RSR Research: The Future of Merchandise Planning - Incorporating Customer Segments
Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.
As many of you know, I was among the first IT execs in the U.S. to successfully implement a merchandise planning system. The planning process at that time was pretty straightforward and has remained more or less the same for the past twenty-five years. But that's changing now in some really fundamental ways.
First: the computing power we now have available to us allows us to build our plans from a SKU-level demand forecast. That's very different from the way we used to build them and can be difficult to wrap your head around.
But the second area — and the one I want to focus on today — is the wealth of customer data we now have available to us from online, social and mobile channels.
Merchandise plans are typically viewed as a cube of three dimensions: Product, Location and Time. When the online world came along, the e-commerce channel was generally viewed as a separate location, so it got tucked in there.
All planning systems worth their salt have always allowed alternate hierarchies in each of these three dimensions so:
- Products could be rolled up either to class, department and category, or to buyer;
- Time could be rolled up to months and seasons or, in the case of retailers who also sold through catalogs, to catalog "lifecycles";
- Locations could be rolled up geographically or by regional management.
Attributes are also frequently used to group seemingly unrelated elements. In fact, in this year's recent Merchandising Benchmark, 61 percent of Retail Winners (those who out-perform inflation in year over year comparable store sales) rated attribute-based planning systems as very important technologies.
It's also worthy to note that 50 percent of respondents to that same survey also said they see incorporating customer data into their merchandising processes as a top-three opportunity. But if customer data is that important, are attributes enough to do the job?
That's what really got me thinking. I've run the concept of "customer" as part of the planning model through my head for several years. But it's hard enough to think of a cube, let alone a tesseract (apparently this is a four dimensional object) for merchandise planning purposes. I just couldn't wrap my head around how it would look or even function.
We have always picked our store locations based on how well they geographically matched up to our target customer segments. Or as the mantra goes, retail is all about "location, location, location." But in an omni-channel world, don't we have a chance to flip the thing around? Stores aren't going anywhere, but can't we look at customer segments across geography, not as an attribute of a location or a product. Why shouldn't customer segments be an alternate hierarchy of location? In fact, as the world goes more and more virtual, you'd almost expect location to be the alternate hierarchy of the primary hierarchy: customer segment.