How To Create a Winning Assortment Strategy

Sam Phipps

Last updated: July 31, 2023 | 9 min
Sam Phipps

How to create a winning assortment strategy

Your sales and profitability are both massively impacted by the strength of your assortment strategy. That means your bottom line will be severely affected if you get it wrong.

But looking at it more positively, you could be on to a real winner if you implement the right assortment strategy. Your customers will be happier, and your profits all the more favourable.

But how do you balance your budget, working capital investment and operational constraints and still offer the products your customer might want?

Do so, and you’re onto a winner. But get it wrong and the potential pitfalls are many.

Take an ice cream shop, gearing up for the summer months. They might take one request for a random flavour and decide to expand their offering.

What happens when those flavours don’t sell as expected? Do you keep them? Sell them for cheap? Or, throw them away in favour of other, more reliable variants?

Whatever your business, if your product range becomes too unwieldy, you’re hampering the company.

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You’ll struggle to offer the top quality service you’ve prided yourself on thus far.

You could waste cash on products that won’t sell, which has huge implications for the rest of the business.

And let’s not forget all the wasted effort that goes into managing these products. Especially if it’s time which could go into products you know will sell.

So, the question remains…

How can you build a product assortment strategy that sets your business apart?

That’s what you’re going to learn today.

By the end of this article, you’ll understand:

  1. How to define an assortment strategy
  2. Why your assortment strategy’s a goldmine of opportunity
  3. Where the assortment strategy fits in your wider business processes
  4. Why so many businesses struggle to build an effective product assortment strategy
  5. How to help your people make better assortment decisions
  6. Which assortment processes do you need
  7. How can you use technology to do the heavy lifting

Let’s get into it, and you’ll be on the way to assortment success in no time.

What is an assortment strategy?

We’ll start with the basics.

A product assortment strategy is an approach used by companies to figure out the ideal number, varieties and types of products to offer their customers.

For you, it means offering the products your customers want whilst considering products your customers may not even know they want. But more importantly, it’s about achieving the right balance at a profit

In our ice cream shop example, it’s realising strawberry is a safe bet, and toffee might be a risk. But is it a risk worth taking? Ultimately, that’s the question your assortment strategy should answer.

Your goal in finding the right product assortment is to ensure you have the right product mix. But just as crucially, that mix also meets the needs of the business. Your objectives, goals, and even dream outcomes for the year.

It’s not a small task either.

You need to consider market trends, competition, availability, and production capacity, on top of the ever-evolving demands of your customers. For that reason, you’ll need to consistently analyse all the data you have at your fingertips.

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Assortment depth vs breadth

Your product assortment strategy should be a direct reflection of how you would like your business to be perceived. Do you want to be seen as the one-stop-shop for everything? Or do you strive to be the go-to specialist in a specific field?

The answer to these questions will shape how deep or how broad your assortment should be.

If you favoured breadth, you’d offer your customers many different product categories. Let’s say you’re a DIY store. Offering a larger breadth of products might see you expand into gardening products.

But you might then think about inside the home. So furnishings and fittings. You could go into lighting or even electrical products. As the breadth of your assortment grows, your business evolves into a complete emporium for everything in the home.

If you were to favour depth, the DIY equipment you sell would be specific but varied. So you might offer different brands of drills. Different colours, different powers, different uses. But you wouldn’t venture far beyond the realm of DIY products. Instead you would become known for them.

In the latter case, you’re far more niche. But what impact does either strategy have on your profit? Which, after all, is the most important consideration.

One of the biggest challenges in creating an effective assortment strategy is defining the right level of breadth & depth. If your assortment is too broad, your business could lose focus. Equally, too narrow and you may not offer the products your customers need.

How does product assortment strategy fit in your business?

The assortment strategy you choose is a critical part of your sales and operation planning process. Or S&OP.

In an effective S&OP process, your assortment strategy becomes a big part of your product management review. This is a stage you shouldn’t overlook lightly, and at its best is tightly aligned with your business strategy.

You should also consider your sales and marketing plans and how your assortment strategy plays into both of those.

You need the right products to ensure customers don’t go elsewhere. And the perfect mix to make sure their demand’s catered for now, and the immediate future.

Does your product mix satisfy demand? And is it profitable?

The best S&OP processes involve numerous departments and people in your business. In fact, the more departments it engages, typically the better it performs.

So Sales, Marketing, Operations, Finance, Management and obviously Supply Chain should all be very much involved.

If each department performs as it should, it should have a big part in creating and implementing your product assortment strategy.

Sales will know how likely you are to shift new product ranges. Marketing might give you angles which could help that happen. Supply chain could give insight into availability or likelihood of meeting demand. Finance will tell you how profitable each strategy is.

Each department is crucial.

Including your assortment strategy in your S&OP process will mean you include each one of them. And that means you’re not only sharing risk, but sanity checking decisions with people who are used to making tough choices in those areas.

Your plan will be well-coordinated and tightly aligned to what your customer actually wants.

If you want your business to perform as well as it can be in defining your assortment strategy, an S&OP approach is a smart way to go about it.

What are the benefits of an effective assortment strategy?

Having an effective and strategic assortment strategy in your business has multiple benefits.

You should increase sales.

You can offer a good mix of products to keep your customers happy. Which should, in turn, increase revenue and your profits. But also help improve customer loyalty too.

A solid product assortment strategy should allow you to set benchmarks which in turn can help identify over and underperforming products. This can help you prioritise those which bring in the best profit margins and make your business more streamlined and profitable.

You will be able to ensure a better customer experience

If your customers’ demands are met totally by your business, it’s highly unlikely they’ll feel the need to go to a competitor.

And that can only be a positive for your company’s future. You’ll get increased custom, take profit from a competitor, which will increase market share, and even ensure better customer retention, with others hearing about you through word of mouth.

You can ensure more effective inventory management.

The more effective your assortment strategy, the better you can optimise your inventory levels. Therefore helping you to reduce the costs you could face.

Whether those costs come from overstocking or running out, your assortment strategy should help you invest in the products that matter most. As a result, you can better align your inventory levels with potential demand.

This means your holding costs should fall and your cash flow should improve.

You will sharpen your competitive edge.

You’re constantly looking at ways to differentiate your business from competitors. A reason for customers to shop with you and not them. That may be why

you’re looking at your assortment strategy to begin with?

Your assortment is a big part of what makes you stand out. Make effective assortment decisions and your customers will keep coming back time and time again.

Improved profit margins.

If you can focus on the more profitable products and pricing strategies, you’ll make more money. The more money you make, the happier everyone is.

Optimise your assortment strategy and you’ll also be able to reduce the amount of markdowns you make throughout the year and improve your bottom line immeasurably.

Assortment Strategy Cartoon Whiteboard

Barriers to effective assortment management

On paper, it sounds easy. Choose the right products and you’ll be quids in.

Yet, many businesses struggle to establish an effective product assortment strategy.
But why?

Well, in truth, there’s a number of reasons this might be the case. There may well be an emotional battle taking place. Which sounds odd to say about inanimate objects, but when it comes to assortment decisions, passions often run high.

You’ll know this yourself.

Some products are mainstays of company catalogues. Some people assume certain products will always sell and some people let their own opinions form their decisions rather than factual evidence.

Working this way means you’re likely to strategise based on what you think will work, rather than analysis and data.

Some businesses just have a fundamental lack of data to base their decisions off.

Great assortment strategies require you to have an incredible understanding of your customers. What they want, what they might prefer and how they act. If you lack this data, it’s highly unlikely you’ll be able to make decisions to suit them.

And that will make stocking the right product mix almost impossible. Which will mean your inventory management’s not only inefficient, but costing you more money in missed sales.

Top tip: Find out how you set the right basis for effective decision-making with our complete guide to Master Data.

There are also changing market dynamics to keep an eye on.

Businesses that are more agile tend to be those that stay relevant for the longest.

Market dynamics change constantly. If you don’t adapt to them, it’s easy to fall behind and create a disparity between customer demand and product offering.

Imagine a new & improved version of a product has just been released. Maybe a new competitor has just entered the field. Or perhaps your product has simply fallen out of fashion.

The point here is that your market is fluid. Therefore, for effective supply chain management, you need an assortment strategy that can keep up!

Limited resources are always a challenge.

A great product assortment strategy takes time, money, expertise, technology and often patience. If you lack the resources in any of these areas, it’s likely you’ll struggle to implement a change effectively.

Your supply chain’s too complex.

The economy today is more globalised than it has been ever before. It’s also more complex than it ever has been before. We collectively realised this with COVID and the disruption caused to global supply chains, from China.

Many companies would define their supply chain as complex. But when you have an increasingly diverse international supplier base, an expanding product assortment and multiple sales channels to manage, this complexity increases exponentially.

And this makes assortment decisions a lot less clean cut.

And don’t overlook internal silos.

If you’re struggling to develop an assortment strategy that’s effective, it might be due to a lack of communication across the business.

Companies where collaboration takes a back seat often find it more difficult to strategise their assortment. That’s because, as discussed above with S&OP, it takes input from multiple teams and stakeholders to get your approach right.

How to build your own assortment strategy

The three pillars of a great assortment strategy are People, Process and Technology. We’ll go into detail on each one of these below.

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Let’s start with the most important…

People

Without people, your assortment strategy won’t get off the ground. Yes, technology and process are crucial. But people should be number one on your list of considerations.

They’re in charge of decisions about your business, the products you offer and the optimal level of inventory required to succeed.

In your own assortment strategy, choosing the right people to make these decisions pay off.

Here’s some pointers to help you ensure you have the right skillset to underpin your assortment strategy.

Collaboration

The right thinking, considering every team and department in your business will pay dividends. That’s especially true with assortment strategies.

Therefore the better your team communicates internally, the more aligned you’ll be, and more favourable the outcomes of cross-collaboration.

You’ll find strategic thinking easier to come by, and therefore an outcome which is more aligned to your customer’s desires. Which should in turn line up with your business goals.

Customer insights

Data alone can only tell you so much. Thankfully this is where your Sales team can help you out.

They will be closely in tune to what your customer wants. Sales speak to your customer every day. They know by the minute whether their needs are being met, and what they need to do to change any deficiency.

If you’re not working with your Sales and Marketing teams to assess the insights they have, you’re not operating with all the data you could do and your product assortment strategy will suffer.

Product expertise

The people in your company who work in procurement or product have technical expertise you must make use of.

Without using this information, you’re leaving a lot of know-how on the table.

Their knowledge and proficiency could be utilised to make business decisions about which products to stock, which variants to include in assortments and how to position them.

Creative thinking

A great assortment strategy requires creative thinking and an open mind.

And who better to provide that thinking than the best minds in your business? Specifically those in marketing, product development or operations teams. New ideas and creative workarounds can help you define new markets or products you might otherwise have ignored.

If an assortment strategy is to work, you need the best minds in your business helping to make it as foolproof as it possibly can be.

Execution

Without execution, your best laid plans will remain theoretical. With no way of taking your strategy or business to the next level.

To take your strategy from theoretical to the real world, you need people in Ops and Supply Chain to carefully manage its implementation.

You need people who’ll get the job done.

People who’ll ensure your products are stocked in the right quantities, at the right locations, at the right times.

What process do you need to build your own assortment strategy?

There’s a few different variations of process when it comes to building a great assortment strategy. Which way you go will depend on your business, industry and location.

But there are some general steps that are worth paying attention to. We’ll list them below for you to follow.

 

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Step 1: Understand your customers

Without knowing what your customers want, you’ll be whistling in the wind trying to find an effective assortment strategy.

You need to know your customer very well, and understand the market too.

To do this, gather insights and data wherever you can. Ascertain what the market trends are saying and how able your competitors are in meeting customer needs.

However, a word of warning here.

Not all customers are created equally.

Should you prioritise the needs of a customer that places a small order once every blue moon? Or, do you focus on the needs of your top customers that come back every week?

Step 2: Define your assortment goals

You need an assortment strategy to deliver results. That much is simple. But what results are you hoping to achieve?

By setting clear and measurable product assortment goals, businesses can improve their performance, increase customer satisfaction, and stay ahead of the competition.

You should always define your assortment goals based on your overall business objectives.

So should you set sales targets for each category? Or should you focus on order lines or the number of unique customer orders? What about margin or market share?

The specific goals you set will depend on your business. But make no mistake, setting these goals is an important step in the process and requires careful thought.

Step 3: Segment your products

Your assortment strategy should help you keep every item within your portfolio under control. Sure, if you have a small range of just a handful of SKU, this should not be too difficult. But what if your assortment is vast?

Segmenting your assortment into logical groups based on their characteristics can help you speed up assortment processes, create ownership and ensure that you apply the best tactics to hit your business goals.

Let’s revisit our DIY business as an example. Imagine your assortment covers everything from paint to plumbing products.

It doesn’t not make sense to adopt a broad brush approach to every item. After all, each item will have its own demand profile as well specific supply chain constraints. Instead, we should group ‘like’ products.

One group we could focus on is all products related to Nuts & Bolts. Another could cover all the Power tools.

Alternatively, the segments could be based on supplier or even the importance of the products based on the margin it generates.

If you don’t segment your product offering, it’s a lot more difficult to find clarity in your product assortment strategy. You’ll therefore be unaware of which products are the ones to prioritise.

Step 4: Set your assortment parameters

How much of a certain product should you stock? Does it make sense to stock more of size medium than large? Does the product meet the minimum requirement to be included within your assortment?

This is what we call an assortment parameter. Essentially defining the depth and breadth of your assortment and critically defining the guidelines for whether a product’s included or not.

Typically, to make these decision, you will need two things:

  1. A robust stocking policy to determine which products make the cut (and which don’t)
  2. Solid service level logic to ensure you prioritise your investment in stock where it matters most

Step 5: Implement and communicate

Once the assortment plan is developed, you need to implement it and communicate it to your employees, suppliers, and customers.

This can involve training employees on the new product offerings, updating the website and marketing materials, and working with suppliers to ensure a reliable supply chain.

Step 6: Measure and adjust

If you’re not regularly assessing and adjusting your assortment strategy, you’re potentially working to old data.

The market changes quickly these days.

Changes in customer preferences, market trends, and business objectives will directly and swiftly impact your business success if your assortment strategy doesn’t flex appropriately.

The best assortment strategies are continuous processes that are monitored and adjusted.

Step 7: Evaluate performance

How is your assortment strategy performing against your original desired outcomes? Unless you have the data to answer that question you won’t know.

Sales data, customer response, market trends and information will tell you.

But it’ll also give you areas you can improve and optimise to hone the success of your strategy into the future and beyond.

These 7 steps will have you on your way to creating an effective assortment strategy. You’ll find happy customers, achieve business objectives and better profit.

What technology do you need to build your own product assortment strategy?

Technology should underpin your assortment strategy. But you need the right supply chain tools, used in the right way.

Based on the fact technology can be used in several ways for a great assortment strategy, here are some examples of effective use.

Data analytics

Most businesses have a huge amount of data. They often don’t know how to use their data, or use it incorrectly. But turning this problem on its head can realise unbelievable insights you wouldn’t know otherwise.

In terms of an assortment strategy, use data and you can identify the most popular products, forecast demand, and even optimise inventory levels.

Collaborative planning

Technology’s great at bringing people together.

Just think back to the numerous zoom quizzes we all suffered during lockdown. But in business terms, this is no different.

Technology will give your business the added capability of sharing insights and data with your internal team, suppliers, retailers and customers. That can help you manage inventory better, reduce stockouts and create even happier customers.

Automation

Automation’s a time saver. It helps cut down manual work and facilitate easier and more seamless workflows.

The pressures on your teams will be reduced and the headaches of performing manual tasks eliminated. Or at least reduced.

You can also automate alerts to make your team aware of issues sooner. So the customer’s none the wiser and profits are unaffected.

Data visualisation

Have you ever tried to make sense of a spreadsheet with thousands of rows and columns? You’d be excused for going mad before you made it past the first page.

This is another area where technology can provide much of the heavy lifting. From analysis to visualisation.

Time is money, and if technology can shave hours off your day, let it.

Scenario planning

How can you improve the value of your current assortment? Should you change strategy completely, or make mild tweaks?

Technology can help you model various changes to test the outcomes, before you do it in real life.

This is what risk analysts do. Assess the potential risk of certain processes, before taking that risk in reality. Doing so can balance stock, limit stock-outs and increase profit.

Some, final thoughts on assortment strategy

We hope this article has left you with plenty to think about.

We have talked about how to define a product assortment strategy.

We’ve explored the size of the prize if you get it right.

And we have even explored what steps you should take to create and implement a successful assortment strategy within your own business.

But most importantly, we have highlighted the 3 cornerstones of every effective assortment strategy: People, process & technology.

Now it’s your turn to go away and implement these best practices within your own organisation.
But worry not, you don’t need to do this alone. Our team of experts are always here to offer a helping hand.

For more information on assortment strategies, or to speak with an expert from Slimstock about your own, click here for a free chat today.

FAQs about Assortment Strategy

What is an assortment strategy?

Your assortment strategy guides what products you include within your product range. Based on a detailed analysis of consumer demand, market trends, and sales data, your assortment strategy ensures you offer the right mix of products to satisfy customer demand while ensuring a healthy return.

What is an example of an assortment strategy?

An example of an assortment strategy in action could be the process a DIY retailer goes through to determine which product categories and specific products they should offer. To make this decision, the DIY retailer would need to consider the business goals, past sales performance, the competition and the needs of the customers.

How do you create an assortment strategy?

To create an effective assortment strategy, there are few basic steps you need to follow. The process typically included:

  1. Understand your customers & identify their main requirements
  2. Define your assortment goals
  3. Segment your products into logical categories
  4. Set your assortment parameters such as stocking policies and service level targets
  5. Implement and communicate your assortment strategy to your internal team
  6. Measure and adjust your your assortment strategy based on the changing market conditions
  7. Evaluate performance to ensure your assortment strategy aligns with your business goals.

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