.
For example, since customers tend to shop for batteries the same way in each store, a generic planogram will most likely be suitable for that category of products. But the same would not hold true for ready-to-eat meals, which exhibit more variance in sales and types purchased across store due to a variety of demographic and economic reasons. This variance can threaten the retailer’s bottom line due to higher potential for wastage. The more diverse the category, the more the need for a store-specific planogram and inventory to ensure the retailer has the right item on the shelf for the customer whilst minimizing both markdown and wastage.
As customers get more sophisticated, the successful retailer is going to have to become more sophisticated as well to ensure the right product is in the right place at the right time.
The “customer centric journey” offers a substantial return on investment for the retailer as well through increased sales and lower wastage, but in their zeal to apply the customer-centric model to meet their customers’ needs, retailers need to understand the most efficient and economical way to ensure a smooth transition and maximize their return on investment.