What is Assortment Planning? How to Improve

Assortment planning in action

April 25, 2024

Assortment planning is a process that helps retailers choose the best products to sell to customers at the right time, place, and price. This process involves determining the variety of products, breadth of product lines, and depth of product lines. The goal of assortment planning is to maximize sales and profitability while meeting customer demands and preferences.

Assortment planning is effective when it considers market trends, historical sales data, customer buying behavior, and inventory levels. This helps predict future demand and adjust the product offering accordingly. Retailers use assortment planning to ensure they have a good variety of products for their customers. This helps them meet the needs of their target customers without having too much or too little inventory.

Key Elements of Assortment Planning

1. Understanding Customer Preferences: Analyzing shopping patterns, feedback, and trends to cater to customer desires.

2. Inventory Management: Balancing stock levels to avoid surplus or shortages, considering factors like lead times and shelf life.

3. Pricing Strategy: Setting competitive prices that reflect the value to the customer while maintaining profitability.

4. Seasonality and Trends: Adapting the assortment to changes in seasons, holidays, and emerging trends.

5. Vendor Relationships: Working with suppliers to ensure product availability, quality, and cost-efficiency.

6. Merchandise Mix: Ensuring a diverse and complementary range of products that attracts and satisfies various customer segments.

7. Space Planning: Efficiently organizing floor and shelf space for products based on sales and strategic importance.

In today’s retail world, stores use advanced analytics to plan their product selection. This helps them create personalized shopping experiences and keep customers coming back. Effective assortment planning is crucial for achieving efficiencies, minimizing markdowns, and ultimately driving the success of retail businesses.

How to Improve Assortment Planning Strategy

Improving your assortment planning strategy is key to meeting customer demand, reducing inventory costs, and increasing sales. Here are several strategies to consider:

1. Understand Your Customers

Customer Segmentation: Break down your customer base into segments based on their buying behavior, preferences, demographics, and psychographics. Tailor your assortment to satisfy the distinct needs of each segment.

Feedback Loops: Implement feedback mechanisms (such as surveys, reviews, social media listening) to understand customer satisfaction and demand trends.

2. Leverage Data Analytics

Use historical sales data to identify which products are performing well and which are not. This includes analyzing seasonal trends, product life cycles, and SKU performance.

Stay current on market trends and emerging products. Use data analytics to forecast demand and adjust your assortment planning accordingly.

3. Optimize Inventory Management

Use ABC Analysis to sort inventory into three groups based on sales data. This will help you focus on managing your stock more effectively.”

Implement an Open-to-Buy (OTB) system to plan your purchases more accurately and maintain inventory flexibility.

4. Supplier Collaboration:

Collaborate with your suppliers to determine their delivery times, minimum order quantities, and ability to fulfill rush orders promptly. This will help you plan your inventory and meet customer demands efficiently. Understanding these details will also allow you to establish a strong partnership with your suppliers. This can help in adjusting your assortment quickly based on demand.

Consider Vendor-Managed Inventory (VMI) agreements where suppliers manage the stock levels for you, ensuring optimal inventory levels.

5. Implement Dynamic Assortment Planning

Be flexible. Make your assortment planning dynamic to quickly adapt to changing market demands, seasonality, and trends.

Customize product offerings to match local preferences and tastes, especially if you have operations in different regions or markets.

6. Use Technology and Tools:

Think about investing in specialized Assortment Planning software. This software uses machine learning and AI technology to predict demand more accurately. It also helps optimize product mix and simulate the financial effects of assortment adjustments.

7. Sustainability and Ethical Considerations:

Conscious Assortment: Include sustainable, eco-friendly, and ethically sourced products in your assortment to cater to the increasing consumer demand for responsible retailing.

Wrapping Up

Improving assortment planning involves focusing on customers, using data analytics, managing inventory, working with suppliers, and using advanced planning tools. To improve assortment planning, focus on understanding customer preferences. Utilize data analytics to analyze trends and make informed decisions.

Efficiently manage inventory to meet customer demand and reduce costs. Collaborate with suppliers to ensure timely delivery and maintain product quality.

Utilize advanced planning tools to streamline the assortment planning process and optimize inventory levels. This not only improves customer satisfaction but also operational efficiencies and profitability.

What is the Difference Between Assortment Planning and Merchandise Planning?

Assortment planning and merchandise planning are important processes in retail management. These processes choose and supervise the products for sale. Though intertwined, they serve distinct functions:

Merchandise Planning 

Merchandise planning is when a business chooses which products to sell and sets financial goals for a certain period. It includes setting sales targets, inventory levels, buying budgets, and gross margin goals.

Merchandise planning is about aligning customer demand with product availability to improve profit margins and turnover rates. It looks at how much money to invest in each product category and considers when to purchase items and the profits that can be anticipated.

Assortment Planning

Assortment planning, on the other hand, dives deeper into the specifics of the merchandise mix. Product assortment planning involves choosing the ideal combination of products to align with customer preferences within a particular category. This process takes into account various factors such as sizes, colors, and styles. The goal is to offer a range of products that will appeal to customers.

Finding the right balance of variety and quantity in the product selection is important. This includes taking into account factors such as sizes, colors, and styles.

Assortment planning means choosing products that fit the local market and appeal to the target customers. This involves creating a diverse and attractive range of products. The goal is to meet the preferences of the customers.

This process considers how long products are available, how they change with the seasons, and what is currently popular. It helps determine which products should be added or removed from the assortment.

Merchandise planning lays the financial and quantitative foundation for inventory decisions, focusing on the ‘how much’ and ‘when’. After merchandise planning sets the constraints, assortment planning determines the specific products to offer. This process focuses on meeting customer preferences and maximizing satisfaction and sales. Both data analysis, market understanding, and customer insight are important for a retail business to succeed.

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