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A range of possibilities: driving growth with smart choices

Product range is one of the top three reasons why shoppers choose one store over another. How can smart ranging decisions increase your profitability, appeal to more shoppers and differentiate your store versus competitors?

By ShopAbility for Retail Pharmacy Magazine

In our first article in the Shopper Marketing series we identified the key levers you can pull in store to convert more sales. We outlined the 5 way retail multiple and the key Point Of Purchase  tenets of ‘RSVP3’: Range, Space, Visibility, Promotion, Price and Persuasion (ie staff persuasion).

This issue we’ll focus specifically on Range. How can you use Range as a draw card for shoppers, avoid wasted retail space and differentiate the store offer versus competitors?

In this instance, we’re referring to your front-of-store and OTC products. Range is basically the amount and types of products your store carries.

Ranging needs to be considered at three levels – Store, Category, and Product. This can be represented as follows:

Store Level

What you range says volumes about you

Range is a key traffic driver. What you range – both quality and quantity – says something to shoppers about who you are and why they should shop with you.

Range talks directly to your competitive strategy. Who are you trying to be and what are you trying to do? If you are ranging the same items as competitors, but more are more expensive, then shoppers would need to see a different in store environment and service to make up the difference.

If you’re ranging the same products as competitors but more cheaply then you’re aiming to drive traffic based on price (which doesn’t necessarily lead to profit).

If you are ranging some similar but a number of different categories and products to competitors, then shoppers will come to know that your store has a range of items that other pharmacies don’t, and your pharmacy may become a destination for those items.

What you range vs your competitors also says something about you – how are you different or the same?

Category Roles

Different categories play different roles. Typically, these roles are Destination, Preferred, Seasonal/Occasional, and Convenience. How you activate the other Point Of Purchase drivers (space, display, price, promotion, persuasion) can also have a role in how the categories are viewed by shoppers.

The Pharmacy channel is interesting in that a) pharmacies are health retail generalists, operating across a number of categories and b) several categories are Destination categories based on shopper/patient distress situations, such as Cough/Cold and Analgesics. Or your pharmacy may attract Destination perfume shoppers, for example, because your range of perfume is good and prices are competitive versus department stores.

Categories like Weight Management, Vitamins & Baby might be Preferred categories for pharmacy (over and above mass merchants or grocery) because of the staff knowledge and service element. Categories like Allergy/Hayfever are highly Seasonal. Convenience categories are ‘while I’m here’, impulse type purchases typically with a narrow range, such as confectionery.

An example of category roles and their impact on range and retail measures is provided below. Don’t forget, the Retail Drivers are where the rubber hits the road. As you can see, by understanding your category roles (and the impact of that on your range decisions), you can leverage your retail drivers to increase profit.

So you need to figure out which roles each of your categories play, and what that means for the kind of range in each you should carry.

Category coverage & weighting

To achieve basic level category ‘coverage’, ranging products across the top selling categories is the obvious place to start. Naturally you need basic offers across the top 10 OTC categories (according to Nielsen’s 2009 OTC report): vitamins & supplements; cosmetics; analgesics; cough & cold; skin care; gastro intestinal; allergies; wound care; baby; and weight management.

So the above gets you to a place where you’ve covered the basics and you’re all things to everybody.

From a coverage point of view, if you only range the above Top 10 categories, what is missing? Is there another category that you could range to gain competitive difference? Could you be known as the orthopaedic shoe specialists, for instance?

Weighting is about relative emphasis. If you range more skus and devote more space to a specific category, promote it, and provide staff training in it, you will eventually become known as a specialist in that category. Are there any particular categories in which you would upweight your range, in order to become a ‘specialist’? What could you be ‘famous’ for?

When thinking about this, it is useful to ‘profile’ what kind of shoppers you see most often in your store. How old are they? Male to female split? What are their most common needs? What ELSE is that kind of shopper likely to need that either you or your competitors are not currently providing? Look for gaps and opportunities… how can you increase your usefulness to your primary shopper?

Depth vs Breadth

Depth is having few categories, but lots of skus (stock keeping units = individual products/packs) within the few categories you stock. In bottleshops, an example is Vintage Cellars – lots of depth in wine (and a few boutique beers) but really only the basics for beer, spirits, mixers etc.

Breadth is having many categories but only a few products per category. The soon-to-open Costco warehouse club is an example of this – they carry many more categories than the average supermarket – only 40% of what Costco carries is food, 60% is ‘general merchandise’, including everything from BBQs to plasma TVs to Tiffany jewellery – but in each category they only carry 2 or 3 skus.

You need to decide whether you are going to go for Depth (ie be a specialist in a few things, and just cover the basics with everything else) or Breadth (try to be all things to everybody, in which case you’re competing with the Pricelines and Chemist Warehouses of the world … and you probably won’t be able to match them on price because you won’t have their economies of scale and trading term relationships with suppliers).

Category Level

Categories are broken down into subcategories or ‘segments’.  Depending on your depth/breadth ranging strategy, in theory you need to cover most segments within a category.

For skincare, the segments might look like Face, Hand, Foot, Body and Suncare.  For Vitamins & Supplements it might be vitamin type (Echinacea, Vitamin A, Multivitamins) or condition specific (arthritis, period pain etc).

For each category, you need to a) segment the category/divide it into product groups based on how SHOPPERS look at it, and then b) decide whether you’re going to range products in EVERY segment or just focus on specific segments (ie back to depth vs breadth).

You also need to think about whether there are any ‘unique skus’ that are effectively a one-product segment, servicing a particular market, and how you might treat those in your category segmentation.

Note that as per the Store Level, individual Category Segments may play different roles.  Eg Glucosamine is Destination within Vitamins & Supplements.

The theory of coverage and weighting applies at category and category segment level too -  are there any category segments in which you would upweight or downweight your range?

Product Level

At this level, you’re deciding which brands and individual items (skus) you’re going to carry. Eg for Analgesics Brand X, will you carry tablets, liquid capsules, powder capsules or all three? Will you carry only the all purpose painkiller, or also the period pain and injury specific varieties?

This comes back to your store level strategy (focus/specialty categories vs basic categories, and their roles) and the decisions you made at category level.

What you’re now deciding is how many different products of a specific brand you’re going to carry across segments and across the category.

You also need to decide the mix of branded products vs own-label/private label/generics you’re going to carry.

In order to do this, you need to understand the role of ‘beacon brands’ for a category (eg Nurofen is a Beacon Brand in analgesics), and how substitutable the products are. Beacon brands may or may not be substituted for other products by shoppers. If it is a Destination category (eg Analgesics) and a Beacon Brand (eg Nurofen) a shopper may abandon the purchase if you’re not carrying the beacon brand … or if you don’t have a persuasive argument as to why they should buy an alternative product.

Ways you can determine the core products to range include sales analysis and trends of your own product sales (volume and transactions per line item); space to sales; and hurdle rates (units sold per store per week … otherwise known as velocity); industry intelligence and reports as to what’s selling, and trend monitoring to see what’s new that’s selling that you’re not ranging. Note that seasonal products will have highly variable velocity rates.

At a more advanced level, smart operators also look at the cost of supply per brand and line item, the cost/benefit of a broad vs narrow range within a category, and build in space limitations.

In summary: explore your range of possibilities

With the foregoing in mind, have a think about:
1. Who is your typical shopper? What do they need?
2. What does your ranging point of difference and strategy need to be to appeal to that shopper more versus competitors?
3. What types of category and segment level additions or cutbacks would achieve this?
4. What changes do you need to make to your category mix and segment/product mix within categories?

We’ll be back in the next issue to talk you through how to then come up with the right range for the size of your available retail space … known as ‘efficient assortment’.

In the meantime, we welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@sh-opportunity.com.au

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