Why is product range management so crucial?

First impressions count, and a good first impression counts for a lot! It’s essential to compile and consider your product range carefully so it immediately attracts customers and can motivate them to make a purchase. Managing product ranges therefore plays a key role in both online and bricks-and-mortar retail. It can increase turnover and profit, make inventory more efficient and improve operational processes.

Retailers should therefore review and adapt their product range management regularly in order to stay competitive and successful. Read on for information about how retailers can usefully manage their product assortments, and what to look out for.

How do you compile a product range?

In materials management, a product range or assortment includes all the merchandise a retailer sells. Particular areas of this range are described as product families. The makeup of a product range can be broken down into product families, product classes, product lines, product types and items (the smallest unit).

The pyramid shown here presents a company’s range as a system. It provides a visual representation of the structures and connections within the range, using different levels. This can in turn provide a basis for making decisions about the product assortment, such as whether to add or remove products.

Assortment length, breadth and depth are important criteria when it comes to creating a diverse product range.

Breadth

The number of product families will show how wide a product range is. For customers, the advantage of having a broad range of products to choose from is that they can obtain everything from a single supplier – they do not need to access multiple outlets. A department store selling drinks, electrical items, toys and textiles has a broad product range. By contrast, specialist stores have a narrow range of products.

Depth

The number of product classes, product lines, product types and items indicates the depth of the product range. This is specific to each product class. A retailer may have a very deep range for some product classes, but a shallow range for others. Having a great variety of products within a particular category benefits the customer by providing plenty of alternatives they could buy. One example of this is a shop selling household electricals such as food processors, that also sells stick blenders, high-speed blenders and smoothie makers.

Structure

The structure of a product range indicates how important specific parts of it are (e.g. product classes or types) in terms of overall sales and the time they spend as part of the range. In both retail and e-commerce, product range structure is associated with the systematic organising and categorising of goods. Managing the product range is one of the marketing department’s main responsibilities.

But before the range is finalised, it goes through a cycle made up of product development, market introduction, maturity, saturation and decline phases. Retailers go through this cycle in order to adapt their product offerings to changes in market requirements and customer preferences. The range is initially in a test phase. It’s very new on the market. If the range cuts through, it will trend. It then reaches saturation phase and becomes a standard range. Finally, the range enters a decline phase and is eventually withdrawn from sale.

Permanent product range structures

Core and permanent product range:

The permanent range of products is divided into core and supplementary product ranges. It covers all product classes and types that form part of a standard offering in the sector. The core range of products is offered all year round and normally contributes the majority of the company’s turnover. A stationery shop will offer, for instance, ballpoint pens and file folders as part of its core product range. Desk accessories, notebooks and writing cases belong to the permanent range of a stationery shop.

Peripheral and supplementary product range

The peripheral product range includes goods that permanently complement the core product range. These products are usually related to a company’s core product range. Companies normally stock them for strategic reasons, so they can offer their customers added value. The supplementary product range rounds out the core range and can be seen as adding to and expanding the overall assortment. However, as peripheral and supplementary products make up a small proportion of the main product class, they are not normally items that contribute the highest turnover. Pans sold in a supermarket are one example of a peripheral product that customers might need in which to cook their vegetables (core product range). In contrast, barbecues and barbecue accessories are supplementary products for which there is customer demand in certain circumstances.

Temporary product range structures

Seasonal and campaign ranges

Seasonal product ranges include goods for which demand is temporary and that are only offered for sale seasonally. These items are only carried at a particular time of year and for a limited period. The seasonal aspect might relate to production conditions (harvest time) or to the time of year. For instance, Christmas tree decorations and festive ornaments will form part of a home furnishing store’s Christmas seasonal range. Campaign ranges include all goods offered as part of a particular sales campaign, often at a special offer price. One example of this would be Greek groceries sold during a supermarket’s Greek week.

Product range policy

All decisions and measures relating to the composition of and any changes to a product range are part of a company’s product range policy. Pro-active, customer-centred product range management will also involve looking at the competition, customers’ needs, the company’s resources and its marketing objectives. Companies need to keep an eye on any changes in these factors in order to stay successful.

Retailers can use artificial intelligence in relation to both bricks-and-mortar and online commerce to speed up these observation processes (Link zum HUB KI im Handel). Because artificial intelligence can run analyses and quickly derive solutions, it can help retailers react more rapidly to any changes. Predictive analytics tools are available for personalised product recommendations, cluster analysis tools can help with inventory planning, sentiment analysis tools can aid product placement and price optimisation, while chatbots can help manage your product range. Stephan Knecht, owner of retail consultancy Fleet40, advises his clients that ChatGPT can be an effective tool for managing their product ranges.

Product range variation and innovation

Product range variation or innovation will not change the scope of your product range, but will change established products by modifying their technical or aesthetic aspects. As the essence of the product remains the same, the depth and breadth of your range does not change. Product range variation may be initiated by changes in customer needs or the market situation. It is a way of extending a product’s lifetime within the product life cycle.

Novel parts of product ranges and new product classes are developed and compiled during the innovation phase for a range. Here it is important to look from both the retailer’s and the manufacturer’s perspectives, as retailers need to be aware of what manufacturers’ individual processes look like. Innovation in your product range can be divided into new-to-market innovation and company-specific innovation. New-to-market innovation occurs when a product becomes available for the first time and is added to the product range. Company-specific innovation is where the product is new to the company, but not new to the market as a whole. However, before a novel product is introduced to the market, the idea for the new product will pass through different stages:

Product range diversification

Diversification includes all measures aimed at broadening the assortment of products. Broadening your range can win you new customers. It can ensure that difficulties with sales in one product family are compensated by sales in another product family. Diversification can be divided into three different areas:

1. Horizontal diversification. New product groups are integrated into the range at the same level of added value. For example, a foodstore chain that had previously focused on selling food and drink might also open a cafe.
2. Vertical diversification. New products that lie upstream or downstream of existing product groups in the production chain are integrated into the range. For example, a stationer may add blank cards for decoration (upstream product) to complement its ready-made greeting card range. Alternatively, a haberdashery might begin offering bags as well as fabric and sewing accessories (downstream product).
3. Lateral diversification. New products that have nothing to do with the original business area are adopted into the range. A good example of this would be a jeweller expanding into leather goods.

Disadvantages of diversification

Although there are some advantages to diversifying your product range, there are also disadvantages. Introducing new products usually increases the burden on the company in terms of financial and human resources. A broader range can also make internal processes and procedures more complex. This can in turn make it difficult to maintain high quality across all of your products. New products and established products may also cannibalise one another. However, having a clear strategy will help keep any downsides to a minimum.

Product range differentiation

Differentiation includes all measures aimed at deepening the assortment of products. Further variations are added to an existing product class, product line, product type or item. This means changing an existing product to create a new product. The changes made to the product can be symbolic or alter its function, shape, size or appearance. For example, a stationery store may stock ballpoint pens in all different shapes and sizes. This is a way of servicing different customer requirements and preferences within the same product category. Yet the store must strike the right balance between differentiation and complexity. As with diversification, there are different types of differentiation:

1. Horizontal differentiation. Changes are made to the advertising measures taken in relation to the product. The product can be made to look more attractive, for example using a different colour that is currently fashionable.
2. Vertical differentiation. A product undergoes physical and/or functional adaptations in order to improve its quality.

Disadvantages of differentiation

It is true that variations allow retailers to cater for different customer requirements and preferences. Yet equally, too much choice and an overall lack of clarity can overwhelm customers. There is also the danger that customers switch from their existing products to the newer versions. Thus as with diversification, differentiation can cause products to cannibalise one another, where new products replace old.

Product range rationalisation and specialisation

Rationalisation is where new classes, product lines, product types and items are removed from the range or replaced. Rationalising a product range can influence its depth and breadth. There can be many reasons for rationalising your product range, such as a change in customer requirements, a new legal framework (for example environmental or energy efficiency regulations) or innovative competitor products. In the short term, rationalising a product range may cause a drop in sales, but in the long term a focused offering can optimise business processes and reduce operating costs.

Shaping successful product ranges

The factors for a successful range can vary widely according to sector and business model. It is therefore important for each company to conduct thorough market and target group analysis. Analysing the target group’s needs and behaviours allows companies to identify opportunities and gaps in the market more quickly. For instance, when a furniture retailer wants to compile their product range, market analysis shows that their target group is primarily interested in sustainable manufacturing. This prompts the retailer to ensure that their range is made from environmentally friendly materials.

A product range should also be segmented into logical categories. This step helps with organisation and makes it easier for customers to navigate online stores. For bricks-and-mortar retail, shelves and aisles that are easy to view make the goods on display much more attractive. Using different shelf levels can help customers gain a clearer overview:

How can well-organised shelves make the goods more attractive?

• Promoting sales through clear presentation: arranging shelves so items are displayed clearly creates a pleasant shopping environment where customers will usually spend longer. This in turn increases the likelihood that they will make a purchase.
• Clear arrangement: customers can view the product more easily.
• Visibility and visual attractiveness: well arranged and presented products can display their properties and benefits more easily.
• More efficient maintenance: shelving that is easy to view makes it easier for retailers to check and adjust their stock.

Convince customers through presentation

Another important factor in managing your product range is developing retail marketing strategies to win over customers by presenting products attractively. What does a convincing presentation look like in practice? An individual approach can make all the difference here. Unique products or services can be offered for sale in an interesting way, thus differentiating retailers from the competition and generating customer loyalty. The special show ‘Ms. Paper & Friends’ demonstrates how staging products can become an art form. In our interview, curator Angelika Niestrath explains how creative and original presentation can attract customers’ attention.

Creative product range presentation and carefully crafted shop windows can inspire customers. Decorative elements can catch customers’ attention and improve their buying experience. They can also strengthen a brand’s identity. Designer Claudia Herke from stilbüro bora.herke.palmisano has some great tips for designing a successful product range in this interview.

Conducting market research regularly can help identify trends, customer feedback and changes in requirements. Analysis of the competition can also be key to optimising your product range. You should also regularly check the quality of all the products in your range. That includes analysing key indicators such as sales and turnover. There should always be sufficient products available to cover customer demand. It is also important to avoid keeping too much extra stock, to keep costs down. Retailers should be dynamic and adaptable when it comes to optimising their product ranges.

To recap

Product range policy is a fundamental part of achieving the optimal marketing mix. An appealing, well-curated assortment of products will not only attract new customers, but also retain them over the long term. Effective product range management will make a retailer stand out from the competition. Well-presented products that match what their target groups need will normally sell much better. Careful, considered product range management makes effective warehousing and inventory management easier. Retailers can avoid unnecessary costs and optimise business processes by choosing suitable products and managing their inventories appropriately. Retailers can also react more quickly to changes on the market if they check and adapt their ranges regularly. Identifying trends and offering products that meet their customers’ needs are decisive factors in the long-term success of retail and e-commerce.

Sources:

• https://www.lernnetz24.de/bwl/hinweise/48.html
• https://www.iaw-messe.de/sortimentsgestaltung-im-einzelhandel/
• https://www.modu-learn.de/verstehen/marketing-vertrieb/sortimentsgestaltung/
• https://www.wirtschaftslexikon24.com/e/sortimentsgestaltung-des-handels/sortimentsgestaltung-des-handels.htm
• https://studyflix.de/wirtschaft/sortiment-1992