TheExecutive’s

The Retail Retail Executive’s

Guide toGuide to
Assortment Assortment Optimisation
Optimisation
 CONTENTS
The Retail Executive’s Guide to
Assortment
INTRODUCTIONOptimisation

WHAT IS ASSORTMENT PLANNING?

WHY IS ASSORTMENT PLANNING IMPORTANT?

DOTACTIV’S APPROACH TO ASSORTMENT OPTIMISATION

HOW DOTACTIV ENTERPRISE OPTIMISES ASSORTMENTS

UNDERSTANDING TRANSFERABLE DEMAND

PRE-ASSORTMENT PLANNING CHECKLIST

CONCLUSION
Introduction
The Retail Executive’s Guide to
Assortment
Welcome and thank you Optimisation
INTRODUCTION for downloading our Ebook on Assortment
Planning.
After that, we explain how DotActiv optimises assortments.
By the end WHAT
of IS ASSORTMENT
this Ebook, PLANNING?
you’ll have a better understanding of what This includes the Rules, Templates and Plans that we follow. To
assortment planning is and why it’s so crucial to your future success. More give you a better idea of what a fine-tuned assortment plan
importantly, you’ll know DOTACTIV’S
what you can do toAPPROACH TOstores.
implement it in your ASSORTMENT OPTIMISATION
would look like, we also take a specific category and break it
down.
Firstly, we take a look at what assortment planning is and justify why it is so
HOW DOTACTIV ENTERPRISE OPTIMISES
important. We also explain when you should (and shouldn’t) begin
ASSORTMENTS
It’s impossible to approach Assortment Planning without
assortment planning, and highlight the various financial and practical understanding transferable demand. Not only do we explain it
benefits of using it. We round off this UNDERSTANDING TRANSFERABLE
section by pitting a well-oiled in detail in thisDEMAND
Ebook, but we also touch on the two questions
assortment plan against a poorly-oiled one so that you can see the difference you should ask yourself when determining if a product has
between the two. PRE-ASSORTMENT transferablePLANNING demand.
CHECKLIST
In the next section, we dive into how DotActiv approaches assortment Finally, we give you a pre-assortment planning checklist to
CONCLUSION
planning. This includes a look at the elements that make up our methodology help you set your stores up for future success.
on Assortment Planning. Don’t worry, it’s nice and simple.
 What is Assortment
INTRODUCTION
The Retail Executive’s Guide to Planning?

Assortment
Welcome Optimisation
and thank you for
INTRODUCTION downloading our Assortment Optimisation
Your customers expect your stores to offer them a relevant and attractive product assortment. If not, they’ll shop at
Ebook.
your competitors. It’s that simple. Considering the current saturation of the market, that is anything but an empty
After that, we explain how DotActiv optimises assortments.
threat.
WHAT IS ASSORTMENT PLANNING?
By the end of this Ebook, you’ll have a better understanding of what This includes the Rules, Templates and Plans that we follow. To
assortment planning is and why it’s so crucial to your future success. More give you a better idea of what a fine-tuned assortment plan
How can you face this brutal truth head-on and win at the same time?
importantly, you’ll know DOTACTIV’S APPROACH
what to do to implement TO ASSORTMENT
it in your stores. OPTIMISATION
would look like, we also take a specific category and break it
down.
Assortment planning, also known as assortment optimisation, is the answer. More importantly, it’s an intelligent and
In the first section, we take a look at what assortment planning is and justify
systematic approach toHOW
localisedDOTACTIV
assortment planning.ENTERPRISE OPTIMISES ASSORTMENTS
why it is so important. We also explain when you should (and shouldn’t) It’s impossible to approach Assortment Planning without
begin assortment planning, and highlight the various financial and practical understanding transferable demand. Not only do we explain it
Before we continue, it’s important first to define assortment planning. In brief, it’s the process of selecting a collection
benefits of using it. We round off this UNDERSTANDING
section by pitting a well-oiled TRANSFERABLE
in detail in thisDEMAND
Ebook, but we also touch on the two questions
of products that you will then offer at a particular store (localisation) during a specified period (seasonality).
assortment plan against a poorly-oiled one so that you note the difference you should ask yourself when determining if a product has
between the two. transferable demand.
As for what makes up a healthy assortmentPRE-ASSORTMENT
plan, it’s simple: it considersPLANNING
both the financial CHECKLIST
objectives and seasonality of
the product selection so that everyone - yourself and your customers included - reap the benefits.
In the next section, we dive into how DotActiv approaches assortment Finally, we give you a pre-assortment planning checklist to
CONCLUSION
planning. This includes a look at the elements that make up our methodology. help you set your stores up for future success.
Let’s consider the diagram on the next slide to further illustrate our point.
Don’t worry, it’s nice and simple.
What is Assortment
INTRODUCTION
The Retail Executive’s Guide to
Planning?

Assortment
Welcome and thank you for
INTRODUCTION Optimisation
downloading our Assortment Optimisation
Your assortment plan defines the products that make up the category, sub-categories, segments, and sub-segments.
Ebook.
After that, we explain how DotActiv optimises assortments.
It also includesISthe
WHAT width and depth ofPLANNING?
ASSORTMENT your category. Your width covers how many different products make up the
By the end of this Ebook, you’ll have a better understanding of what This includes the Rules, Templates and Plans that we follow. To
category. Your variety will be either narrow or broad. Your depth focuses on how many different variations you have of
assortment planning is and why it’s so crucial to your future success. More give you a better idea of what a fine-tuned assortment plan
each product. Your depth will be either deep or shallow.
importantly, you’ll know DOTACTIV’S APPROACH
what to do to implement TO ASSORTMENT
it in your stores. OPTIMISATION
would look like, we also take a specific category and break it
down.
In the first section, we take a look at what assortment planning is and justify
HOW DOTACTIV ENTERPRISE OPTIMISES
why it is so important. We also explain when you should (and shouldn’t)
ASSORTMENTS
It’s impossible to approach Assortment Planning without
begin assortment planning, and highlight the various financial and practical understanding transferable demand. Not only do we explain it
benefits of using it. We round off this UNDERSTANDING TRANSFERABLE
section by pitting a well-oiled in detail in thisDEMAND
Ebook, but we also touch on the two questions
assortment plan against a poorly-oiled one so that you note the difference you should ask yourself when determining if a product has
between the two. PRE-ASSORTMENT transferable
PLANNING demand.
CHECKLIST
In the next section, we dive into how DotActiv approaches assortment Finally, we give you a pre-assortment planning checklist to
CONCLUSION
planning. This includes a look at the elements that make up our methodology. help you set your stores up for future success.
Don’t worry, it’s nice and simple.
 Why is Assortment
Planning important?

Assortment planning should be at the core of every retail strategy. That’s especially
true considering that you are primarily defined by the products your shoppers find
in your stores. If your product offering is unoriginal and unattractive, the
reputation of your retail brand will suffer.

If that isn’t enough to persuade you about its importance, then the financial and
practical benefits will undoubtedly do it.
Financial and Practical
Benefits

Financial Benefits Practical Benefits

● Improves overall sales performance: The result of ● Simplify the assortment planning process: Instead of
having the right products (selection) at the right price doing assortments manually, you can automate the process and
(localisation) and at the right time (seasonality) leads to then refine it when needed.
an improved sales performance. ● Assortment planning is connected to space planning:
● Combat rising inventory levels: Focus your efforts You can’t expect to know how many products you can range in a
on products that either sell high units (traffic building), category if you don’t know how much space is available or how
are high margin (profit generating) or are must-have much space each of your products needs.
products (products with low transferable demand).
● Identify opportunity gaps: You can identify poor
performers and replace them with products that will
benefit your categories.
● Improves buying consistency: Data-driven
assortment planning helps to strengthen the rationale
behind every one of your buying decisions.
 Efficient vs Inefficient
Assortment Plans

An assortment can appear attractive and you can put a lot of thought into it. However, that
doesn’t mean that it will automatically lead to higher revenue and increased profit.

If you are unsure about whether or not you have built an effective assortment plan, it’s simply a
case of looking at what a well-oiled plan looks like. Then it’s about comparing it to a poorly-oiled
assortment plan.

On the next slide, we’ll take a look at an efficient assortment plan and see how it compares to a
plan that is inefficient.
Efficient vs Ineffecient
Assortment Plans

Efficient: Inefficient:

● This assortment plan caters to the needs and wants of ● This assortment plan doesn’t consider local demand.
your customers.
● The buying and assortment decisions are not data-driven.
● Buying and assortment decisions are based on a
combination of internal sales data, external market data, ● Planning your assortments becomes laborious and cumbersome.
and your business strategy.
● There is no connection between your assortment planning and
● The more frequenetly this process is followed, the easier space planning.
it becomes to plan your assortment.
● Your assortment strategy is not customisable.
● Your assortments automatically populate your
planograms.

● You can customise strategies, which can be applied at any

level of the product hierarchy or consumer decision tree.
 When NOT to start
Assortment Planning

Because assortment planning has such a significant impact on both the

in-store shopping experience and the financial performance of your stores,
the answer to the question around when you should start is obvious. You
should have started yesterday.

That said, here is a note of warning.

The only time you’ll know that you aren’t ready to get started with assortment
planning is if your point of sales system is not yet supplying your retail
business with sales data by SKU.
DotActiv’s Approach to
Assortment Optimisation

As we have already asserted in this Ebook, an optimised assortment strategy will positively
impact your financial performance and the in-store shopping experience. That said, assortment
optimisation is often perceived as too complicated to implement.

That is, of course, not true.

So long as you cover the basics, implementation is quite simple. In fact, it’s achievable even for a
small retailer with less than 20 stores.

By basics, we mean you need to have a solid methodology. When people hear the word
‘methodology’, they sometimes think of complex diagrams which are of no practical use.
However, we like to look at it differently. Behind every successful business undertaking, product
or project is a methodology which acts as the foundation on which you build everything else.

The same goes for assortment optimisation. Our methodology
consists of four simple elements.
1. Local Demand: Stores need to offer products which are
attractive to their shoppers. That’s done by localising your product
assortment. There are many valid reasons why we’d recommend a
localised assortment plan, including that it improves in-store
experiences.
2. Opportunity Gaps: By using external market data and internal
POS data, you can find slow-moving and highly transferable
products and replace them with high-performing items. On the
other hand, you can replace them with products that have the
potential to offer your local customer with solutions.
3. Flexibility: Since every category, sub-category, segment, and
sub-segment are, by their nature, unique, your assortment planning
strategies must be fully customisable.
DotActiv’s Approach:
Our Methodology
4. Integration: With assortment planning being so data intensive,
you need to integrate the software into the business. If not, not only
will the process be labour intensive but you’ll be susceptible to
human error.
Let’s use an example to illustrate that.
The assortment planning process impacts space planning and
planogram automation directly because you can’t create a
planogram without an assortment plan. Thus, when designed, it
should automatically reflect in any updated planograms.
If discontinued, you don’t have to remove a product from the
planogram immediately. Instead, you should allow a product to
follow its proper end of life when delisted. As a
result, your product can remain on your planogram till you have no
more stock.
How DotActiv Enterprise
optimises assortments

Assortment optimisation is an essential part of the category That said, in DotActiv Enterprise, assortment optimisation starts
management process. In fact, it’s part of step three - insight and ends with three simple words:
generation. That’s why it’s also at the heart of DotActiv Enterprise.
Rules, Templates, and Plans.
The assortment planning feature is intrinsicallly linked with the rest
of the software. That means assortment planning, floor planning, That’s because these rules, templates and plans give users the
planogram generation and other category management elements ability to customise strategies for each category.
all work together seamlessly.
Let’s unpack them in the next slide.
This approach is critical since these category management
components are dependent on each other.

These rules are individual calculations that are used to rank
products within a database and generate an assortment based on
specific attributes. In Enterprise, we have standard guidelines built
into the software.
As a side note, anyone proficient in Microsoft SQL can add new and
customised rules if they wish.
A few standard rules include:
● Sales: This rule takes the total sales of a product into
consideration. The higher the sales, the better the product
score.
● Units: This rule takes the total units of a product into
consideration. The higher the unit count, the better the
product score.
DotActiv Rules
● Time on Shelf: This rule takes into consideration the time a
product sits on the shelf before it sells out. The shorter the
time, the higher the product score.
● Internal Market Units Rank: This rule takes the total unit
count within your internal market into consideration.
● External Market Sales Rank: This rule takes the total
sales within your external market into consideration.
● External Market Units Rank: This rule takes the total
units within your external market into consideration.
● House Brand: This rule considers your house brands. If a
product is a house brand, it will score higher within the
range.
● SKU Size Limiter: This rule takes the size of your product
into consideration. It is also used to rule out products that
are either too big or too small.
DotActiv Rules

● Good, Better, Best: This rule considers the selling price of a product
(Is it premium or economy?) It is assumed that the higher the price, the
better the product. Just to note, you must include products that cover
all price ranges in your assortment.
● Top Brands: This rule takes the brand leaders of a category into
consideration.
● Max Colours/Flavour: This rule considers the maximum amount of
colours and flavours of a product to include in your product range.
● Total Profitability: This rule considers the overall profitability of any
one product in your range.
 DotActiv Templates

While the rules are each used to rank your products, templates are used to
group a selection of rules linked to one particular category, sub-category or
segment. Since each of your product groupings are, by their nature, different,
they will benefit from a different set of rules.

As you’ll note in the example pie graph, you would usually apply two to three
rules to each segment of a category.
DotActiv Plans

Plans are made up of a customisable selection of templates with each

template linked to one specific product grouping in a category. It's also
essential to note that you'd typically apply one plan to an entire product
grouping.
An optimised assortment in
DotActiv Enterprise
Understanding transferable
demand

As we’ve already stated in this Ebook, offering the right products to your
That’s not to say that you shouldn’t stock products with low
market at the right time and price is a tough nut to crack. Knowing that,
transferable demand. Examples of such products include those
you can’t afford to give your competition an edge. That’s why localising
that are highly exclusive to your stores. You do need to balance
your product assortment (and plan) is so vital.
it correctly because you’ll frustrate those shoppers who are
loyal to particular brands.
Of course, to get that right, you also need to consider and understand the
concept of transferable demand.
As a side note, a product with high transferable demand is one
that your customer views as a suitable substitute for the
Simply put, transferable demand is the ability to transfer the demand for
product they had initially intended to purchase.
one product to another. That said, the capacity to transfer demand from
one product to another is a critical concept to consider. That’s because if
a product has a low level of transferable demand - meaning a customer
won’t pick another product if the one they’re after is out of stock - they
may shop elsewhere.
 Understanding transferable
Demand: Questions to Ask

Alternatively, when it comes to determining transferable demand, there

are questions that you must ask yourself. More specifically, there are
two, and they are:

1. Could you reduce the number of products listed in a category or

sub-category, thus reducing inventory costs without negatively
impacting the category?
2. If you decide to remove the product from a category or
sub-category, can you transfer the demand for that product to
another? Or, will the shopper leave your store without buying?
 Your Pre-Assortment Planning Checklist

Before you get started with your assortment plan, you

need to ensure you have a few things in order. The easiest
way to do that is to take various structured actions to get you
there. We cover them all below.

As a side note, what you’ll find on the next few slides isn’t a
step-by-step process but rather a checklist of what needs to be in place
for you to move forward.
1. Consumer decision tree and product classification Your Pre-Assortment Planning Checklist

Before any assortment planning can begin, you must define your
consumer decision tree. Also known as product hierarchies, your
consumer decision tree is a graphical record which assists you in
understanding the buying habits of your consumers. In short, if you Before you get started with your assortment plan, you
don’t know what your consumers are buying, how can you ever pick need to ensure you have a few things in order. The easiest
the right assortment? way to do that is to take various structured actions to get you
there. We cover them all below.
2. Store or Category-based clusters
As a side note, what you’ll find on the next slide isn’t a step-by-step
In the retail context, clustering refers to the grouping of stores or
process but rather a checklist of what needs to be in place for you to
categories across stores based on fixed similarities. These
move forward.
similarities include demographics, performance as well as other
local influences. In doing this exercise, you’re laying down a solid
foundation on which to build. These building blocks will eventually
lead your stores to offer your customers the right product at the
right place and time.
Your Pre-Assortment Planning Checklist

Your Pre-Assortment Planning Checklist

3. An Assortment Planning Strategy

Assortment planning software is there to assist you to both formulate and execute your strategy rather than
dictate one to you. DotActiv’s Assortment Planning Software allows you to improve your in-store experiences
by developing optimised assortments that are localised to shoppers preferences by neighbourhood.

4. Internal POS Data

Mobiquity quotes Jake Freivald of Information Builders, who says, “Point-of-sales data is the
lifeblood of a retail company. It’s probably more important than any other single data source,
because it helps us understand the past, monitor the present and predict the future.”
We couldn’t agree more. You need to have point of sales data in its most granular format.
5. External POS Data Your Pre-Assortment Planning Checklist
While purchasing external POS data is expensive, it’s still
critical that you do it. Here’s why: if a product performs
poorly in your stores while simultaneously performing well in
the external market (your competitors) then the solution is
not necessarily to delist the product. Before you get started with your assortment plan, you
need to ensure you have a few things in order. The easiest
Instead, you should try to find out why the product way to do that is to take various structured actions to get you
performed so poorly to correct it. there. We cover them all below.

6. Cross Merchandised SKUs As a side note, what you’ll find on the next slide isn’t a step-by-step
process but rather a checklist of what needs to be in place for you to
In predetermining those products that you want to cross
move forward.
merchandise in your category, you can save space planners
time so that they don’t have to manually add those products
to your planograms later on.

More importantly, by spotting these products, you can take

full advantage of every opportunity to increase sales.
Your Pre-Assortment Planning Checklist

Your Pre-Assortment Planning Checklist

7. Category Management Software

It goes without saying: to create and maintain an optimised product assortment, you need category
management software. The right software will allow you to manage your clustering, assortments, floor space
planning, and planogram generation in an integrated and flexible way.

8. A Third Party Expert Partner

While you may want to try and do an assortment planning exercise alone - and we’d commend you for
trying - its advisable to turn to a third party expert. After all, two heads are better than one.

It also helps if that third party has had extensive experience in assortment optimisation across
multiple retailers who all face unique challenges.
The Retail
TheExecutive’s Guide to
Retail Executive’s Guide to
AssortmentAssortment
OptimisationOptimisation
CONTENTS
DotActiv is a specialist category management firm. We provide
all-in-one integrated category software, which enables the
automation of data-driven product layouts, localised assortments andINTRODUCTION
CONCLUSION advanced retail analytics. We work with small, medium, and large
retailers, and suppliers.
WHAT IS ASSORTMENT PLANNING?
Interested in hearing more? Click here to book your FREE DEMO.
DOTACTIV’S APPROACH TO ASSORTMENT
OPTIMISATION

HOW DOTACTIV ENTERPRISE OPTIMISES ASSORTMENTS

UNDERSTANDING TRANSFERABLE
DEMAND

PRE-ASSORTMENT PLANNING CHECKLIST