Tapping into the analytics and advancement capabilities of Cannondale Associate's RichMix assortment planning solution, DemandTec (a RetailWire sponsor) has come up with an assortment optimization solution providing enhanced functionality for retailers to understand shopper behavior. Specifically, DemandTec Assortment Optimization, used in conjunction with DemandTec's Everyday Price Optimization product, promises to enable pricing analysis to play a much larger role in driving assortment decisions.
Marc Dietz, vice president of marketing at DemandTec, says price and assortment decisions are highly interrelated. For example, a retailer may be pushing a "good, better, best" strategy in assortment allocation, but analytic analysis shows the prices aren't sending that "good, better, best" message to consumers at the shelf level.
"The right assortment is right only if the prices are right," says Mr. Dietz in an interview with RetailWire. "And that's because if you start pulling items off the shelf or adding new ones, you change the relative price relationships or gaps between products left on the shelf. That could completely change how consumers make decisions around that category."
DemandTec's Assortment Optimization software service combines the demand intelligence and forecasting capabilities of DemandTec with the analytics and advanced capabilities of RichMix, the assortment planning product relied on by many CPG vendors. The goal, according to Mr. Dietz, is to measure the "incrementality" of adding or subtracting an item within a category mix.
Typically, assortment allocation is guided by ranking best and worst sellers; and eliminating the worst. But eliminating one of the poorer sellers might not have the desired effect if it contributes to variety more so than other items.
"So if you have 100 items and you're delisting five items, the relative incrementality and importance of numbers 96 to 99 might change once you start removing items," says Mr. Dietz. "With the old way of using a ranking report approach, it's just static. Those bottom five just come off."
DemandTec's Assortment Optimization software enables retailers to explore these "What if" changes around the mix. The package also enables retailers to understand "transferable demand." Once an item is removed, for instance, a consumer may switch to a competing national brand, a private label product, or not buy any other brand in the category altogether.
Overall, DemandTec sees a renewed interest in assortment optimization. On the one hand, retailers realize they have to understand whether mainstay brands are incremental versus duplicative parts of the mix. On the other hand, retailers are looking to add variety to the mix through new brands, brand extensions and private labels. Although this is helping the push toward more customization and merchandising assortments to local regions, retailers are looking for more sophisticated analytical tools to handle the significant increase in SKUs.
"You would never have a completely different assortment in every single store," notes Mr. Dietz. "But you might have an 80/20 rule, where 80 percent of all the merchandise in the store will be the same and 20 percent will vary based on local market demand. So how do you use that local 20 percent most effectively?"
Discussion Questions: What role should pricing analysis play in assortment planning? What do you think of the potential for assortment optimization solutions to improve customized or localized merchandising efforts?