Which Products Should You Stock?

Unlike inventory management and pricing, where retailers have lots of data and analytical tools to guide decision making, assortment optimization is still much more art than science. And making the wrong call can be disastrous. It's easy to spot the dogs in the assortment, of course--sales data...

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Bibliographic Details
Published in:Harvard business review 2012-11, Vol.90 (11), p.108
Main Authors: Fisher, Marshall, Vaidyanathan, Ramnath
Format: Magazinearticle
Language:English
Subjects:
Competitive advantage
Consumer attitudes
Customers
Decision making
Guidelines
Inventory management
Product lines
Retailing industry
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Summary:Unlike inventory management and pricing, where retailers have lots of data and analytical tools to guide decision making, assortment optimization is still much more art than science. And making the wrong call can be disastrous. It's easy to spot the dogs in the assortment, of course--sales data will show that--but it's far from obvious what slow sellers should be replaced with. As all retailers know, picking the best assortment is a balancing act; any one change can have ripple effects. This article discusses a technique that makes assortment planning vastly more scientific. It is rooted in the observation that most of the time customers don't buy products; they buy a bundle of attributes. The approach uses sales of existing products to estimate the demand for their various attributes and then uses those estimates to forecast the demand for potential new products. Armed with these data, retailers can test their hunches more scientifically. The approach is especially useful for retailers in the hard-goods and grocery segments; it's less applicable in the fashion-sensitive apparel segment, where products change fast. The method still requires some judgment about which attributes are important to consumers and how those preferences might influence their purchase decisions if they don't find their first choice.
ISSN:0017-8012