Posted by Ajay Kelkar on Sat, Oct 30, 2010
According to Forrester Research analyst, Lou Agosta, sometimes unprofitable, slow-selling items drive purchases in ways that can't easily be seen in the numbers. For example, if a Grocery retailer carries eight different types of Cheese but only half of them sell consistently, a merchandizer may eliminate the 4 poor performing SKU’s. However if you look at the poor performing SKU’s you may find that they when they sell, these SKU’s are bought with other high margin items.
SKU’s in a store are linked & some show affinities to one another. Leveraging the product affinities is a great way of driving profitable sales.
Large grocery stores stock upwards of 100,000 different items. This means that there are approximately 0.5 x 1010 (5 billion!) possible item pairs, and 0.17 x 1015 sets of three items. (source: Exclusive Ore Inc)
Here is my take:
- Merchandisers can get far more customer centric about analysing their sales data.
- This can have a huge impact on how Promotions get planned in a Retail store. If you promote an SKU in a category which has high sales for the Retailer, you may end up only discounting. A great candidate for a promotion is an item which has a greater “affinity index”-such an item drags along sales of other items with it & therefore leads to incremental sale!!
- So next time your merchandizer is creating a promotion-ask if this is a “good ROI” promotion helping you get incremental sale. And don't sack an SKU from your portfolio before you do your analytics!