BUSI 446 Week 5 Discussion Board Forum 5 Example

Discussion Board Forum 5: Planning the Assortment of a Category

BUSI 446 Retailing and Category Management, Discussion Board Forum 5 Thread and Replies

Thread by [Student Name]

The forum prompt and the classmates are composites; the textbook, the research and the Scripture cited are real.

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Consider a supermarket's salad dressing category: 64 items across 11 brands on 16 feet of shelf. Sixteen of those items sell less than one case a month, and the buyer wants to know whether to drop them. Levy et al. (2019) describe an assortment by its breadth, the number of different product types carried, and its depth, the number of items within each. Salad dressing is deep, and the question is whether it is deeper than shoppers need.

The fear behind keeping slow sellers is that shoppers will see a smaller assortment and shop elsewhere. Broniarczyk et al. (1998) tested that fear. In experiments and a field study, they found that cutting low-selling items had little effect on how shoppers rated the assortment, as long as two conditions held: the shoppers' favorite items stayed on the shelf and the category kept its total shelf space. Shoppers judge variety partly by how much shelf a category occupies, not by counting its items.

That finding has limits. Dhar et al. (2001) grouped categories by penetration, the share of households that buy them, and by purchase frequency, and found that the actions that improve performance differ across those groups. A staple bought by most households every week behaves differently from a niche category bought often by a few. Salad dressing is bought widely but not weekly, so shoppers come to it with a favorite and some interest in trying new flavors. That suggests cutting duplicate sizes and weak flavors while keeping a few new items.

My recommendation is to drop 12 of the 16 slow sellers, keep 4 that are the only item of their type, give the freed space to the best sellers so they run out less often, and test the change in two stores for eight weeks. The buyer should watch total category sales, not only the sales of the items that remain, since some shoppers of the dropped items may leave the category rather than switch.

Levy et al. (2019) suggest judging categories by gross margin return on inventory, and slow sellers drag that measure down because they tie up inventory and shelf space for little margin. A simple example shows the effect. If the 16 slow items hold $1,400 of inventory at cost and earn $900 of gross margin a year, their return on inventory is about 0.6, while the category's best sellers might return 3.0 or more. Moving that shelf space to faster items raises the category's return without adding inventory.

Suppliers will also have a view. National brands often pay slotting allowances or fund promotions to keep their items on the shelf, and a buyer should check whether any of the 16 items carry such agreements before cutting them. Category management, as the textbook describes it, works best when the retailer and its main suppliers plan the category together rather than one side imposing changes on the other.

In the parable of the talents, the servant who buried his master's money was rebuked, not because he lost it, but because he left it idle (English Standard Version Bible, 2001/2016, Matthew 25:24-27). Shelf space is the retailer's talent. A foot of shelf holding items that sit unsold for months is like money buried in the ground. Good stewardship means putting each foot to its best use for shoppers.

Reply to Ethan

Ethan, your idea of replacing some of the slow national brands in cereal with the store's own label is worth testing, and the research gives two reasons. Ailawadi and Harlam (2004) found that retailers earn higher percentage margins on store brands than on national brands, so each shelf facing given to a store brand can add margin. Ailawadi et al. (2008) studied private-label use and store loyalty and found the relationship is not simple: moderate users of a retailer's store brands were among its most loyal shoppers, while heavy users were less so, perhaps because they shop for value at many stores.

That suggests adding store-brand cereal next to the leading national brands rather than in place of them, so that shoppers who want the name brand still find it. The slow national brands are the better candidates for replacement, since their loyal buyers are few. Levy et al. (2019) note that store brands also give a retailer something competitors cannot copy, because no other chain sells them, which supports the store's differentiation as well as its margin. Proverbs 22:1 ranks a good reputation above wealth (English Standard Version Bible, 2001/2016). A store brand carries the retailer's own name, so its quality reflects on the whole store. Would you price the store brand at a set percentage below the leading brand, or match the lowest-priced national brand? Either way, I would place it at eye level beside the leader, where shoppers make the comparison. Tracking the category's total margin for a quarter afterward would show whether the store brand added profit or only shifted sales.

Reply to Grace

Grace, you argued that too many choices overwhelm shoppers and cited the well-known jam study. Iyengar and Lepper (2000) did find that shoppers who saw 24 jams were less likely to buy than those who saw 6, which supports your view that a deep assortment can backfire.

Later research suggests a more careful conclusion, though. Chernev et al. (2015) combined 99 observations of choice overload and reported an average effect near zero. Overload appeared under specific conditions: when the decision task was hard, when the options were hard to compare, when shoppers were uncertain about what they wanted and when they wanted to decide quickly. Organizing the shelf by flavor or use can remove much of that difficulty without cutting items. A jam shelf grouped into strawberry, other berries, stone fruit and low-sugar options, with a small sign for each, lets a shopper narrow the choice in seconds. That makes a deep assortment feel easy rather than overwhelming, and it keeps the variety that shoppers who enjoy browsing want. Cutting items is still sensible when they barely sell, but confusion alone is a reason to reorganize first.

Proverbs 21:5 sets the patient planner, who ends up with plenty, against the hasty one, who ends up short (English Standard Version Bible, 2001/2016). A diligent planner would test where shoppers are confused before cutting. Could your store reorganize the jams by type first and measure sales before reducing the count? An eight-week test in two stores, one reorganized and one unchanged, would show whether confusion or excess was the real problem.

References

Ailawadi, K. L., & Harlam, B. (2004). An empirical analysis of the determinants of retail margins: The role of store-brand share. Journal of Marketing, 68(1), 147-165. https://doi.org/10.1509/jmkg.68.1.147.24027

Ailawadi, K. L., Pauwels, K., & Steenkamp, J.-B. E. M. (2008). Private-label use and store loyalty. Journal of Marketing, 72(6), 19-30. https://doi.org/10.1509/jmkg.72.6.19

Broniarczyk, S. M., Hoyer, W. D., & McAlister, L. (1998). Consumers' perceptions of the assortment offered in a grocery category: The impact of item reduction. Journal of Marketing Research, 35(2), 166-176. https://doi.org/10.1177/002224379803500203

Chernev, A., Böckenholt, U., & Goodman, J. (2015). Choice overload: A conceptual review and meta-analysis. Journal of Consumer Psychology, 25(2), 333-358. https://doi.org/10.1016/j.jcps.2014.08.002

Dhar, S. K., Hoch, S. J., & Kumar, N. (2001). Effective category management depends on the role of the category. Journal of Retailing, 77(2), 165-184. https://doi.org/10.1016/S0022-4359(01)00045-8

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Iyengar, S. S., & Lepper, M. R. (2000). When choice is demotivating: Can one desire too much of a good thing? Journal of Personality and Social Psychology, 79(6), 995-1006. https://doi.org/10.1037/0022-3514.79.6.995

Levy, M., Weitz, B. A., & Grewal, D. (2019). Retailing management (10th ed.). McGraw-Hill Education.