The process of streamlining a product offering by eliminating underperforming items and focusing on the most profitable or popular products.
What is Assortment Rationalisation?
Assortment rationalisation is a process in retail that involves evaluating and optimising the product assortment to improve efficiency and profitability. It focuses on streamlining the range of products offered by eliminating underperforming or redundant items. The goal is to create a balanced assortment that maximises sales and customer satisfaction. This process involves data analysis, market research, and collaboration with suppliers. The benefits of assortment rationalisation include improved inventory management, reduced costs, enhanced customer experience, and greater operational efficiency. It is an ongoing process that requires monitoring and adjustments to ensure long-term success.
How Assortment Rationalisation works
- Data analysis: Retailers collect and analyse sales data, customer preferences, and market trends to gain insights into product performance and identify areas for improvement.
- Evaluation of product performance: Underperforming products, such as those with low sales or low profitability, are identified and assessed to determine their contribution to the overall assortment.
- Identification of redundancies: Similar or overlapping products within the assortment are identified and evaluated to determine if they are necessary or if they can be consolidated or replaced.
- Market research: Retailers conduct market research to understand customer needs, preferences, and buying behaviours. This helps in aligning the assortment with customer demand and market trends.
- Collaboration with suppliers: Retailers work closely with suppliers to assess the viability and profitability of their products. This collaboration helps in identifying opportunities for product improvement, exclusivity, or discontinuation.
- Selection and optimisation: Based on the analysis and evaluation, the assortment is refined by selecting the most relevant and profitable products. This ensures a balanced assortment that meets customer demands and maximises sales potential.
- Monitoring and adjustments: Assortment rationalisation is an ongoing process. Retailers continuously monitor the performance of the assortment and make necessary adjustments to optimise the product mix based on changing market dynamics and customer preferences.
By implementing assortment rationalization, retailers can achieve benefits such as improved inventory turnover, reduced costs associated with inventory management and storage, increased sales and profitability, enhanced customer satisfaction, and better utilization of resources.
Pros of Assortment Rationalisation
- Improved sales and profitability: By optimising the product assortment, retailers can focus on offering the most in-demand and profitable products. This leads to increased sales and improved profitability as resources are allocated to products that have higher customer demand and generate higher margins.
- Enhanced customer satisfaction: Assortment rationalisation ensures that the product mix aligns with customer preferences and market trends. By offering a well-curated and relevant assortment, retailers can better meet the needs and expectations of their customers, resulting in higher customer satisfaction and loyalty.
- Efficient inventory management: Assortment rationalisation helps in streamlining inventory management processes. By eliminating underperforming or redundant products, retailers can reduce inventory holding costs, minimise stockouts, and improve overall inventory turnover. This leads to more efficient use of resources and better control over inventory levels.
Cons of Assortment Rationalisation
- Risk of reducing customer choice: By narrowing down the product assortment, there is a risk of limiting customer choice. Some customers may have specific preferences or niche needs that may not be adequately addressed by a streamlined assortment. It is important to carefully balance assortment optimisation with the need to cater to diverse customer preferences.
- Potential backlash from customers: If customers perceive that their favourite products or brands are being eliminated from the assortment, it can lead to dissatisfaction or even loss of customers. It is crucial to communicate the rationale behind assortment rationalisation and manage customer expectations effectively to minimise negative reactions.
- Complexity in implementation: Assortment rationalisation can be a complex and time-consuming process, particularly for retailers with a large number of SKUs (stock-keeping units) or multiple categories. It requires careful analysis, data-driven decision-making, and collaboration among various stakeholders. Implementing assortment changes across multiple stores or channels can also pose logistical challenges.
Below you will find answers to common questions
Why is assortment rationalisation necessary for retailers?
Assortment rationalisation is necessary for retailers to optimise their product offerings and improve overall business performance. By strategically selecting and managing the assortment, retailers can enhance customer satisfaction, streamline inventory management, reduce costs, and maximise sales and profitability. It allows retailers to focus on their core products, eliminate underperforming items, and allocate resources more efficiently.
How do you determine which products to include or exclude during assortment rationalisation?
The selection of products during assortment rationalisation is typically based on a combination of data-driven analysis and business strategy. Retailers consider various factors such as historical sales data, customer preferences, market trends, profitability, and competitive landscape. Key metrics like sales velocity, margin contribution, and customer demand are evaluated to identify top-performing and low-performing products. Retailers may also consider factors like product uniqueness, brand positioning, and overall category strategy to determine the optimal assortment mix.