The company's product range directly affects revenue, product turnover and customer satisfaction. It is important to decide which categories will be included in it and to understand when to expand or, conversely, reduce them. A competent product policy makes it possible to avoid illiquid assets and shortages, optimize purchases and increase profitability. A careless approach, on the contrary, is fraught with the risk of accumulating unclaimed items in warehouses and shelves, and the right products will be constantly in short supply. So, what is a store's product policy (AP) and what principles should it be based on? Let's figure it out!
What is AP? Determining the essence
Product policy is a strategic area of activity that is aimed at meeting demand as fully as possible, effectively separating from competitors and stabilizing profits. In fact, it is a set of tools and measures for managing the composition and quantity of goods, as well as their control.
The main goals set under the Administration are:
- creating an assortment that meets the target audience's expectations as closely as possible both in terms of product composition and price and quality;
- timely identification of problems related to the discrepancy between supply and demand;
- optimization of product management in stock and at points of sale.
These goals also define the tasks that must be implemented within the framework of the direction. These include, for example, modernizing production, working to improve the characteristics of goods. The product policy also includes launching new product lines, optimizing the matrix for demand, and eliminating inefficient SKUs.
Who works with AP
Since the formation of product policy should take place at the strategic planning stage, the task will need to involve senior managers. They should formulate the main and intermediate goals, analyze external and internal factors affecting the product range, and monitor the results for the reporting period. Specific tasks can be implemented by:
- marketing department — its range of tasks includes working with existing product lines, finding prospects for expanding the range, monitoring results;
- procurement department — this division plans and directly replenishes the nomenclature range, searches for and works with suppliers, and other tasks;
- a specialized department that includes analysts, pricing specialists and brand managers (the latter are engaged in introducing new products to the market).
In addition, logistics staff, product managers, and other specialists can be involved in the implementation of the product policy. In many ways, the composition of people engaged in such tasks depends on the structure of a particular organization, the scale of its work, the availability of interregional branches, and other nuances. For example, when it comes to a small hardware store, the procurement department usually falls on the shoulders of the procurement department. Supermarkets and large stores with a large number of branches like the Snow Queen have their own commercial department dealing with these issues.
Structural features and parameters
As part of the formation of an AP, it is important to understand what types of products you will have to deal with. Classification is possible according to such criteria as latitude, depth, saturation, and specialization. Each nomenclature format has its own specifics, expressed in management methods, construction principles and other nuances.
Latitude
This indicator indicates the total number of product categories and subcategories. The larger it is, the higher the reach of the target audience and the stronger the company's competitive position. For example, a supermarket has a wider range than a small food store, so its attendance is usually higher. And an online electronics store offers goods for the largest possible segment of customers, while, for example, a dealer of a certain brand of smartphones has several times fewer target audiences.
In terms of breadth, the range can be simple and complex: the first includes a relatively small number of categories and items, the second offers the buyer a much wider choice. It can also be group or expanded. In one case, the nomenclature consists of goods that are similar in purpose and parameters, in the second case it includes the maximum number of heterogeneous products.
Examples of product types by latitude
Depth
This parameter indicates the number of items in a particular product category. It affects the reach of the target audience, customer satisfaction, and sales growth. The greater the depth, the wider segment of customers will be able to offer the product they need. According to this criterion, the range is divided into two types:
- specific — the category includes similar products with similar characteristics;
- branded — products of different types, but manufactured by the same company or belonging to the same line.
Examples of product types by depth
Intensity
This characteristic indicates the number of all items in the range as a whole, taking into account the width and depth parameters. The more extensive the product range is, the richer the choice is provided to the customer, which means that a person is more likely to make a purchase at this particular store. It is important to remember that as saturation increases, so does the store's purchase, storage and logistics costs.
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Work stages
The development and implementation of an assortment policy is not an easy task that requires a step-by-step approach. The first steps take place at the stage of analyzing the market and forming a business plan, and the next steps are necessary throughout the store's entire lifecycle.
Formation
This includes a set of actions that result in creating a structure and filling the range. The main steps are:
- analysis of the market, the needs of future customers, their expectations regarding the characteristics of the product, its quality, price, additional features and services;
- identifying demand for product groups and individual items (for this purpose, survey or interviewing methods are used);
- compiling a product matrix by category, brand, price segment, novelty, seasonality and other criteria.
Analysis
Interim results need to be evaluated in order to understand whether the resulting assortment meets the needs of the target audience. Experts study which goods are in higher demand, which items did not bring the expected profit, and what percentage of items are new. The study also needs to pay attention to the following aspects:
- how long a developed catalog will be able to meet the customer's needs before the need to make changes;
- the compatibility of goods with each other, the number of related items (for example, in a grocery store these can be snacks for alcoholic beverages);
- payback periods (relevant when introducing a new product or expanding the line);
- calculating the break-even point for individual items and product categories.
Governance
This stage takes most of the period of existence of the developed range, until changes are made. Based on the results of the analysis, it becomes clear whether it is necessary to expand certain categories, remove existing ones, whether it is necessary to adjust the pricing policy, and introduce additional goods or services. AP management may include the following actions:
- the formation of new product groups or the exclusion of existing ones;
- selecting a new product to be purchased;
- drawing up criteria for the effectiveness of a product or product group;
- development of measures regarding the product being introduced or the catalog as a whole for the purpose of optimization;
- maintaining quarterly and seasonal reports on demand, sales, and customer wishes.
Product policy management may include other procedures that vary from store to store. For example, if it's a supermarket with multiple branches in different regions, purchasing specialists or marketers may need to develop measures to change the range in individual cities to meet local demand.
Valuation
The main objective of this stage is to monitor the results of changes and control them. Experts determine how competitive and satisfying the customer the catalog turned out to be, which solutions brought more profit, and which were unsuccessful. For example, if it turns out that the introduced product is not in demand due to its high price, the company may develop additional measures to stimulate popularity — discounts, sales, promotions. And if a new product has become popular with another segment of the target audience, it may be decided to refocus advertising taking this factor into account.
How to make working with AP more efficient and easier?
In order to minimize difficulties at all stages of the existence of an assortment policy, it is necessary not only to hire experienced marketers, purchasing managers and logisticians, but also to use modern solutions, including technological ones. Thus, a number of operations can be automated, which will reduce the risk of errors caused by carelessness and speed up data processing. Such operations include:
- collecting information about the current status of the product range;
- user surveys;
- analysis of the market and pricing policy for individual goods;
- searching for data necessary to assess the prospects for expanding the catalog (for example, the number of manufacturers producing products of similar characteristics);
- monitoring sales by category, individual products, and the entire range.
Modern companies are actively using innovative solutions and technologies, including artificial intelligence. This can, for example, simplify the collection and analysis of data required to assess the competitiveness of the formed catalog, product margins and other parameters.
Frequent mistakes
Both at the initial development stage and during product policy management, problems may arise due to the company's wrong approach.
Redundancy in the range. Often this happens not for all goods, but in one category: for example, a store selling office supplies has several hundred notebooks of the same type, but only a dozen types of notebooks. As a result, customers who need a small notebook are lost with so many choices, while those who need to buy office supplies for their child for school are not likely to find everything they need on the shelf.
Surface analysis. This mistake can lead to a number of unpleasant consequences, from increased procurement and storage costs to excessive accumulation of illiquid assets. For example, a specialist who assesses the profitability of including eco-cosmetics in a home store catalog may forget about the limited shelf life or that storing such products in stock requires specific conditions.
Dependence on other participants in the retail chain. Not all stores benefit from working with several suppliers at once: many choose one option. As a result, changes in the range are not due to customer needs, but to the dealer's decisions, who may decide that some items should be abandoned, while others, on the contrary, should be implemented. If, for example, expensive fruits and vegetables start appearing in the store as a result, there is a risk that customers who are accustomed to more affordable products will opt for a competitor who monitors and regulates the composition of its catalog on its own.
Lack of attention to factors that affect demand and profits. For example, for products this may be seasonality, for accessories — fashion trends, for electronics — the popularity of a particular brand or line of equipment.
How to turn product policy into a manageable and profitable process
In order for product policy to work to increase profits and not become a manual routine, it must be based on accurate data. This is achieved through automated collection of information, integration with accounting systems and transferring data to BI — to analyze demand, turnover, and margins. Such decisions make it possible to regularly review the range and make decisions quickly and reasonably.
For all this to work, it is important not just to “implement IT”, but to do it correctly, taking into account business goals. Trust automation and configuration professionals, who are able to combine analytics, technology and practice.
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