Assessing category vulnerability across retail product assortments

Abstract

PurposeA critical issue faced by retailers is determining the composition of the product assortment in every category and setting the price levels for each product without compromising category‐level customer demand or operational efficiency. The purpose of this paper is to propose a novel, model‐based clustering approach to bring parsimony to retailers' assortment configuration and pricing process. The objective of the model is to group alternative assortment configurations into sets to which the category exhibits equivalent vulnerability.Design/methodology/approachIn this method, each possible assortment and pricing configuration is first conceptualized as a unified entity and then these entities are clustered based on the vulnerability of category level sales. The authors illustrate the benefits of this new method for category planning using two sets of data for brands of soft drinks and enhanced water, collected from a panel of adult customers.FindingsThe results from both data sets show that several assortment configurations, varying significantly in terms of numbers of products and prices, result in similar levels of category vulnerability. In other words, several widely‐different product‐pricing combinations result in similar levels of category demand.Originality/valueThe paper's findings imply that retailers can bring parsimony to their category management process by shifting their strategic focus from individual brands to assortment clusters. Specifically, they can select the most efficient or the smallest assortment from each cluster without sacrificing category demand. Overall, the authors' approach can help simplify the complex decision‐making process related to product selection and price setting, and help retailers achieve the dual objective of operational efficiency and high category demand.