Which Products Should You Stock?

• 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
• ISSN: 0017-8012

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.