The SKU rationalization project has been an important initiative needing to be taken up by most retailers out there. In SKU or Stock Keeping Unit rationalization, the retailer proceeds to examine the whole profitability of the items and also the profitability of the vendors as well. Therefore, if this method is done in a linear way, it can result in sales being lost and also brings back the SKUs too.
Therefore, a retailer should focus on increasing its overall sales, because that is what helps in improving the merchandising deals and also aid in more sales through other channels as well. Retailers always figure out the products that are bought mostly together, so that it can help customers to buy the products from the same retailer itself, and not two different retailers. Apart from that, there are also two more important reasons why SKU classification should be done by retailers for assortment optimization:
● Retailers should always examine the frequency via which a particular product is bought by customers. This can also be referred to as the popularity of a product as well.
● Retailers should also examine the correlation of one product to another. For example, most people buy tea with sugar and/or milk. This is a correlation between the products and therefore helps in selling all of the products together.
Therefore, the following strategies should be implemented in order to optimize assortment, according to the purchase patterns of customers:
- Need to identify poor moving products: This is an important strategy that should be kept in mind and should be implemented as well. Every retailer has its own poor selling or poor moving products, that always lead to more losses for the retailers – because they do not sell. Therefore, if these product lines are identified and analyzed, then the number of losses could be decreased.
- An analysis should be done between product correlations: Sometimes retailers make this mistake that the best selling product of one category can easily go along the best selling product of another category. But, truly that is not the case. That is why the analysis should be done. Not every product can sell well with another, even though both are the best selling products.
- Removing products that are poor moving and have a low correlation as well: This is a simple job to do after all the reports of the analysis have arrived at your doorstep. These SKUs need to be cut down at all costs, and therefore it will help the retailer’s business to flourish by concentrating on products that bring the most profit.
- Making sure that products that have no correlation with other products and still sells well should be kept at the top of the priority list: This is a typical common sense that every retailer should apply in his or her business. Products such as gas or even cigarettes, which have no correlation with other products, and still sell well too. Thus these products need to be kept in stock most of the times.