Business intelligence and advanced analytics company Moodie Insights, a Moodie Davitt joint venture company, presents a new series exploring the retail fundamentals of promotion, range, display & space, and pricing. In the second instalment of this series, General Manager Craig Mackie discusses range and assortment optimisation.
Reviewing and optimising your range is an essential part of managing your business for growth within any retail environment. Within travel retail we operate in a particularly complex and dynamic environment. Customer expectations are high with shoppers looking to find products that they can’t easily access from local supermarkets or stores. With shopper needs continually changing, regular monitoring and tweaking assortment can help to improve performance and grow the category.
Much has been discussed about the application of category management principles within traditional retail, such as supermarkets and convenience. However, in travel retail, we have a range of additional knowledge dynamics and much greater diversity of shopper groups than traditional retail which must be considered during a range optimisation process.
So how can we best harness data to ensure we are always offering the optimal assortment to our shoppers? At Moodie Insights we have a five-point plan to optimise assortment that ensures different lenses can be applied to the data, ultimately leading to better, more informed decisions.
- Data harmonisation
Outside of simple sales ranking or growth charts, we look to integrate multiple supplementary data sources that can sharpen ranging decisions. As a start point, we harness transaction level data, ensuring we can interrogate data down to every single basket, every minute of every day, to get a forensic view of performance.
We also integrate and harmonise disparate data sources together, ensuring that for every product we can assess performance across a range of lenses. This can include nationality profile, day of week or time of day sales, as well as flight attributes such as destination, departure date and time, departure gate and airlines – which can all have a material impact on the types of shoppers interacting with our stores and categories.
- Define your category goals
At the outset of the range review it is critical to be clear on the objectives upfront. Answering key questions enables sharper focus before we reach the stage of individual product decisions:
- Which groups of customers are growing and what do they want?
- Is our priority to drive volumes or margin?
- Which categories or segments are growing and what trends are fuelling that change?
- How have shoppers responded to past changes to range or innovation?
- Do we have an appropriate mix of products within particular market segments?
- What have been the key drivers of past performance and how can we accelerate?
- What are our competitors doing and what can we learn?
Clarifying goals helps to establish clearer parameters to guide decision making at product level.
- Moodie Insights composite ranking method
Our composite ranking methodology enables us to create a ‘balanced scorecard’ for each product within the category. Each product is evaluated against a broad criterion to determine its role within the category.
Ranging is more than just sorting the existing assortment by sales value and chopping off the tail. Our composite rank assigns a value for each product against pre-determined criteria. This includes sales and growth but also margin delivery and basket spend as well as product performance with specific stores, flights, shopper groups or nationalities.
Our standard approach also measures ‘residual spend’ on every product in the category. Residual spend calculates not only how much money shoppers are spending on our target product, but also how much money those shoppers spend on additional products in the category. This can be a critical measure to understand the true value contribution of any individual product to the category sales.
- Micro ranging and agile ranging
Beyond a simple change in product count to accommodate different store sizes, it is important to recognise that each store may have a different profile of shopper. Even within a single airport terminal no two stores will be the same. The location of the store and proximity to gates will determine the types of airlines and nationalities who interact and the product preferences they have. It is important to know the profile of a store and how this changes over the course of a day or week, and which stores have similar demands.
Profiling each store based on behaviours/nationalities enables the application of store clustering techniques, where stores with similar customer profiles and shopping habits can be grouped. Staying agile and aware of future changes to flight schedules and gate allocations can enable faster responses that anticipate and respond to the changing needs of shoppers.
- Scenario plan to scorecard
When any changes are made to a range it is always prudent to create a scenario plan. This should map out the expected impact of any delisted lines, the expected rate of switching into alternative products as well as clear sales targets and detailed assumptions for any new products being introduced.
We prefer to model these outcomes, enabling all assumptions to be pressure tested and validated. This then doubles as a transparent set of KPIs and targets that can be used to track and measure results post implementation. This process helps to gain learnings and insights that can help in short term course correction as well as laying the foundations of future range planning.
When harnessed effectively, data and analytics can provide a key opportunity to ensure a customer-centred retail offer and an optimal and tailored assortment that meets the demands and diversity of the travel retail landscape.
NOTE: Moodie Insights is a joint-venture company formed at the beginning of 2018. It aims to bring a greater level of insight and informed decision-making to commercial leaders within the global travel retail and food & beverage sectors. Click here for an introduction to Moodie Insights. Craig Mackie can be reached at craig@moodieinsights.com
