One of the most vital factors for every retailer to be successful is that they must possess the right inventory and assortment mix. Irrespective of the fact that they might be located at a busy mall or that they may have an engaging presence on social media, what matters the most is that they stock relevant products for their target customers. To add to that, online retail gives customers to chance to buy their desired product from a variety of websites, thus making assortment optimization a key priority for all retailers. The key to effective assortment optimization and achieving maximum sales is to delve into customer data and analytics to grasp useful insights. These analytics enable retailers to identify profitable growth opportunities to make the right retail decisions with the help of customer-centric merchandising.
The importance of customer-centric merchandising
For effective merchandising, retailers need to use customer data and buying behaviour and integrate those insights assortments and promotions. A prime aspect here is creating localized assortments as this aids retailers to determine which products to offer at which locations and through which medium. According to the EIQ Customer-Centric Merchandising and Category Management Survey, 2017, a whopping 73% of retailers attempt to customize their processes at a local or store level benefit from an increase in overall customer satisfaction. Customer-centric promotions also play an important role in assortment and customer-centric merchandising as these help retailers tap into specific customer segments after studying their buying behaviour. Metrics such as lifestyle and life stage aid retailers to place customers in specific segments and effectively design promotions for them. Thus, the buying behaviour and interests of college going female students would be very different from middle aged working women so clothing retailers would have to segment and position items for each group separately with a major focus on colors, cuts, styles and pricing for each group. A notable example here is Target’s guest lines which have proved to be very successful for the retailer and have often sold out in minutes as they pick the right designers and create the right products for their target market. This fact is further supported by EIQ Customer-Centric Merchandising and Category Management Survey, 2017 shows that more than 60% of retailers indicate that consumer insights-driven promotions are critical for category management.
Why assortment planning matters
The process of assortment planning is unique to each retailer, and this function can attain near or full optimality if retailers pay heed to segmented customer data. Every retailer has a specific customer mix with its individual buying behaviour, and this is the data they need to harness in order to effectively choose what products to stock. Besides achieving higher sales, maintaining an optimized assortment can also aid a retailer to develop an effective and profitable pricing strategy. If one stocks unique products and with a strong brand value, they can sell products at a premium price and yet grow their profits as shoppers see the brand value and will choose to do so, irrespective of the fact that they don’t offer the lowest price. This can be seen in Urban Outfitters’ sister brand Free People which has mastered its customers and brand positioning. Its target customers are young women in their 20s and while the brand is priced much higher than its rivals like Forever 21 and H&M, it continues to sell well to its niche clientele.
To conclude, effective customer analytics are essential for retailers to incorporate customer insights into key decisions for optimum assortment, comprehending customer economics and measuring the path-to-purchase behaviour of various segments. These insights further empower retailers to develop strategies and design customer-specific offers which are most relevant to each customer. This gives them a substantial competitive advantage to improve customer satisfaction and increase their profits.