Choosing the right products to stock is incredibly important — and often equally hard to achieve. In this piece, the authors offer a new approach to assortment planning. The approach is based on the idea that most of the time, customers aren’t looking to buy specific products; rather, they’re looking for a bundle of attributes. For instance, when customers consider buying a TV, they think about screen size, resolution, price, LCD or plasma, and brand. The new method uses sales of existing products to estimate the demand for their various attributes, and then uses those estimates to forecast the demand for potential new products on the basis of their attributes. This technique can help retailers do a better job of replacing slow sellers, understanding whether customers are likely to settle for another choice if they don’t find their ideal product, and customizing assortments.
Getting product assortment right isn’t easy, yet it’s absolutely critical to retail success. Unlike inventory management and pricing, where retailers have lots of data and analytical tools to guide decision making, assortment optimization is still much more art than science. And making the wrong call can be disastrous. Consider these examples:
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