NATIONAL INSTITUTE OF FASHION TECHNOLOGY

PATNA

COURSE: MASTER OF FASHION MANAGEMENT

YEAR: 2019-21
SUBJECT: OMNI-CHANNEL RETAIL AND SALES MANAGEMENT
TOPIC: DESCRIPTION OF CATEGORY MANAGEMENT, VENDOR
MANAGEMENT AND ASSORTMENT PLANNING WITH
SUMMARIZATION OF RELATED RESEARH PAPERS.

SUBMITTTED TO SUBMITTED BY
DR. VIKAS KUMAR DEBOPRIYA SAHA
PRIYANKA KUMARI
RUCHI RATAN
CATEGORY MANAGMENT

Category Management is a retailing and purchasing concept in which the range of products
purchased by a business organisation or sold by a retailer is broken down into discrete groups are
known as product categories.
It is a systematic, disciplined approach to managing a product category as a strategic business
unit.
Category management is a process that involves managing product categories as business units
and customizing them to satisfy customer needs.

8 STEPS TO CATEGORY MANAGEMENT

1. Define category

This step is perhaps the most important, as it will define your understanding of the retailer, their
customers and the consumers who buy your brand.
The key question – How do customers shop the category?
The consumer decision tree identifies the choices and the order of decisions customers make
when they shop the category.
 • Do they choose brand, sub-brand, quality, flavor/scent, packing, etc.?
• Do they choose complementary products during the same trip? For example, a customer
shopping for your 24-oz. bottle of vanilla scented shampoo might also purchase your 24-
oz. bottle of vanilla scented conditioner.

2. Category role

Role identifies the importance of the category to the retailer. This is the role the retailer wants the
category to play within their store.
A category can be used to:

• bring consumers into the store

• increase foot traffic
• support routine shopping needs
• be a destination for seasonal/occasional purchases
• a one-stop-shop for convenience.

Retailers may assign different roles to categories within the stores depending on the customers
they want to attract.
3. Category appraisal

Knowing how the category performs at the retailer, within the market, and across different
outlets is a step. This should include a pricing, promotion, placement and product assortment
assessment. How does the category performance compare to the competition?
4. Category scorecard

Scorecard is the strategic allocation of work to be performed to reach the category goals and
objectives. It is a summary of observations and analysis to help develop goals and targets for the
category. It should include an assessment of consumer buying habits.
5. Category strategies

Strategies are used to fine-tune the category role to meet scorecard objectives. Category
strategies are designed to grow market share, increase sales, increase foot traffic, improve gross
margin, increase return on investment, increase shopping basket size and gain customer
satisfaction.
6. Category tactics

Tactics include specific actions to be taken to achieve chosen category strategies. Promoting top
brands on a front-end cap three times a quarter at a hot price-point with a feature is just one
example.
7. Implement plan
This is the action step that brings your strategies and tactics to life… where the proverbial rubber
meets the road. The degree to which you accurately implement the plan will dictate its success.
8. Review and assess performance

Analyze, measure and review the results. This should be ongoing and used to help you refocus
and make changes if necessary.

BENEFITS OF CATEGORY MANAGEMENT

The benefits of category management includes the following:

1. Increased sales due to:

• better shelf sets and product mix to meet consumer demand

• more effective promotions on critical items
• better in-stock levels throughout seasonal swings
• better price image and sustainability

2. Improved profit margins because of:

• more effective pricing through "real consumer value" models

• more effective and efficient promotional scheduling
• lower replenishment costs of inventory and materials

3. Better vendor relations, including:

• increased sharing of information

• improved alignment of marketing programs
• symbiosis and coordination of consumer efforts

4. Enhanced competitive position leading to:

• increased market share

• improved positioning
• sustainable customer loyalty
• greater consumer evangelism
• a model impervious to competitive attack
• longer business life
Benefits for manufacturers

The benefits of category management includes the following:

1. Increased sales due to:

• improved product mix

• more effective and efficient promotions
• better inventory management
• better pricing opportunities
• new products aligned to consumer needs

2. Improved profit margins because of:

• more effective pricing leading to better profits

• more effective and efficient promotional scheduling
• lower replenishment costs throughout distribution chain

3. Better vendor relations, including

• increased sharing of information

• improved alignment of retailer programs
• better execution at field level
• empowered field management

4. Improved competitive position leading to:

• increased market share

• better information gathering at local levels
• faster new product cycles profitability payouts
• closer connection to consumer behavior
• ability to innovate effectively
• increased chance for a sustainable business
Summary of Research Paper
Research Title: The Profit Benefits of Category Management

Author(s): Michael J. Zenor

Source: Journal of Marketing Research, Vol. 31, No. 2, Special Issue on Brand
Management (May, 1994), pp. 202-213

Published by: Sage Publications, Inc.

The practice of category management has been advocated as a superior alternative to brand
management. The author provides an extremely general product line pricing model that
calibrates the potential profit benefits of a coordinated category-level pricing strategy as
compared with an uncoordinated brand-level pricing strategy. The model can be used to obtain
optimal prices and profits for any general pricing "coalition" between brands-brand management
or category management.

Brand management has enjoyed a long and venerable history in the marketing of consumer
products. Perhaps the first example of brand management occurred with the introduction of
Camay brand soap at Procter & Gamble (P&G) in the 1930s. Fearing the new brand would be
overshadowed by the popular Ivory brand, a strategy was adopted whereby a manager was given
stewardship over the new brand and encouraged to compete head-on against the established
brand. The strategy proved successful, and the brand management philosophy became widely
adopted in the industry. In spite of a long history of success, recent evidence suggests that brand
management has fallen into disfavour among many manufacturers. A prominent example can be
found in P&G's shift to a category-based management approach (Business Week 1987). The
evidence seems to indicate a shift of decision-making power upstream (to the category manager)
or downstream.

Numerous arguments can be marshalled both for and against brand management as an
organizational decision- making philosophy. Supporting brand management is the view that
brands (especially those that are new and risky) re- quire a dedicated advocate to maximize their
market potential. Second, a brand management system may encourage a type of "Darwinian"
environment, in which the strongest brands survive and flourish in the market. Third, if a firm
has a brand that is competitively vulnerable, it might be better for a sister brand to expose its
vulnerabilities than a competitive brand. Finally, brand management has long been used as a
crucible whereby promising managerial talent demonstrate their mettle. For many firms, brand
management is an "up or out" career path.

Brand management is not without drawbacks. If left unchecked, it can lead to severe problems
with cannibalization for firms with wide product lines. This cannibalization may lead to
marketing resources being wasted on internal competition, with each brand manager competing
for the same group of consumers. If empirical evidence is used as a guide, the cannibalization
problem is likely to become more severe in the future.
Finally, the trend away from brand management probably has been accelerated by the increasing
power and sophistication of the retailer. Many retailers (e.g.,WalMart) have grown into giants in
their own right. Whereas traditional retailers may have relied on the manufacturer for
information and expertise, contemporary retailers are often in a position to dictate marketing
policy to the manufacturer. This fundamental change may have affected brand management in
two ways: First, the retailer may have undertaken many of the decisions (pricing, advertising,
merchandising, promotion) traditionally associated with the brand manager; and second, the
strength of the retailer increases the importance of the sales force for presenting a united effort
across the firm's product line. Both effects clearly would lead to the transfer of power away from
the brand manager.

As a closing note, the term category management is used here to describe the coordinated effort
between brands. It should be noted that category management (a centralized decision maker in
charge of all brands) is only one of a variety of methods for achieving coordinated decision
making among brands.
VENDOR MANAGEMENT
Vendor management is the process that empowers an organization to take appropriate measures
for controlling cost, reducing potential risks related to vendors, ensuring excellent service
deliverability and deriving value from vendors in the long-run. This includes researching about
the best suitable vendors, sourcing and obtaining pricing information, gauging the quality of
work, managing relationships in case of multiple vendors, evaluating performance by setting
organizational standards, and ensuring that the payments are always made on time.

Vendor Management Process

Having an effective vendor management is crucial. An organization has to plan and execute a
process to guide how they will engage with their vendors at every step.

While it is not possible to have one specific vendor management process that encompasses all
enterprises and vendors, we can bring together the basic steps that underlie an organization’s
start-to-finish engagement with its vendors:

(1) Identification and Establishment of Business Goals

Before the vendor management process starts, it is crucial to identify and establish business goals
that necessitate vendor involvement. This helps in understanding the requirements of every
business unit and prevents duplication of efforts and wastage of resources in terms selecting and
contracting with vendors. It also helps in the later stages of measuring and evaluating vendor
performance as these goals establish appropriate metrics.

(2) Establishment of a Vendor Management Team

After the business goals are recognized, the next step should be the foundation of a dedicated
vendor management team. This centralized team should be skilled in identifying business goals
and KPIs for vendor management, selecting relevant vendors, negotiating the contracting
process, periodically assessing the performance of the vendors and tracking all transactions
activities.
This team is crucial as they will act as an intermediary between the business units and the
vendors and ensure collaboration between the two.

It will also prevent the engagement of too many stakeholders – When vendor management is
decentralized to the business units, it results in a large number of contracts with the same vendor
or disparate transactions with multiple vendors. This impedes tracking and evaluation of vendor
performance and exposes the organization to vendor risk.

(3) Creation of a Database for all Vendor-related Information

After the business goals are clear and the vendor management team is up and running, the next
step should be to build an updated and categorized database of all relevant vendors and vendor-
related information.

The benefits of this are manifold –

(i) It will match the needs of the business units to the right vendor. For example, the
administration can identify the relevant vendors for office supplies, computer equipment, etc.

(ii) After the categorization of vendors based on their type, cross-vendor comparison will
become easier for evaluation

(iii) It will streamline information – scattered, disparate vendor information will be stored in a
single location and provide insights into the current stage of the vendors, for example, vendors
with contract in place, vendors that require renewals, etc. and

(iv)It will enable effective budgeting – you can easily recognize the long-term, critical vendors
and the short-term, tactical vendors and assess the budget assignment accordingly.

(4) Identification of the Selection Criteria for Vendors

Once all vendor-related information is streamlined, updated and categorized, you have to select
the criteria based on which all relevant vendors will be chosen.
While cost has been the primary selection criterion for choosing vendors, businesses are
increasingly looking at other criteria to determine which vendor would best serve their
requirements – after all, lowest cost doesn’t guarantee the highest value. A CIO article1 has
recognized non-cost factors that need to be considered to select vendors – financial stability,
previous experience in the field of work as the business, industrial recognitions, the procedures
followed by the vendor, economies of scale and their legal/regulatory records. It is important to
consider all of the aforementioned criteria to have a holistic assessment of the vendors.

For purchases of high value, companies also engage in bidding procedures that involve RFQs,
RFIs, and RFPs before choosing the vendor.

(5) Evaluation and Selection of Vendors

At this stage, the vendors need to be evaluated based on the selection criteria and, if applicable,
the bidding process.

The submitted proposals need to be thoroughly assessed to understand the pricing structure,
scope of work and how the requirements will be met, the terms and conditions, expiry and
renewal dates, etc. This will ensure that your organization is deriving the maximum value from
the vendor. Look out for hidden savings opportunities!

Assess the internal strengths and weaknesses of the vendors and study how the external
opportunities and threats can affect your transaction as well as the vendor management process.

Once you have ensured a complete start-to-finish evaluation process, it’s time to choose your
vendor.

(6) Developing Contracts and Finalizing Vendors

Well, now you have the chosen one. It’s time to complete the contracting process and get your
vendor(s) onboard.

Typically, the contracting stage is assigned to the legal and finance team and the senior
management involved with the vendors. The rest of the business units receive the contract and
engage with the vendors after the finalization process. This tends to be sub-optimal in the long
run – the business units are the ones finally collaborating with the vendors on a day-to-day basis
and have valuable insights on how to maximize the vendors’ operational performance. Hence, all
the relevant stakeholders need to be involved, at least in the decision-making process.

Vendor management process flow

The vendor management ‘process flow’ refers to the steps involved in creating an effective
relationship with suppliers. Here are the four steps involved in a vendor management process
flow:

Step 1: Segmentation

Getting the segmentation right is an essential part of the vendor management process. At this
stage, you classify vendors based on a number of metrics like risk, profitability, total spend, the
volume of transactions, quality of products, performance, and more.
Step 2: Collaboration

Traditional vendor management practices focus on price negotiation. To unlock more value from
a relationship, buyers need to broaden their focus. By working together with their suppliers,
businesses can take costs and risks out of the bottom line while driving value and innovation to
the top.

Step 3: Implementation
Organizations can execute their vendor management process efficiently by tapping into supplier
capabilities to create mutual value. Buyers and suppliers can engage in activities like cost
optimization, quality management, relationship building, innovation, and risk management.

Step 4: Evaluation
The final stage of the vendor management process flow is about measuring performance to check
whether you have bet on the right horses. Use your development plan to check your progress
with the set targets. Discuss with your vendor’s improvement actions or plans to meet evolving
needs.

Core vendor management features every procurement solution must have-

To be as beneficial as possible, your vendor management solution should include these features:

1. Visual workflow creator

A good vendor management application will offer an easy-to-use interface to develop and
visualize each supplier relationship. Even business users who don’t have coding expertise should
be able to create and navigate a workflow easily.

2. Drag-and-drop form builder

You can’t do vendor management without forms. Users need the ability to build powerful online
forms quickly with intuitive tools like a drag-and-drop form builder. The form builder must offer
an exhaustive range of fields and a good collection of predefined form templates that users can
choose from.
3. Cloud technology
A cloud-based vendor management application gives buyers the ability to access their vendor
management process from anywhere at any time. With guaranteed uptime and a centralized
database, a vendor management process will be more efficient and streamlined when it lives in
the cloud.

4. Seamless integration
Your supplier relationship management software won’t work in a vacuum. It needs to interact
seamlessly with the other procurement tools that are used by your business. Take a look at what
systems your software needs to connect with, and then pick a compatible solution. Consider a
vendor management application that’s already part of a unified procurement suite.

5. Security
Despite the undeniable benefits of the cloud, many businesses hesitate to fully embrace cloud
technology due to security concerns. However, cloud-based vendor management software
mitigates risk with features like conditional visibility, role-based access, and more.

6. Analytics and reporting

Vendor management applications need powerful reporting features that help organizations stay
on top of their operational metrics. Users ought to be able to retrieve the desired analytical
insights on vendor performance, quality, and more whenever they want, with very little effort.

Benefits of Vendor Management

By having proper vendor management in place, an organization can experience the following
benefits:

(1) Better Selection

By implementing appropriate vendor management in place, your organization can benefit from a
larger selection of vendors, resulting in more choices and ultimately better costs.

Your organization can benefit from a bidding war between vendors while ensuring that you get
your money’s worth.
(2) Better Contract Management

In a multi-vendor scenario, lack of vendor management system elevates the issue of managing
contracts, documentation and other vital information in your organization.

By implementing a proper VMS in place, your organization can benefit from a centralized view
of the current status of all contracts and other useful information which will enable your
organization to achieve better decision-making capabilities and save valuable time.

(3) Better Performance Management

An integrated view of the performance of all the vendors can be achieved through the
implementation of a vendor management system.

This can give your organization a clear understanding of what is working and what is not! This
ultimately leads to improved efficiency, which in turns improves the overall performance of the
organization.

(4) Better Vendor Relationship

It is never easy to manage multiple vendors at the same time. While some vendors may prove
really fruitful, others may not. But managing relationship among the vendors is the key to
successful project completion.

By getting all vendor related information in a single place, you benefit from getting all required
information at once and it can influence your decision-making process, thereby simplifying it!

(5) Better Value

Ultimately the goal of a vendor management system is to get the most value for your buck. So,
implementation of a vendor management system, when done properly can result in long-term
savings as well as improved earnings over a period of time.
Challenges in Vendor Management

Although there are many benefits, some challenges need to be overcome to ensure the smooth
functioning of the organization.

There are many challenges that an organization may face if vendor management is not
implemented correctly. They are as follows:

(1) Vendor Compliance Risk

Setting standards before dealing with vendors can save you loads of time and money spent. Not
all vendors may perform as per your standards. It is important to choose the right vendor from
multiple vendors, who meet your organizational standards and criteria while promising excellent
performance.

(2) Vendor Reputation Risk

Dealing with multiple vendors is not an easy task. Also, the quality of work has to be gauged
upfront before getting into a contract, which makes the process more complicated.

While some vendors may get your task done really well, others can put up with some poor
performance and throw all your deadlines in a tizzy. Hence, background checks are a mustbefore
any selection is made. This may provide you with some insights into vital points that you may
have missed in the first place.

(3) Lack of Visibility

While it is really important to have a centralized data storage solution for managing vendor data,
it also benefits the organization from a centralized view and improved visibility, which can lead
to better resource allocation and improved efficiency.

(4) Vendor Data Storage

As your organization grows, it becomes essential to have a vendor data storage solution in place.
In the absence of a vendor management system, storing and retrieving data might prove to be
really tough, considering the fact that you may be dealing with multiple vendors for multiple
projects at the same time.

(5) Vendor Payment Risk

Some vendors may have different payment terms, while some may adhere to industry standard
terms. Figuring out the terms and ensuring that the payment is always made on time is one of the
major issues, especially while dealing with multiple vendors at the same time.

Best Practices: Techniques to Improve your Vendor Management Strategy

You have a vendor management process best-suited to your organization, in place. However,
vendor management doesn’t just end once the vendors are chosen. There are techniques and

best practices that complement your process and can make your organization’s vendor
management even more effective. Let’s take a look:

(1) Convey your expectations clearly

Whilst engaging with vendors, it’s necessary to clearly define the business goals of the
organizations and expectations from the vendors. Let the vendors know what your current and
future requirements are and how they align with your organization’s objectives. It will enable
you and the vendors to be on the same page and ultimately collaborate better, even in the long-
run. It helps to set benchmarks, reduces risks related to vendor performance and compliance, and
to evaluate the vendors.

(2) Ensure you set deadlines that are achievable and realistic

Given the set of goals and expectations you have, it is important to set deadlines that can be met,
realistically, by the vendors. Setting impossible deadlines not only impedes vendor performance
and value creation, but it also increases risk and prevents meaningful collaboration.
(3) Collaborate with your vendors to maintain long-term relationships

The word ‘collaboration’ has come up quite a few times, hasn’t it? Well, it is important because
simply negotiating with the vendors about pricing and performance leads to the completion of a
transaction. But, when you collaborate and involve the vendors in strategizing how to achieve the
goals and expectations, it leads to valuable, long-term relationship building. Collaboration allows
both the enterprise and the vendors to brainstorm innovative ideas about how value-creation
from their partnership can be maximized.

(4) Establish KPIs to measure Vendor Performance

How do we realize if the vendors are delivering as per the set expectations and business goals?
We need Key Performance Indicators (KPIs) in place to measure the various facets of the
vendors and to ultimately know if the vendor management process is effective.

The KPIs vary according to the organizations and based on what they consider as important
while evaluating vendor performance. It includes –

* Relationship Management; measured by the vendor’s commitment, flexibility, and innovation,

* Cost Management; measured discounted pricing, order costs, etc.,

* Quality; measure by staff expertise, order accuracy, conformance to requirements, warranties,

etc.,

* Delivery; measured by on-time delivery, response time to order issues and emergencies, etc.,

* Customer Satisfaction.
Summary of Research Paper

Research Title: Effective Vendor Management – How Do You Score Your Vendors?

Author(s): Yash Tanti, Prinsa Patel

Source: 1, 2 B.V. Patel Institute of BMC & IT, UkaTarsadia University, Bardoli, Gujarat,
India

Current vendor management practices in the construction industry are performed on fragmented
basis with unstructured communication and no clearly established responsibilities between the
parties involved. The highly fragmentation is a result of the separation of design and
construction, lack of coordination and integration between various functional disciplines, poor
communication, etc. Furthermore, dependency of the general contractors on other parties such as
suppliers and subcontractors reinforces the construction industry fragmentation. All of these are
the important factors causing performance-related problems such as delay in material ordering
and receiving, low productivity, cost and time overrun, conflict and disputes. This is a summary
on research EFFECTIVE VENDOR MANAGEMENT to get an insight into the procurement
systems adopted by the project promoters and the contractors in awarding subcontracts or
procuring goods and services at Rajhans projects.

Vendor management is a discipline that enables organizations to control costs, drive service
excellence and mitigate risks to gain increased value from their vendors throughout the deal life
cycle.

This survey is conducted on basis of data collection for selecting the right vendor from a list of
vendors. Primary data is used with the help of questionnaire sent to National association of
Purchasing managers and agents. Secondary data is used by 16 variables of market survey. AHP
(Analytical hierarchy process) is then used to calculate weights through pair-wise comparisons.
At the end it is stated that supplied selection methods have been changed from years to years. It
has been proved that the performance level of suppliers also depends on the extent of their
satisfaction with the buyers. The same supplier may have different performance levels for
different buyers due to change in satisfaction with the buyers. Therefore, in order to enjoy
maximum performance from the suppliers, try to keep them highly satisfied.
The research is conducted by data collection from questionnaire base on criteria selection of
vendors and the result shows most of the respondents agree with the statement that vendors
should follow the ethics of the business and does not indulge in any malpractices, Vendors
should accept their accountability, Vendors should have the ability to analyse and anticipate
current & future trends, Provides the best and most competitive pricing with quality in
products/services, Makes sure they can fill orders quickly and complete order before the
deadline, Should have products/services whenever required, Vendor should be capable to supply
the requirements of our company, Should have products/services whenever required,
Cooperation with the company is necessary, Fast delivery of products, Vendors should become
our strategic partner, Transparency should be maintained and vendors should be kept informed,
Vendors should be reputed because their reputation affects the image of our company, The
vendor should be expertise in your product type and target market, Supplier should be involved
in continuous improvement.

Conclusion & Findings

The main aim of work done is to understand the procurement processes and vendor development
practices adopted by the contractors engaged in Rajhans projects and this is done by filing
questionnaires from the contractors. Here different issues regarding the procurement processes in
industry are analysed. Cases were obtained from the main contractors and the findings were
compared with findings from literature and journals. We found that Rajhans like to adopt
strategies. Many of the contractors now don’t want to procure the materials from the suppliers
who provide them materials at the lowest price. They believe in finding the new suppliers, and
want to procure the materials from new vendors. They feel that carrying out the efficient
materials procurement processes is investment of time and money. The work was traditionally
awarded to lowest bid but the idea of modified bid and renegotiating is now updated. Some firms
of huge turn over believe in adopting the efficient procurement processes and continuously
evaluate the existing vendors and also search for the new vendors. They believe in improving the
processes in order to be competitive in the present world. They give much importance to cost,
quality, timely procurement, material procurement processes and vendor development practices.
This research work helped us to know the present material procurement processes and vendor
development practices adopted by the contractors engaged in road projects. It completely
depends upon the quantity of material to be procured, different levels of firms, availability of
suppliers and supplier capabilities.
ASSORTMENT PLANNING

Assortment planning is a process in which retailers decide the optimal set of products he/she
wants to carry within a store or set of stores. In this process, according to the market and their
target customers, retailers decide on the product categories, brands, and products he want to sell
in the stores.
The goal of assortment planning is to specify an assortment that maximizes sales or gross
margin subject to various constraints, such as a limited budget for purchase of products, limited
shelf space for displaying products, and a variety of miscellaneous constraints such as a desire to
have at least two vendors for each type of product.
Importance of Assortment Planning-

Optimising shelf space and the product selection within that space has always been a primary
concern for retailers. The reasons for that are because the assortment of products is critical to
demand generation and shopper satisfaction.
One of the main ways a retailer can increase the financial performance is by increasing the level
of customer satisfaction through the variety of products on offer.
An important factor to consider during the assortment planning process is that assortment variety
increases inventory costs.Therefore, it is important for assortments to be optimised.
From the supplier’s viewpoint, assortment selection and category space allocation are equally
critical. Suppliers can’t generate any sales if their products aren’t represented on store shelves.

Actions to consider for Assortment Planning-

1. Identify Consumer Decision Trees and Customer Segments-
Before selecting the product assortment, one must identify the different consumer
decision trees present within a category. A Consumer Decision Tree (CDT) is a graphical
 record of the thought process which any shopper goes through when selecting a product
in a category. This graphical record outlines the different product attributes that make up
the purchasing decision. For example, a customer may look at price first, then flavour,
then size and brand last. That said, it's highly unlikely that there is only one consumer
decision tree per category. That's because there are different consumer behaviours based
on cultural, personal, physiological and social factors that exist within a consumer base.
For each of these segments, there is a different focus or priority. For example, customers
may be price sensitive which means the price will be higher on their Consumer Decision
Tree.
The use of CDTs helps one to understand not only the buying behaviour of the customers
better but also to grasp the expectations of each customer segment. This product
knowledge is then translated into one’s assortments which align to a retail strategy with
consumer behaviour.

2. Develop a Store Clustering Strategy-

Store clustering or store grouping is the grouping of stores based on similar store and
demographic characteristics. Store clustering is a critical step for the assortment planning
process as it helps one to create localised assortment plans that meet the needs of local
shoppers. Once the store clusters have been determined, assortments are created for each
of those groups to meet the demand patterns specific to each store cluster.
There are essentially two ways one can cluster the stores:
• Performance-based store clusters-
These are grouped according to how they perform. For example, store locations
with similar sales performance would be placed in the same store group.

• Non-performance based clusters –

These are grouped according to store characteristics such as demographics, store
size or store type.

One productive way to identify store clusters is to measure the share of sales by store for
each segment and compare the results across multiple stores (heat mapped floor plans
are a useful tool to measure category performance and relative category space
allocation). By doing so, one can soon see if there are similar trends among categories.
For example, an analysis of the Cereal category might reveal that in some stores there is a
significantly higher percentage of sales for the “Health” segment, while another group of
stores shows a higher percentage of sales for the “Kids” segment. This difference in sales
could suggest that the first group is a health-oriented cluster, and therefore the assortment
for the Cereal category must pay particular attention to the health segment. Subsequently,
additional research by analysing factors such as age, income, ethnicity, and so on will
help one to identify similar neighbourhoods and validate the existence of a particular
store cluster.
 The Two Primary Space and Assortment Variations-
The first thing to do when approaching clustering is to identify the two primary space and
assortment variations that will drive localised assortments across one’s retail universe in
almost every case.
• Shopper demand variation among categories-
The shopper demand for different products will vary from store to store
depending on multiple factors including demographic, location, and seasonality.
The factors can be measured by the analysing internal point of sale data and
external market data.

• The store format-

Floor space in a particular store is a crucial element for creating a category
assortment. Each assortment should take into account the space available across
multiple stores.

Creating Localised Assortments for each Store Cluster-

Store and category-based clustering are at the core of the assortment planning strategy.
As stores across a retail universe may present a difference in demand among categories,
one’s stores or categories that present similarities are grouped together.
Localised assortments are then generated for each category or store cluster to better meet
the needs of local shoppers. When creating localised assortments, there are two categories
of products to identify:
• Base Range-
Products in the base range will stay the same across all of the stores regardless of
local preferences. The base range will usually comprise of the most popular
products and brands that one’s shoppers expect to find across all of one’s stores.
One can use assortment optimisation software tools to reveal brand and SKU
strengths and help them select these products and brands.

• Custom Assortment-
These are the products or segments specific to each store cluster. These products
are tailored to the specific needs of each cluster, and relate to the preferences of
particular customer segments.For example, if the customer segment in a particular
cluster is price sensitive, one might want to place more economy products to
better retain the loyalty of this customer segment. On the other hand, if the
customer segment is convenience driven, more products with a convenient and
appealing format will optimise the chances of increasing sales.

3. Align internally around Category roles-

Before creating assortment plans, it is important to align internally around the role each
category plays in the merchandising strategy, as well as the implications those roles will
have on category space allocations and assortment decisions.
 How does each category relate to one another in your store from a consumer point of
view, and where does each category fit in the shopping experience?
By answering this question, one can adopt a more customer-centric approach tocategory
management strategy. Taking the correct merchandising strategies that will enhance the
strengths of a category.
The four major consumer-based category roles are:

• Destination;
• Routine;
• Seasonal; and
• Convenience.
It is important to determine the role of each category beforehand as this will determine
and direct the merchandising strategy that will be put into place to deliver on the category
role. Ultimately, it will affect the product selection and space allocation. For example, if
one choose to give Meat category a Destination category role, the merchandising strategy
one choose will most likely be focused on increasing traffic and defending the market
share for this category. To do so, one need to allocate more space to this category, keep
margins relatively low to be attractive, and offer an excellent selection and variety.

4. Locate Cross Merchandising Opportunities to increase sales-

Cross merchandising is a tactic that category managers use to drive additional in-store
sales. It is a transaction building strategy that focuses on increasing the size of the
average basket, by encouraging one’s consumers to purchase complementary products.
For example, instead of just buying a bag of crisps, a customer would add salsa sauce to
their basket. Or, when purchasing paint, your customer would purchase paint brushes too.
Spotting the products which can be cross-merchandised before creating an assortment
will ensure that one take full advantage of every opportunity to increase sales.

5. Learn the theory of Transferable Demand-

Knowledge of transferable demand metrics within a category has a significant impact on
the assortment plan as it will help to prioritise a specific SKU or encourage the inclusion
of an SKU in an assortment as opposed to products that might want to be removed.
By analysing how products are performing within a category using assortment planning
software, one can compare SKUs and determine whether an SKU’s volume is more or
less likely to be transferred to another SKU remaining in the assortment. If this challenge
or opportunity is not taken into consideration during the assortment planning process,
then the category will be placed at risk. For example, which products are showing high
levels of loyalty? One'd usually prioritise high loyalty SKUs in the assortment plan over
 lower loyalty SKUs because low loyalty SKUs could be transferred to other SKUs in the
assortment. Secondly, which products show high levels of exclusivity? Products that are
highly exclusive have less transferable demand and therefore should be kept or added
into the assortment. Removing SKUs with high levels of exclusivity would put the
category at risk and may drive customers to shop elsewhere.

6. Define an assortment planning strategy-

Assortment planning is a critical step of category management. However, it is not
dependent from other category management decisions. Assortment plans should always
take into account the greater business strategy and the set of goals that one pre-define.
That's because it will affect the space and the product selection attributed to each
category. Once the strategy has been agreed upon internally, it will give direction as to
what merchandising tactics one should put in place to achieve the goals. For instance,
one might choose to target a specific customer segment such as a price-sensitive segment
or a convenience-driven segment.
Other elements to consider in assortment planning strategy includes the pricing strategy
that one will adopt, and whether one will focus on higher profit margin products or rather
try to push for higher volumes or units of merchandise. Another element to consider is
the image enhancing strategy that one will use to enhance one’s positioning in the market
place. The overall image positioning will be determined based on any area of the
assortment plan relating to quality, variety, price, service, presentation, delivery and
brands available.

Preparing an Assortment Plan-

STEP 1
• Decide on Classifications & Sub-classifications.
• By doing this, the breadth of the product assortment is determined.

STEP 2
• Determine the brands and price lines that will be carried for each sub-classification.
• Knowing the characteristics of the target market is crucial here.

STEP 3
• Identify the general characteristics of an item that customers may consider while
purchasing it.
 • It is not possible to plan for all the characteristics but it should allow the buyer to make
purchases according to the most important of these characteristics in relation to the
majority of customers.

STEP 4
• Decide on the proportion of one classification to another and the proportion in which
each factor will be represented in the stock.
• For some selection factors like Size, past sales data can be used for calculation. For
others like Colours, the buyer must know how readily the customers accept new fashion
colours as they are introduced.

STEP 5
• Calculate the specific number of units to be purchased.

Unit (assortment) plans may be developed in two ways. The first method is through the use of a
basic stock list and the second method is through the use of a model stock plan. All
merchandise assortments can be planned by using either of these methods. However, the method
used depends on the kind of merchandise under consideration. When determining unit
(assortment) plans, consideration must also be given to the quantity of units to purchase. The last
factor the buyer should consider is the breadth and depth of the assortment. Working with the
money available in the inventory budget, the buyer must make a decision about the breadth of
the assortment with respect to its depth and vice versa. The balanced assortment must also be
considered.
• Assortment Depth-
This may be defined as a characteristic of an inventory assortment offering limited
versions of proved popular styles. This kind of assortment is spoken of as a “narrow and
deep assortment.” Mass merchandisers usually use this method of stock inventory, since
it has been proved the most efficient from a cost point of view.
Its advantages are:
(1) Enables faster turnover.
(2) Provides ease of stocking.
(3) Uses less room and display area.
(4) Provides ease of reordering, checking and receiving.
(5) Enables simplified counting.
(6) Helps avoid markdowns.
 A major disadvantage, however, is that consumers are not offered a wide selection of
products and may have to shop in competing stores to find what they want.

• Assortment Breadth-
Assortment breadth may be defined as a characteristic of an inventory assortment
offering a large number of different categories or classifications, but not a large stock of
any of style. This is a “broad and shallow assortment.” Stores and departments catering to
middle and upper-income consumers usually use this kind of inventory assortment.
The advantages of this type of assortment are:
(1) Enables presentation of a wide variety of goods.
(2) Provides a high degree of stopping and pulling power.
(3) Allows a slant to those customers of discriminating taste.

The major disadvantage is that because of the shallowness of the assortment, alert and
frequent reordering is needed to keep everything in stock. Consequently, this is a costly
method of inventory.

• The Balanced Assortment-

This may be defined as an inventory assortment using both assortment breadth and depth
to develop an assortment that is balanced.

For example, broad assortments are used early in the season, when new styles are still being
tested for consumer acceptance. However, narrow and deep assortments are used later in the
season, when demand is clearly defined. The balanced type of assortment may be used by mass
merchandisers as well as by stores boasting a high fashion image. In fact, this may be considered
a normal compromise. Breadth and depth comprise a retailer’s product mix, which may be
defined as all the products and services offered for sale.
Summary of Research Paper
Research Title: Consumers’ Perceptions of the Assortment Offered in a Grocery Category:
The Impact of Item Reduction
Author(s): Susan M. Broniarczyk, Wayne D. Hoyer, and Leigh McAlister
Source: Journal of Marketing Research, Vol. 35, No. 2 (May, 1998), pp. 166-176
Published by: Sage Publications, Inc.

In the early 1990s, traditional-format retailers began losing sales to alternative format retailers,
and for their survival, the traditional grocers needed to reduce the costs associated with carrying
broad assortments. In this paper, it has been suggested that retailers can significantly lower
operating costs if they reduce the number of low-selling stock-keeping units (SKUs) in a
category, or, in other words, adopt “Efficient Assortment.” Retailers, however, have resisted
such cutbacks, fearing that shoppers would be less likely to shop in stores that they perceived as
offering diminished assortments of products.
In this study, authors Broniarczyk, Hoyer, and McAlister examined the link between SKU count
and assortment, as perceived by consumers. They suggested that cues other than simple SKU
count, such as the availability of favourite products and the amount of shelf space devoted to the
category, influence shoppers' assortment perceptions. On the other hand, assortment is an
important factor in store choice. If these cues affect store choice through assortment perceptions,
then store choice also might be or not be affected by moderate SKU reduction.
To examine these, they conducted two studies, where in Study 1, they manipulated the Favourite
Available cue by eliminating the most popular SKUs; and in Study 2, the least popular SKUs
were dropped and the impact of the Favourite Available cue was measured. The Category Space
cue was manipulated in both studies. Moreover in Study 2, they assessed the threshold below
which SKU reductions go unnoticed as well as the impact of SKU reduction on store choice.
The results showed that when favourite SKUs were available, consumer assortment perceptions
remained unaffected by a reduction in the number of SKUs offered or changes in the category
space. When favourite items were not available and SKUs are eliminated, consumers' assortment
perceptions fall. In the face of SKU reduction, consumers are less likely to lower their
assortment perceptions if low-preference rather than high-preference SKUs are removed, and if
the amount of space devoted to the category is held constant than if the space is reduced. They
confirmed that as long as favourite products were available and shelf space remained constant,
consumers' assortment perceptions were unaffected by moderate SKU reductions. Further,
consumers reported stores with SKU reduction as easier to shop.
The SKU Count, Favourite Available, and Category Space cues affect store choice through
assortment perceptions; if SKU reduction does not affect assortment perceptions negatively,
there should be no adverse effect on store choice. In support, it was found that a 25% reduction
in SKUs has no impact on store choice; conversely, there might be a positive effect. Therefore,
the threshold for consumer sensitivity to SKU reduction appears, in this case, to be between a
25% and 50% reduction level if favourite items are available and category space is not reduced.
This study suggests that retailers can make moderate reductions in SKU count, thus cutting back
on warehouse inventory and related costs, without degrading their image of offering a good
assortment. Further, retailers can expand facings of the most popular products, thereby reducing
out-of-stocks and the costs associated with them. In this way, traditional format retailers who
streamline their operations should be able to compete effectively with the emerging alternative
format retailers (e.g. Wal-Mart), whose superior operating systems currently provide a 26
percent cost advantage.