Merchandise Mix, Product Assortment and Merchandise Planning
In the retail business, the merchandise mix
is an important factor for the success of any retail company. It is essentially the product assortment
that a retail store offers. Whereas some stores may carry a deep and wide assortment* (explanation at the bottom) in their merchandise mix, such as a large online retailer, other stores may have a shallow and narrow assortment*, such as a small chocolate store.
To provide the store's customers a highly desirable merchandise mix and in order to decide which products can bring in most profits and which products we should keep out from the merchandise mix, the product roles matrix
is a helpful tool. Here is how this product assortment matrix works:
This matrix has two variables which are Sales Value and Bill Penetration. Here BILL PENETRATION means the total number of customers buying that product and SALES VALUE means the price of the product. By confronting these 2 variables, we obtain 4 quadrants or 4 product categories:
- NICHES: The products which have a low bill penetration (few customers buy them (but have a high sales value (expensive products). These comprise the niche categories of products that only a few selected customers buy. Retailers tend to keep these products to satisfy the needs of these niche customers as they bring in high sales value in a single purchase and the margins are quite good with these products.
- DOGS: These products are the ones which few customers buy and are not expensive. It's normally better for retailers to get rid of these products as soon as they can. If a retailer offers many of these products, they occupy a lot of precious space in their shop.
- TRAFFIC BUILDERS: These products include the ones which are not expensive and many people buy them. These are typically the essentials such as toilet paper, rice, etc. Retailers keep these products even if they are low priced because the bill penetration is high, so the profits are still quite good for the retailer. These products also make people coming back to the stores and they may also buy other things while they make their visit.
- STARS: Many people buy these products and they have a high sales value. These are obviously the most profitable products for a retailer and a retailer should try to keep many varieties of these kinds of these products. These may include products such as liquor and well-known, international brands.
Of course, the optimal product assortment strategy
depends also on the type of store:
||Type of Store
|Deep and Narrow Assortment
|Deep and Wide Assortment
||General Merchandise Stores
|Shallow and Narrow Assortment
|Shallow and Wide Assortment
||Stores with a merchandise philosophy
||Pop-up store, $1 store, Seasonal groceries stall
* A deep assortment
means the store carries many variations of a particular product. A shallow assortment
means the store carries no / only a limited number of variations of a particular product. A wide assortment
means the store carries a large number of different products. A narrow assortment
means the store carries a small number of different products. A consistent assortment
means the customer perceives it as logical, so that he can be sure that he will find particular products and/or brands he is looking for at this store. A flexible assortment
means the store is selling whatever is discountable or available locally, at this time.
Compare also: Product Mix
. Don't mix up merchandise planning with merchandising