Efficient Sorting 1998

d P
Effiaent Consumer Response

1
7 i J ! PAKINERING GROUP
d
Efficient Consumer Response
BEST PRACTICES REPORT
Prepared by The Partnering Group
THE PARTNERING GROUP

TABLE OF CONTENTS
Acknowledgments 1
Executive Summary
Chapter 1: Introduction
Chapter 2: Category Management Framework
Chapter 3: The Six-Step Process
Step I - Market Coverage

Step 11 - Deletion Vdidation
Step I11 - Retention Validation
Step IV - Addition Vdidation
Step V - Assortment Findisation
Step VI - Assortment Quantification
Chapter 4: Data Integration
Chapter 5: FindingsILearnings
Chapter 6: BenefitsICase Studies
Chapter 7: Getting Started
Chapter 8: Questions and Answers
Appendix: TPG Effkient Assortment Templates
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@ ECR Europe 1998.
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ECR Europe Eff~cientAssortment - Best Practices Report

This report was made possible by the contributions of the members of ECR Europe. Their leadership
and direction, their willingness to share information and the results of projects and processes undertaken in
support of this study, have added greatly to the contents of this report. On behalf of the ECR Europe
Board, we would like to thank all of those listed below who willingly gave their time and expertise as
members of each group, reviewing and giving input to this report.
In addition, we extend special thanks and recognition to our consultants who prepared this report -
The Partnering Group, Inc. TPG has been instrumental in the development of Category Management and
ECR solutions for retailers and suppliers in Europe and the rest of the world. TPG has authored the
European, U.S. and Brazilian ECR Category Management Best Practices Reports. Special appreciation is
extended to the primary author of this report, Frank Grossi, President of The Partnering Group, Inc. He
drew heavily upon the work he has led in Category Management and Effkient Assortment in the U.S. and
Europe.
ECR Europe Demand Side Steering Group:
Graham Booth zsco

Harry Bruyniks Albert He&
Laurence Deprez AIM
Jean-$acques Jarrosson Danone
U ~ f i l bach
m Rewe
J u p Kwist Unilever
Jacques Le Row CIES
A&so E. Merry Delval Promod2s Spain
Franco Suardi Kraj Jacobs Suchard
Enrico Eja Johnson &Johnson
ECR Europe Efficient Assortment Advisory Board
Neil Barker Walkers Snack Foods

Peter Bennemeer Kellogg
Stephan Brune Benckiser
Renaud Cogeh Delhaize Le Lion
Malcolm Corby Thomas Cork
Jaliya de Soysa I a
Berthold Figgen Procter & Gamble
Nick Garhnd United Distillers
Heinz-Rainer Horn Henkel
Hermann Neubauer Kraj Jacobs Suchard
William Oliver Johnson &Johnson
Pippa Rogers zsco
Willem Kesteho Caprabo Store 2000
Michael Kolodziq DM Drogeriemarkt
Brigitta Rodens-Friedrich DM Drogeriemarkt
Elizabeth Pred2y Coca-Coh
Sian Stephens Sainsbury? Supermarkets
Rudigen Strein Fegro/Sel'os
ECR Europe S c i e n t Assortment Consulting Resources
The Partnering Group, Inc. - Frank Grossi and Dr Brian Harris.
ECR Europe Eficient Assortment - Best Practices Report

EXECUTIVE SUMMARY
This report describes an approach that can assist retailers, wholesalers, and suppliers in developing a product
assortment for a category that is uniquely effkient given their target customers, category strategies and
financial objectives. To achieve this objective, the eficient assortment approach:
Provides flexibility for broad, industrywide application, while recognising the diversity of categories
and practitioners and country business environments in Europe.
Recognises the valuable and unique contributions of each cooperating trading partner.
Incorporates and works within current ECR Europe Best Practices methods.
Reflects the assortment management needs of both suppliers and retailers.
Considers the current and emerging people, data and systems capabilities within the industry.
Eficient Assortment Dej?ned
A cooperative retailer-supplier process of determining the optimal product offering within a category that
achieves target consumer satisfaction and enhanced business results.
The Eficient Assortment Model
The eficient assortment model described in this report has four components:
Component #1: Category Management Framework - assortment is a part of Category

Management, one of the five tactics.
Component #2: Six-Step Process - a simple yet comprehensive process.
Component #3: Data Integration - consumer, market, financial and operational data.
Component #4: Cooperative Trading Partner Relationship - a cooperative relationship between

suppliers and retailers.
Component #I: Category Management Framework
Efficient assortment is best understood and practiced within the context of the Category Management
process. As described in the ECR Europe Category Management Best Practices Report, that process identifies
assortment as one of the five major "tactics" of Category Management; the other four being pricing, shelf
presentation, promotion, and product supply These five tactics are addressed late in the Category
Management process. This means assortment, as well as the other tactics, are likely to be influenced by the
d&isions made in earlier steps of the process as shown below:
ECR Europe Efficient Assortment - Best Practices Report

Executive Summary
Category Management Business Process
1 Category Assessment
Category
Review 1
A
Category Strategies
Plan Implementation
Courtesy of The Partnering Group, Inc.
In fact, every one of the earlier steps in the Category Management process has a potentially significant effect
on assortment. In other words, no assortment can be considered truly efficient until it has passed through the
Category Management process. For example, how can an assortment be considered "efficient" until it is
measured against performance measurement objectives?How can an assortment be judged efficient unless
the role the category is being asked to fulfill in the retailer's portfolio of categories is identified? (This report
assumes the reader is familiar with the basic concepts and processes of Category Management. The primary
reference for this information is the ECR Europe Category Management Best Practices Report.)
Component #2: The Six-Step Process
Within the broader context of Category Management, the efficient assortment process is composed of six
steps:
Step 1. Market Coverage -This step determines a preliminary target "percentage of turnover"
(market coverage) within the marketplace for each category segment.
Step 2. Deletion Validation - Stock keeping units (SKUs) falling below the turnover coverage target
are passed through screens of market, retail and consumer measures to judge the propriety of
deletion.*
Step 3. Retention Validation - SKUs falling above the turnover coverage target are passed through
screens of market, retail and consumer measures to judge the propriety of retention.
Step 4. Addition Validation - SKUs not carried by the retailer but falling above the turnover
coverage target are passed through screens of market, retailer and consumer measures to judge the
propriety of addition.
Step 5. Assortment Finalisation -The results of the previous steps are combined to arrive at a
recommended new assortment.
Step 6. Assortment Validation -The proposed assortment's effect is quantified and compared with
that of the current assortment.
* The term " S K U as used throughout this report refers to a consumer purchase unit of a product
(SKU = Stock Keeping Unit). This is normally a product with an EAN code number.

Component #3: Data Integration
The six-step process uses consumer, financial, market and operational data that are typically available to
practitioners within the industry.
The consumer data include measures like consumer loyalty, exclusivity of use, consumer worth and
substitutability, which are typically sourced from household panel data. In addition, the efficient
assortment process applies geodemographic data for the development of store-by-store or cluster
assortments.
The financial and productivity data include measures such as turnover, profitability return on assets,
and turnover or profit per meter. These measures are typically sourced from internal retailer andlor
wholesaler databases.
Finally, the market data include measures such as retail availability, turnover per million (pounds,
francs, etc.) of market turnover and market share. The market data are typically sourced from
syndicated data suppliers. The integration of these sometimes disparate measures enables practitioners
to make more informed assortment decisions.
Component #4: Supplier-Retailer Cooperation
In the past, assortment rationalisation has sometimes reflected the limited perspective of either the supplier
or the retailer. This report recommends a cooperative approach through which supplier and retailer combine
their skills, unique perspectives and experience to better understand and meet consumer needs.
Findings and Learnings
The experience of practitioners has provided the following findings:
Category Management context -An efficient assortment cannot be developed in a vacuum. Rather
it should be developed within a Category Management context that has:
- A specific category definition and structure defined by consumer needs.
- A category role describing the objective (or what some term as the "desired state") of the category in
the supplier or retailer trading partner portfolios.
- Consumer, market, retailer and supplier performance evaluated via an assessment.
- Specific performance measurement targets.
- Clear strategies, such as "traffic building," "profit generating," etc. that are developed to ensure the
category achieves the role and performance measurement targets.
Each of these factors discussed in the ECR Europe Category Management Best Practices Report helps to
create the appropriate framework in which an efficient assortment can be developed. Taking this framework
into account helps ensure that the assortment is truly efficient.
Ease of use - After some one-time background work and practical experience, the process can
proceed at a surprisingly fast pace.

Executive Summary
Universal applicability -The discipline, principles and concepts embodied in the suggested model
make it applicable to virtually any category. However, these tools are not ideally suited to extremely
data-poor categories such as variable weight products where market and consumer data are less
available. In those categories, the six-step process is applicable more in the context of providing a
disciplined, step-by-step decision process implemented with significantly less data.
Data availability - Not all the practitioners have all the data sets suggested here. The approach,
however, yields maximum effectiveness from the data that is available. Experience has shown that
practitioners rarely have all the data sets mentioned. The six-step process suggests several data sets so
that practitioners may use what is available to drive the process. Most importantly, even with limited
data, the use of the six-step process provides a disciplined methodology for making improved
assortment decisions.
Cooperation -The value of retailer/supplier cooperation in meeting consumer needs is never more
evident than in this assortment approach.
Product development -This process can reveal unmet or poorly served consumer needs and thereby
lead to new product development or product improvement.
Clusterlstore-by-store implementation -The efficient assortment process can be applied on a

companywide, cluster or store-by-store basis.
Storewide applicability -The efficient assortment process has been applied to all categories within a
traditional supermarket. However, the process works best in categories where data is more readily
available and SKU mix is more stable (e.g., limited "in and out" SKU activity).
Output Findings
Assortment variation -The described approach may produce both increases and decreases in the
assortment of categories, depending upon the unique strategy and inputs of supplier and retailer
trading partners and on the historical or current assortment.
Deletions and additions -The approach virtually always leads to SKU additions as well as deletions.
Experience to date indicates that deletions have been more numerous than additions, resulting in a net
reduction in category SKUs. This is not, however, an inevitable result of the six-step process. It is
clear that categories and conditions exist where an increase in SKUs would create the optimum
assortment to meet consumer needs.

Benefits of Efficient Assortment
The primary benefit of efficient assortment is that consumer needs are better met by having the right
products in the right stores at the highest efficiency
For the total system, cost savings from more efficient assortments are a significant component of total
estimated ECR savings.
For retailers, assortment expresses the strategic differentiation of the store perhaps more than any other aspect
of retail management. Corporate strategies in other areas - such as retailer branding, pricing, and
promotion- also will impact assortment decisions.
For retailers and suppliers alike, additional benefits include faster stock turns, lower out-of-stocks and overall
better asset use and returns from a more efficient, less burdened replenishment system.
For suppliers, benefits also include a more efficient manufacturing and logistics infrastructure, plus a clearer
understanding of consumer needs. This can lead to more successful new product initiatives. Importantly, a
number of real-world examples detailed in the report highlight significant short- and long-term wins for the
practitioners (retailers and suppliers) and the consumer.
Conclusion
Efficient assortment is one of the four principal initiatives within the overall ECR Europe effort, along with
efficient product introduction, efficient promotion and efficient replenishment. The proper mix of SKUs
that best meets target consumer needs affects virtually every aspect of both the supply and the demand side.
By definition, consumer needs are better satisfied when the right products are available at the lowest possible
cost. Moreover, when assortments are optimised within the specific parameters of the category rolelstrategies
provided by a Category Management process, the entire business system can work faster, better and more
efficiently.

CHAPTER 1: INTRODUCTION
An efficient assortment strategy can help retailers, wholesalers, and suppliers develop a product assortment
for a category that is uniquely efficient and effective for their target consumers, category strategies and
financial objectives. To achieve this objective, the efficient assortment approach:
Provides flexibility for broad, industrywide application, while recognising the diversity of categories,
countries, and practitioners within the European grocery products industry.
Incorporates and works within current ECR Europe Best Practices methods.
Reflects the assortment management needs of both suppliers and retailers.
Considers the current and emerging people, data and systems capabilities within the industry.
This report provides a set of tools to assist retailers and suppliers in evaluating assortment issues, as they seek
to implement their strategies and offer more value to consumers.
The Contribution of Efficient Assortment To the ECR Initiative and

the Industry
Efficient assortment is one of the principal initiatives within the overall ECR Europe effort. It affects
virtually every aspect of both the demand and supply sides of ECR. By definition, consumer needs are better
met when the right product is in the right store at the lowest cost. Moreover, when assortments are
optimised, the entire supply system works faster, better and more efficiently.
Specifically, efficient assortment:
Ensures that consumers have the choices they want.
Enhances the consumer's perception that the right products are carried and effectively presented.
Provides a framework for measuring and managing consumer interest in new products, thousands of
which are introduced annually at an extraordinary cost to the industry.
Represents a significant component of the overall potential savings from ECR activities.
Differentiates the needs of various formats and stores and strengthens store identity and strategic
plans. Perhaps more than any other aspect of retail management, assortment expresses the strategic
differentiation of the store.
Is closely linked to efficient replenishment, improved financial returns and consumer satisfaction.
Ties directly to category or product regionality as well as neighborhood level micromarketing, an

increasingly important component of successful, consumer-driven retailing.
Has significant longterm implications for supply-chain capital costs for suppliers and retailers. More
efficient assortments leads to more efficient factories, distribution centers, logistics systems and higher
ROIs.
Is the first of the five tactics considered in the Category Management process and, therefore, has
significant implications for the other four tactical decisions (pricing, shelf presentation, promotion and
product supply).

Introduction
Reflects category, segment and product seasonality to insure the right products are available at the
right time.
Encourages the development of new and improved products to meet evolving consumer needs by
helping to recognise and promote those needs.
Solving the riddle of assortment has been to be one of the preeminent challenges facing participants in the
food industry - both in strategic and competitive terms. Over the past decade, limited assortment retailers
have steadily gained ground. At the same time, many members of the conventional food retailing industry
have embraced broad assortment variety as a strategic necessity. Now, retailers find themselves on a strategic
tightrope seeking to provide variety but not unnecessary duplication and even to expand variety where it
creates a competitive advantage.
Suppliers are facing similar pressures. After years of increasing SKU counts via line extensions of every
conceivable type, many now realise that SKU proliferation can increase costs throughout the supply system.
This, in turn, can depress financial returns to shareholders and may actually reduce the value of the brand
equities being offered to consumers. As a result, suppliers struggle to meet evolving consumer needs with
more new SKUs, while determining which existing SKUs are of dubious consumer or shareholder value.
The opportunity for retailers and suppliers is to develop and implement an assortment that is both efficient
and effective as depicted in the graphic below:
DEMAND-SIDE
1 Effective Assortment I 4 Provide "Optimal" Variety

4 Source of Differentiation
4 Increase Turnover & Share
4 Increase Profit
1 SUPPLY-SIDE 1
1 Efficient Assortment k 4 Operating Cost Reduction
4 Inventory Reduction
4 Reduce Out-of-Stocks
4 Increase Profit
Nothing in this report should be construed to imply that reducing SKUs is prima facie beneficial at all times
and in all places. This simply is not true. Meaningful additions in the right categories, skillfully aimed at
appreciative target consumers, can be a key to increasing turnover and profit margins and creating consumer
value and loyalty.
-
ECR Europe Efficient Assortment Best Practices Report
Chapter 1
Efficient Assortment Defined
A cooperative retailer-supplierprocess of determining the optimalproduct offering within a category that achieves
target consumer satisfaction and enhanced business results.
Two key propositions are implicit in this definition and have been borne out by tests of the approach
outlined in this report.
First, no particular assortment of SKUs is right for any given category, at all times and for all retailers and
suppliers. Rather, efficient assortment must take into account differences in:
Consumer needs and behaviour.

Retailer roles and strategies for the category.
Supplier strategies and capabilities.
Marketplace conditions.
Second, efficient assortment involves the deletion, addition and development of SKUs, each driven by the
interplay of consumer need, retailer objective and supplier response.
The Efficient Assortment Model

The successful generation of an efficient assortment depends upon the four components shown below. The
actual process of implementing efficient assortment is composed of the six steps described in detail later in
this report.
Component #1: Category Management Framework - Efficient assortment is a part of Category

Management, one of the five tactics (assortment, pricing, shelf presentation, promotion, product
supply).
Component #2: Six-Step Process - a logical, step-by-step process that guides practitioners through
an orderly series of steps designed to integrate the key decisions of Category Management and
available data so as to maximise assortment decisions.
Component #3: Data Integration - the use of consumer, market, financial and operational data to
make effective and efficient assortment decisions.
Component #4: Cooperative Trading Partner Relationship - a cooperative relationship between

suppliers and retailers through which each brings its unique resources, experience and consumer
knowledge to the process.

Introduction
Benefits of Efficient Assortment
The efficient assortment approach will not "automatically" recommend one "efficient assortment" for every
category. Rather it gives a retailer and a cooperating supplier a specific process and set of objectives so they
can confidently develop an assortment that will be more efficient (and effective) than the current assortment.
In other words, the efficient assortment approach ensures that all relevant factors are considered through the
use of a broad range of objective data. Typically, another retailer and supplier working in the same category
in the same marketing area may develop a different assortment, because that retailer and cooperating supplier
would begin with a different set of decisions regarding category role, category performance measurement
objectives, target consumer, etc. Importantly, one of three outcomes is likely:
More efficient assortment: the new "effkient" assortment reduces the retailer's and supplier's category
operating costs (e.g., storage, inventory handling, etc.) and delivers equal turnover and consumer
satisfaction when compared to the prior assortment.
More effective assortment: the new "effective" assortment increases the retailer's and supplier's
category turnover and consumer satisfaction with category operating costs similar to the prior
assortment.
More efficient and effective assortment: the new "efficient" and "effective" assortment reduces the
retailer's and supplier's category operating costs and increases the category turnover and consumer
satisfaction compared to the prior assortment. Obviously, an efficient and effective assortment is the
most desirable outcome.

CHAPTER 2: CATEGORY
MANAGEMENT FRAMEWORK
"While efficient assortment can be undertaken independently, it is best understood and practiced within the
context of the Category Management process. As described in the ECR Europe Category Management Best
Practices Report, that process identifies assortment as one of the five major "tactics" of Category
Management; the other four being pricing, shelf presentation, promotion and product supply. These five
tactics are addressed late in the Category Management process. This means assortment, as well as the other
tactics, are likely to be influenced by the decisions made in earlier steps of the process as shown below:
Category Management Business Process
Category Definition
1
Category Assessment
Category
Measures
I Category strategies 1
Plan Implementation
Sourtesy of The Partnering Group, Inc.
In fact, every one of the earlier steps in the Category Management process has a potentially significant effect
on assortment. In other words, no assortment can be considered truly efficient (and effective) until it has
passed through the Category Management process. For example, how can an assortment be considered
"efficient" until it is measured against performance measurement objectives? How can assortment be
evaluated without the category being defined and properly segmented?

Framework
Corporate Strategy and Efficient Assortment
The corporate strategies of retailer and supplier trading partners will also impact assortment. For example, an
every-day low price (EDLP) or high-low pricing strategy can influence the consumer or retailer "value" of a
particular SKU, brand or even segment. A retailer or supplier target consumer strategy can also have
implications on assortment decisions. Thus, it is important that retailers and suppliers consider their
corporate strategies while practicing efficient assortment.
Category Definition and Efficient Assortment
Of all the steps in the Category Management process relevant to efficient assortment, defining the category
and determining its structure or segmentation is one of the most important. Without a proper category
definition and structure, improvements in assortment will be difficult to attain.
Supplier and retailer trading partners who are developing an efficient assortment as part of a comprehensive,
cooperative category planning process will benefit from the discipline of defining the category.
The ECR Europe Category Management Best Practices Report defines a category as "a distinct, measurable
and manageable group of products/services that consumers perceive to be interrelated and/or substitutable in
meeting a consumer need." That report also identifies a process for defining a category: begin with
identifying all the products that offer a similar consumer solution ("thirst quenching" in the case of beverages
or "pain relief" in the case of analgesics) and end by narrowing a large group of products into those that are
manageable and measurable thereby comprising a "category."
The second part of category definition is agreement on the category's structure or segmentation. Basically,
consumers group brands, types and individual SKUs together in a way that matters to them and allows them
to differentiate between SKUs to meet their needs.
In the pet care category, for example, consumers might start by segregating pet-type products (e.g., dog, cat,
aquatic, etc.). Then they might further divide dog products into food and accessories and further divide dog
food into dry, canned and softlmoist types. These individual groupings of products are known as "segments."
The relationship of the segments to one another in terms of perceived consumer importance is called the
"structure" of the category. Structure implies a hierarchical relationship among the segments: a consumer
makes a specific judgment first (e.g., what flavour do I want?) then proceeds to the second most important
decision (e.g., what size?)then proceeds to a third decision (e.g., do I want a branded SKU or retail branded
SKU?).Therefore, the structure of a category (the relationship of the segments) can be thought of as a road
map that consumers use to wend their way through the maze of segments and SKUs to arrive at a purchase
decision.

Chapter 2
Structures differ from category to category. For example, the structure of the detergent category may look
something like this:
Detergent Category Structure
F Powder
Cleaning Scent
7 Cleaning @ @
Regular Refill Regular Refill
[s^ Fl
courtesy of The Partnering Group, Inc.
This structure suggests the consumer's decision proceeds as follows:
First: Form (liquid or powder)

Second: Product featurelbenefit (odor removallscent, basic cleaning, etc.)
Third: Packaging (regular, refill)
Fourth: Size (large, medium, etc.)
Category structures describe how consumers shop the category and what is important to them. For example,
a consumer would typically be more concerned about having their preferred detergent form (e.g., liquid) and
product feature (e.g., basic cleaning) available than their preferred packaging (e.g., refill) or size (e.g., large)
based on the detergent category structure (above). A category structure does not imply that the segments
lower in the structure are not important. All segments are important. However, retailers and suppliers must
recognise that consumers feel some segments are more important than others.

Framework
A category structure also reflects the consumer's definition of product choice or variety. As a result, retailers
and suppliers that have developed accurate, consumer-defined category structures are equipped with superior
category choice and variety insights. For example, most consumers would consider the assortment entitled
"A" (below) as having more variety than the assortment entitled "B" (below); even though they both offer the
same number of SKUs:
"A" Assortment "B" Assortment

(16 SKUs) (16 SKUs)
LIQUID 1 POWDER
Regular Refill Regular Refill
mall Large Small Large Small Large Small Larg
Basic
I Cleaning Cleaning
Odor1
Scent
Fabric
Care
As previously mentioned, consumer-oriented category structures provide valuable information about the
consumer's definition of variety and choice. However, non-consumer-defined category structures can be very
misleading and ultimately create inefficient and ineffective assortments despite utilising the ECR Assortment
process provided in this report.
To illustrate this point, consider the detergent category structure highlighted below:
Detergent Category Structure
F Powder
'=7 Liquid
Basic Odor1 Fabric

Cleaning Scent Cleaning Scent
Regular Refill
mpq
?ourtesv of The Partnerina Groun. Inc.

Chapter 2
This structure suggests product pricelperformance (e.g., premium, economy, etc.) is a defining factor versus
product featurelbenefit (e.g., basic cleaning, odorlscent, etc.). As a result, one would need to determine
whether the current assortment addresses each of the pricelperforrnance segments. For example, one could
have plenty of choices within each product featurelbenefit segment (e.g., basic cleaning, odorlscent, etc.); but
when evaluated under the new structure may have all economy tier products with no middle and premium
tier products.
Developing a consumer-oriented category structure. Efficient assortments are most likely to be built "from
the ground up," segment by segment, consumer need by consumer need. In other words, first build the
assortment segment by segment (do I want to include or exclude this specific consumer need?). Then ask
how many choices the consumer needs within a segment (how many detergent SKUs do I need to offer?).
Therefore, the foundation of efficient assortment is a sound category structure designed by the most accurate
understanding of consumer behaviour.
There are several methods retailers and suppliers utilise to develop accurate, consumer-oriented category
structures. Some of these analytical methods are as follows:
SwitchingILoyalty Analysis of purchase-to-purchase household switching patterns, identifying

Behavioural Analysis: repeatlloyalty behaviour in excess of random or fair share expectations.
Customised Studies: Generally, a quantitative approach though qualitative research may be used as a
guide. The structure is often developed from consumer purchase andlor usage data
and may reflect psychographic techniques if appropriate.
Intercept Studies: Consumer interviews are conducted during or after a category purchase to
determine the consumer's category purchase hierarchy.
Card Sorts: Consumers are asked to stack cards (depicting product choices) in piles representing
similar products.
Cluster Analysis: Multi-dimensional scaling and cluster analysis technologies are used to analyse
interactions between brands and to group similarly interacting SKUs in clusters.
Markov Analysis: An analysis technique that examines consecutive purchase pairs within a household.
This information is summarised to determine transaction-to-transaction patterns.
Importantly,-good category structures are often the result of integrating or combining the observations and
conclusions from a number of these methods.

Framework
The following chart displays a blank category structure diagram with the various hierarchical tiers shown as
"subcategories," "segments" and "subsegments."
Category Structure
CATEGORY SUB-CATEGORY SEGMENT SUB-SEGMENT
>ourtesv of The Partnerino Group, hc.
Category Role and Efficient Assortment

--
The role chosen for a category defines its relative importance within the retailer's portfolio of categories.
When a retailer designates a category as "destination," it is more strategic than one designated as
"convenience." Destination categories receive relatively more of the retailer's total assets (space, inventory,
management time); they are considered to be more strategic in determining the consumer's choice of a retail
store. Commonly used retailer category roles are described by the Category Management Best Practices
Report as follows:
ECR Category Roles
Category Role Retailer Objective
Destination
To be the preferred category provider and help develop the retailer as the store
Preferred
of choice by delivering consistent, competitive target consumer value.
To be a major category provider and help reinforce the retailer as the store of
Convenience To be a category provider and help reinforce the retailer as the store of choice
by delivering good target consumer value.

Chapter 2
One might assume that a retailer offers consumers a broader choice in a "destination" category than a
"convenience" category. (Breadth of choice is likely to be one of the factors a consumer uses to decide
whether one retailer is preferred to another.) While this is generally true, there may be some convenience
categories with large assortments given the unique dynamics and characteristics of the category. Therefore, an
efficient assortment for retailer A - for whom category "widgets" is a destination category - may be
different from the assortment in the same category for retailer B - for whom "widgets" plays a
"convenience" role.
Category Assessment and Efficient Assortment
The category assessment process outlined in the ECR Category Management Best Practices Report analyses
category performance and trends from four different perspectives: the consumer, the market, the retailer and
the supplier. Each of these perspectives has implications for efficient assortment. If, for example, the retailer's
target consumer concentrates purchases in a certain segment of the category, an efficient assortment might
provide more choices in this segment.
Suppose the assessment shows significant market growth in one segment. Under these circumstances, an
efficient assortment process might take this growth into account and suggest enlarging the assortment.
Performance Measures and Efficient Assortment
Category Performance measures are intended to serve as a gauge of success in the management of a category.
These performance measures should include various internal measures (turnover, profits, etc.) and external
measures (market share, consumer satisfaction, etc.) to insure appropriate balance among various operational
and strategic concerns.
Some performance measures can have significant implications for assortment "efficiency." For example,
suppose one of the category's performance measurement calls for an increase in gross margin return on
investment (GMROI). To meet this measure might mean skewing the category assortment more toward
direct-store-delivered (DSD), or high-turnover brands and away from warehouse-delivered or low-turnover
brands. Similarly, a performance measurement goal of increasing a category's gross margin percentage might
mean deleting lower gross margin SKUs from the assortment and adding higher margin SKUs, even though
the lower margin SKUs are otherwise acceptable and fill some consumers' needs.
An assortment can hardly be considered "efficient" if it fails to enhance the chances of meeting the
performance measurement objectives for the category and consumer needs. Therefore, the nature of the
category performance measurement becomes an important determinant of the context of efficient
assortment.
Category Strategy and Efficient Assortment
Category strategies will play an important role in defining appropriate product assortments. The Category
Management Best Practices Report defines common strategies deployed within a category, e.g., a "traffic
building" strategy, a "profit generating" strategy, a "turf protecting" strategy, etc. The specific strategy chosen
will have implications for the efficiency of the assortment.
For example, if a key retail competitor is focusing on a specific set of SKUs as a critical part of its assortment,
a retailer might "turf protect" by adding certain of those SKUs to its mix. Similarly, a "traffic building"
strategy might include virtually all SKUs in segments with short purchase cycles and high household
penetration.

Framework
-- -
Summary
An efficient assortment cannot be developed in a vacuum. Rather it should be developed within a Category
Management context that has:
A specific category definition and structure defined by consumer needs.
A role describing the objective - or the "desired statem- of the category in the retailer or supplier
trading partner portfolios.
Consumer, market, retailer and supplier performance evaluated via an assessment.
Specific business targets defined in a balanced set of category performance measures.
Clear strategies such as "traffic building," etc. that are developed to ensure the category achieves the
role and performance measure targets.
Each of these factors, discussed in detail in the ECR Europe Category Management Best Practices Report,
helps create the appropriate framework in which an efficient assortment can be developed. This framework,
in turn, helps ensure the assortment is truly efficient from a consumer, retailer and supplier perspective. The
following chart provides an example of how the Category Management framework can influence the
assortment.
Key Category Management Decisions Affecting Efficient Assortment
Category Structure
Determine the correct segments
Determine the products for each segment
Category Role
Destination: may imply broader assortment
Convenience: may imply narrow assortment
Category Assessment
Underdeveloped segment: may imply assortment additions
Target consumer-orientedsegment: may imply assortment additions
Category Performance Measures

Unprofitable segment: may imply assortment deletions or additions
Aggressive turnover growth objective: may imply assortment additions
Category Strategies
Transaction building strategy: may imply large-sized assortment additions
Image enhancing: may imply unique or upscale assortment decisions
Profit generating: may imply adding profitable and/or deleting unprofitable products

CHAPTER 3: THE SIX-STEP PROCESS
To achieve an efficient assortment, practitioners combine the Category Management context and data in a
process that logically addresses relevant issues.
The efficient assortment process described on the following pages begins with two assumptions:
Category definition and structure focusing on the lowest level for which reliable data are available.
Companywide, regional clustering andlor store-by-store assortment.
It is paramount that the retailer and supplier apply the six-step process on the lowest level deemed feasible
and productive.
The process then takes the practitioners through a series of steps that guide decisions about adding, retaining
or deleting SKUs. This is an activity that can be repeated several times: i.e., a specific SKU may be removed
at one step only to be reincorporated in the final assortment for reasons that emerge from the process itself.
The process best takes place within the broader context of Category Management to which its output (an
efficient assortment) becomes an important tactical input to a Category Business Plan. The process uses the
data measurements previously described.
The Six-Step Efficient Assortment Process
The following chart previews the six steps of the Efficient Assortment process:
Efficient Assortment Six-Step Process

A target % of market turnover coverage (e.g., 60%, 80%,
Step 1 90%) for the category segment is chosen to start the process
of examining individual SKUs for the ultimate assortment.
SKUs falling below the market coverage target are passed

Step 2 through screens of market, retail, and consumer measures to
judge propriety of deletion.
SKUs slightly above the market coverage target are passed

Step 3 through screens of market, retail, and consumer measures to
judge propriety of retention.
SKUs not carried by the retailer but falling above the market
coverage target are passed through screens of market,
Step 4 retailer, and consumer measures to judge propriety of
addition.
The results of the previous steps are combined within a

Step 5 brand/attribute matrix to finalise the new assortment.
The proposed assortment s effect is quantified and

Step 6 compared to the current assortment.
Each step of this process is now explained in more detail.

The Six-Step Process
Step 1 -Market Coverage
Purpose
This step ensures that assortment is placed within the larger context of the Category Management process. It
begins with a simple question: What percentage of the segment turnover or equivalent volume (e.g.,
kilograms, litres, etc.) should the assortment carried by the retailer represent in the marketplace? Should
every SKU offered in the category in the market be carried, thereby having 100 percent market coverage, or
should only those that are popular to the target consumer be carried, which hypothetically could result in a
60 percent market coverage?
Step I: Market Coverage

Market % of % Cumulative
Turnover Segment Turnover of
(Value) Turnover Segment
SKU 1 18,000 29.4% 29.4%
SKU 2 15,600 25.5% 54.9%
SKU 3 11,600 18.9% 73.8%
What is the
aC> SKU4
SKU 5
7,000
2,315
11.4%
3.8%
1 85.2%
89.0%
1
appropriate
market
coverage
for the
a1=> SKU 6
SKU7
SKU 8
2,300
2,000
1,600
3.8%
3.2%
2.6%
I
92.9%
96.0%
98.6%
1
retailer? SKU 9 500 0.9% 99.5%
81=> SKU10 250 0.5% I 100% I
TOTAL 61,165 100% 100%
1 Courtesy of The Partnerino Group, Inc.
Output
The output of Step 1 is a desired market coverage goal for each segment of the category until the specified
percentage is reached. This is expressed as "85 percent of market coverage" or "70 percent of market
coverage," where market coverage equals the cumulative percentage of share in the market calculated by
adding the largest share SKU to the next largest, etc. This can be calculated in turnover (value) or turnover
(equivalent volume). Most practitioners use turnover value. In practical terms, this means, for a variety of
reasons discussed below, a choice is made to offer an assortment whose SKUs have a cumulative market-share
coverage of X percent.

- -
Chapter 3
Four Factors to Consider to Reach Market Coverage Goals
The four key factors that need to be considered are:
Develop Market Coverage at the Segment Level
First, this market coverage exercise should be carried out at the subcategory or segment level, not at
the total category level. That is because each segment represents a specific consumer need that deserves
to be considered. By contrast, conducting the exercise on a total category basis could result in an
entire segment (consumer need) being removed from the final assortment if all of its SKUs happen to
fall below the market coverage goal for the total category.
Manarinr the "80120" Rule (The Assortment "Tail")
Second, establishing a goal tends to focus practitioners' attention where inefficiencies are most likely to
exist. Most categories exhibit a consistent pattern in which a few popular SKUs account for a large
percentage of market coverage and then a large number of less popular SKUs account for a very small
percentage of total market coverage. In one large, highly fragmented category, for example, the most
popular 15 SKUs accounted for 95 percent of market coverage while the least popular 150 SKUs
accounted for a cumulative 5 percent of total market coverage.
Selectinp Broader or Narrower Variety
Third, choosing a market coverage goal of, for example, 85 percent does not necessarily mean that the
SKUs falling below that figure will be removed from the assortment. Nor does it mean that all SKUs
above the 85 percent point will remain. It does mean that after considering the context of Category
Management for this category and this retailer, 85 percent seems like an appropriate strategic goal.
The objective is to focus on each segment's level of variety, e.g., "broader" or "narrower"; and compare
each segment's variety.
Market vs. Internal Orientation
Fourth, include all the SKUs offered in - and potentially beyond - the marketplace, not just the
SKUs offered by the retailer whose assortment is under review. This helps identify SKUs that are above
the market coverage goal but, for whatever reason, may not be included in the retailer's current
assortment. In this respect, this initial step in the process helps focus attention on potentially unmet
consumer needs and frequently results in the final assortment including SKUs not carried in the
retailer's current assortment.
Process and Data Inputs
Market coverage asks practitioners to address several key inputs that, taken together, comprise the framework
within which the category is being managed. These key inputs are:
Corporate strategy (retailer and supplier)

Category role
Retailer target consumer
Segment turnoverlprofit productivity
Segment fragmentation
Segment assessment findings
Performance measurement (current and target)
Category strate&).
Practitioners may also add other inputs if required to capture the context of the category.

The six-step process suggests that practitioners consider setting higher or lower market-coverage goals by
segment, depending upon differing category role considerations, target consumer considerations, etc. The
final recommended market-coverage goal for the various segments represents a balance of the responses to the
key inputs. Practitioners should consider how they wish to weigh the various issues in arriving at a final
. ..
coverage decision.
Experience to date suggests common patterns of market coverage will emerge, as practitioners consider the
various key inputs. The ranges discussed below, however, should be viewed as examples, not as
recommendations, because each category, market and retailer situation is unique.
Category Role - Practitioners typically (but not always) choose the highest market coverage for
"destination" categories, the lowest for "convenience" categories. Within destination categories, the
highest coverage tends to apply to large segments with high-household penetration or purchase
frequency. Retailers often offer maximum consumer choice in the "destination" categories, which tend
to be the most important categories in their portfolio.
Category Role - Market Coverage Relationship

(A Retailer Example)
Category Role
I Implied Market Coverage
Destination
High market coverage (80%+) in all major segments (+lo% of category turnover)
Preferred and medium coverage (66%+) of small segments. Virtually all consumers will
find several acceptable brand, size, and type choices in every segment.
Medium market coverage (66%+) in all major segments and some choices
(33% market coverage) in smaller segments comprising 10% or less of total
category turnover such that most consumers will find several SKU choices
which they have purchased in the recent past.
Limited offering of popular SKU'S meeting the broad basic needs of the
Convenience average consumer. Only brandsltypes with relatively high HH penetration and
profit potential would be stocked.
Retailer Corporate Target Consumer - Practitioners choose the highest market coverage for those
categories and segments of categories that are most closely aligned with the retailer's target consumer.
Retailers have varying target consumers and, importantly, segments within the categories that appeal
to different buying groups. For example, within analgesics, some segments, such as children's aspirin,
appeal to families with children, some segments appeal to senior citizens with arthritis, others appeal
to females in the 13 to 45 age group. Practitioners generally select differing market coverages for
segments depending upon the alignment between the segment's buyers and the retailer's target
consumer. High levels of alignment typically have high levels of market coverage, while low levels of
alignment tend to have lower market coverage.

Chapter 3
The table below shows an example of how data might be arrayed to facilitate a decision on turnover
volume coverage. From this example, it might be concluded that segment " A should have a high
market coverage since 63 percent of the buyers are in the 40,000 to 60,000 income range, which is
one of the retailer's target consumers.
Target Consumer Segment Alignment
Target Retailer % of Retailer % of Segment % of Retailer % of Segment

Consumer Profile Shoppers "A" Buyers Turnover "A" Turnover
Some practitioners suggest an additional target consumer analysis for determining a segment's market
coverage. This analysis assesses a segment's alignment with the category's heavy purchase users (versus
the retailer's target consumer). This analysis can reveal that a particular segment, while not aligned to
the retailer's corporate target consumer, may be closely aligned with the category's heaviest or biggest
purchasers. As a result, this additional analysis can have a significant impact on the overall market
coverage whenever a segment has heavy purchasers.
TurnoverIProfit Productivity - Practitioners vary market coverage according to the turnover and
profit productivity of a segment. Segments that show relatively high productivity may receive high market
coverages. Those segments that are relatively unproductive tend to receive proportionately lower market
coverages. The table below provides an example of a productivity analysis. In this example, segment "C" may
warrant a relatively
.
high
- market coverage;
-
segment
-
"E" a relatively low coverage. Importantly, the
productivity can vary widely among segments within the same category.
Segment Turnover and Profit Productivity

Fragmentation -Within any given category, segments can differ in the characteristic often referred
to as "fragmentation." This concept is best understood by comparing segments to ascertain how many
SKUs are required to reach to a specific market coverage. In one segment, only 10 SKUs may account
for 80 percent of the category turnover in a market, while in another segment 30 SKUs may be
required to reach the same 80 percent level. In this case, the second segment is more "fragmented
than the first because it takes three times as many SKUs to achieve the same market coverage.
Practitioners assign market coverages based on fragmentation differences. For example, highly
fragmented categories sometimes receive lower market-coverage levels, while less fragmented categories
may receive higher levels. Practitioners are typically more reluctant to have high-market coverages on
highly fragmented segments (versus less fragmented segments) because of the costs associated with
stocking a large number of SKUs that generate little incremental turnover. Some practitioners infer
that individual SKUs may have less consumer appeal in highly fragmented segments and more
consumer appeal in less fragmented segments. Varying segment coverages within a given category can
create an overall more efficient assortment.
Assessment Findings -As emphasised in this report, the efficient assortment process is best applied
in the framework of a broader Category Management process that includes a comprehensive category
assessment phase. Assessment findings often affect the market coverage levels. Below is an example of
a series of market coverage implications for a particular retailer based on a few key assessment findings:
-
Assessment Findings Market Coverage Implications
(Retailer Example)
- - -- - -- - -
.. ...- , ... ...-.. ... - - ... . .. --.-a .,, ...-. ..-.
Category Consumption Increasing coverage of at least 85% in growing segments. Monitor frequently, add new brands and SKUs
appropriately.
Check declining segments and sub-segments. Reduce market coverage of declining brands,
Category Consumption Decreasing sizes and types in declining segments to a level well below that of major or stable segments.
I
Retailer Share Increasing
I
Check increasing share segments to ensure market coverage is adequate. Add coverage if
necessary to maintain share momentum.
I
Retailer Share Decreasing
I
Check declining share segments to ensure decline not caused by inadequate market coverage.
Increase coverage in those situations. I
Relatively Unprofitable Category
Review profitability data by segment and SKU. Consider reducing market coverage in unprofitable
segments to reduce monetary cost.
I
I
Relatively Profitable Category
I
Review profitabilitydata by segment and SKU. Consider increasing market coverage of profitability
segments and brands. I
Other factors revealed in the assessment phase could suggest higher or lower market coverage
recommendations.
Performance Measure Implications -Any Category Management plan should include performance
measures. These measures have implications for assortment turnover volume coverage levels and
recommendations.
For example, those practitioners with a performance measurement objective of increasing category
GMROI or ROA sometimes choose to lower recommended turnover volume coverage levels in low
turn segments or low profitability segments. Conversely, those with a performance measurement
objective of increasing category market share may choose higher recommended turnover volume
coverage in major category segments, in segments where consumption is growing or in segments where
E C R Europe Efficient Assortment - Best Practices Report

Chapter 3
the retailer has a relatively low share. Other performance measurements could have similar
implications for the assortment turnover volume coverage recommendation.
Category Strategy -The development of a category strategy - assigning strategic strategies to SKUs
in the assortment - is the final step before assortment in Category Management. For example, some
SKUs or segments are part of a traffic building strategy, while other SKUs are part of a transaction
building or profit building strategy. The category strategies can and often do imply various market
coverage recommendations.
For example, a segment that is part of a traffic building strategy can imply a high market coverage for
high household penetration SKUs, for SKUs or segments with high growth rates or for SKUs with
strong response to a promotion. A segment that is part of a transaction building strategy might suggest
higher market coverage for SKUs or segments that have a large transaction value. The following chart
illustrates how one retailer's category strategies impact category market coverage levels:
Category Strategy Implications

(Retailer Example)
1 ~ r a f f i cBuilding
Increase coverage of segments with highest share, highest HH penetration, fastest growth
rates, highest response to advertising and display.
Increased coverage of highest profit segments, segments appealing to high income

Profit Generating households, larger families.
Increased coverage of segments, brands or types targeted by competition, increased

Turf Protecting coverage of fast growing segments or segments where share is declining.
Increased coverage of larger sizes, higher priced segments and those purchased by high
Transaction Building income households and larger families.
Increased coverage of fast growing segments, new products or segments which add
Excitement Creating timeliness, novelty, topicality or eye appeal to the category.
7
The Market Coverage Decision -To summarise the findings of Step 1, practitioners often use the
segment market coverage summary chart similar to the example. Most do not simply average the various
measurements to arrive at a recommended decision, because they feel that some of the elements deserve a
greater weighting than others. Generally speaking, the category role, target consumer alignment and
fragmentation carry somewhat greater weight in the final decision, but individual practitioners may wish to
give other elements greater weight. In addition, a segment market coverage may vary by retail format (e.g.,
hypermart, metro store, etc.) andlor geographic regions. Practitioners will use regional or format-specific
data when developing regional or format-specific market coverages.

Market Coverage Summary Chart

(Retailer Example)
I I I
Retailer Target Heavy User Target
Competitive Mkl Growth
Consumer Consumer SKU Productivity Fragmentation
Coverages Trends
Develooment Devel00meiM
Current
Coverage 1 1 1 1 1 1 pr~~~vivl
HH Income
Index
HH Size
Index
HH Income
Index
HH Size
Index p r ~ ~ ~
Market
~ ! ~ ~~ Cov)
~ v~ % C %
Comp. 'A'
Market
Coverage
Comp. 'B'
Market
Coverage
Market
Growth Index
[segment "C" 1 80%
Segment "D" 65%
Importantly, the market coverage reflects a segment's importance to the retailer, supplier, and
ultimately, consumer. Typically, the segment(s) with the highest market coverages are deemed most
important while lower market coverages imply less importance within the category. Finally, a
segment's fragmentation must be considered since highly fragmented segments often have higher
operating costs because more SKUs are required to achieve a particular market coverage.
Once category market coverage decisions have been arrived at, practitioners are prepared to proceed to
Step 2 of the process - SKU deletion validation.
Step 2 -Deletion Validation
Purpose
This step validates the deletion of SKUs below the desired market coverage for each segment by passing the
SKUs through a series of consumer and retailer performance measure screens.
Step 11: Deletion Validation

Segment "A "
(Value) Turnover Segment
SKU 1 29.4%
SKU 2 54.9%
SKU 3 73.8%
SKU 4 85.2%
SKU 5 89.0%
~p
SKU 6 92.9%
Products to be
reviewed for
deletion (that
are stocked by
the retailer)
TOTAL
courtesy of The Partnering Group, Inc.
-
Chapter 3
Output
There are two outputs from this step, based on consumer and retailer performance measurements:
SKUs recommended (validated) for deletion; this set of SKUs fared poorly when evaluated.
SKUs recommended for saving; this set of SKUs fared well when evaluated.
The Proc ess
Deletion validation passes each SKU currently stocked by the retailer and below the market coverage through
two evaluations:
Consumer performance evaluation.

Retailer performance evaluation.
To facilitate the process, all relevant measurements are conveniently expressed as indices with all numbers
above 100 being "good," i.e., a bias toward saving the SKU, and all indices below 100 suggesting the SKU
should be considered for deletion. An index of 100 would be average for the segment.
Consumer Measures -The relevant consumer measurements are discussed in Chapter 4 and include
loyalty (share of requirements), worth of a consumer (annual category or segment purchase value of
the household purchasing the SKU), exclusivity (percentage of consumers using only this SKU in the
segment) and substitutability (the size of the consumer consideration set - the number of SKUs
consumers consider as alternatives for the SKU in question). Please note that measures may be
evaluated on the basis of brands or "secondary characteristics" such as sizes, flavours, package types,
etc. Evaluating SKUs based on a secondary characteristic can often avoid low sample size (data
accuracy) issues as well as reduce some of the data costs.
The logic of the deletion validation step is as follows:
- A SKU below the market coverage cutoff (stocked by the retailer) with above-average segment
"loyalty" should probably not be deleted. To the consumers purchasing the SKU it accounts for a
disproportionate amount of their annual consumption of the category and elimination of the SKU
may lead to store switching or a decline in segment consumption.
- A SKU below the market coverage cutoff (stocked by the retailer) with above the segment average
"consumer worth" should probably not be deleted because it appeals to consumers who are the largest
purchasers of the category or segment. Deletion increases the risk that the most valuable consumers
will seek to fulfill their category needs at another retailer.
- A SKU below the market coverage cutoff (stocked by the retailer) with above average "exclusivity"
should probably not be deleted because the SKU seems to have a disproportionately large number of
consumers who use only this SKU in the segment. Therefore, deletion increases the risk that these
consumers would go elsewhere to meet needs being satisfied exclusively by this SKU in this segment.
- A SKU below the market coverage cutoff (stocked by the retailer) with below-average substitutability
(that is, an SKU for which the consumer has few acceptable substitutes) should probably not be
deleted because the consumers may feel their choices too constricted. In this case, deletion could result
in the consumer's switching retailers to obtain an acceptable range of SKUs.

Consumer Deletion Validation Chart
SKU A SKU C
Courtesy of The Partnering Group, Inc. "Switching Index: to remain consistent (above 100 index is good)
a switching index above 100 implies lower than average switching.
The example above compares two SKUs, both below the market coverage cutoff, but having very
different consumer performance evaluations. SKU A, which is average (within the segment) or above
average on every consumer measure, would probably be saved, while SKU B would most likely be
deleted based on a relatively poor consumer performance.
Please note that the chart also includes a reference to the "most preferred substitute" for this SKU.
This is a convenient way of insuring the final assortment includes an acceptable SKU if a decision is
reached to delete this specific SKU.
At this point in the process, practitioners move to the retailer evaluation and begin comparing the
SKUs below the market coverage cutoff on retailer and supplier performance measurements.
Retailer and Supplier Performance Measurements -The relevant retailer and supplier performance
measurements are discussed in Chapter 4 and include percentage of market availability, average cash
rate of sale in the marketplace; average cash rate of sale at the retailer, turnover per meter, retailer (and
supplier) profit, and retailer (and supplier) productivity (GMROI or ROI).
All measurements except percent market availability are expressed as indices versus the average for the
segment to facilitate comparison.
The logic of the deletion validation step is as follows:
- A SKU below the market coverage cutoff (stocked by the retailer) but having above-average average
cash rate of sale in the market should probably not be deleted because, where it is in distribution, it
is doing well. The SKU only appears below the market coverage cutoff line because it is in relatively
limited distribution.
- A SKU below the market coverage cutoff (stocked by the retailer) but having above-average average
cash rate of sale in the retailer should probably not be deleted. It seems to be doing relatively well
where it counts the most, in the retailer's own stores.
- A SKU below the market coverage cutoff (stocked by the retailer) but having above-average
turnover per meter in the retailer should probably not be deleted because it seems to be a relatively
productive user of space, one of the retailer's prime assets.
- A SKU below the market coverage cutoff (stocked by the retailer) but having above-average profit
contribution should not be deleted. Its profit contribution compensates for its smaller absolute
volume.
- A SKU below the market coverage cutoff (stocked by the retai1er)but having above-average
productivity (GMROI or ROI) should probably not be deleted. It is a relatively productive user of
total system assets (supplier and/or retailer inventory turnover, shelf and warehouse space, etc.).

Chapter 3
The example below compares two SKUs, both below the market coverage cutoff range, but having
widely different retailer performance evaluations. SKU A, which is average or above average on every
retailer measure, would probably be saved while SKU B would most likely be considered for deletion
based on relatively poor retailer performance.
Retailer Deletion Validation Chart
Courtesy of The Partnering Group, Inc. 'Could also review supplier profit.
At this point in the process, practitioners have passed all SKUs below the desired market coverage that are
stocked by the retailer through both the consumer and retailer performance evaluations. Practitioners can
now divide the SKUs into two groups:
SKUs that should be deleted.
SKUs that should be saved.
These SKUs are then put aside for a final review, which takes place in Step 5, assortment finalisation, and
Step 6, assortment quantification.
At this point, practitioners move to Step 3 - SKU retention validation.

Step 3 -Retention Validation
Purpose
This validates retention of the SKUs that are slightly within the desired market coverage and are currently
stocked by the retailer. As in Step 2, each SKU is evaluated for its consumer and retailer performance.
Steo Ill: Retention Validation

Segment "A "
(Value) Turnover
SKU 1
SKU 2
SKU 3
SKU 4
Products to be SKU 5
reviewed for
retention (that
are stocked by
the retailer SKU 8
SKU 9
SKU 10
TOTAL
Output
There are two outputs from Step 3, based on consumer and retailer performance measurements:
SKUs recommended (validated) for retention: this set of SKUs fared well when evaluated.
SKUs recommended for deletion: this set of SKUs fared poorly when evaluated.
The Process
Retention validation reviews SKUs that are typically five market coverage points above the desired market
coverage cutoff based on the same consumer and retailer performance measurements as in Step 2 .
The measurements, process and logic are identical. Of course, individual SKUs will perform differently based
on the consumer and retailer performance measurements. As one might expect, the performance of these
SKUs is generally better than those of the SKUs examined in Step 2, because the SKUs reviewed here tend to
be more popular in the marketplace.
Interestingly, some SKUs above the desired market coverage may not perform well on some (or all) of the
consumer and retailer measurements. As a general observation, however, practitioners tend to keep most
SKUs within the desired market coverage for two reasons:
First, the performance measures of these SKUs tend to be relatively good.

Chapter 3
Second, the practitioners have made a decision that a specific market coverage is important and
desired for their unique situation. They are logically driven to offer an assortment that achieves this
objective despite what the evaluation may reveal.
Once practitioners have completed this step, the results are retained for final disposition in Steps 5 and 6. At
this point, practitioners move to Step 4 - SKU addition validation.
Step 4 -Addition Validation
Purpose
This validates the possible addition of SKUs within the market coverage desired, which are not currently
stocked by the retailer.
Step IV: Addition Validation

Segment "A "
Market % of % Cumulative Stocked

Turnover Segment Turnover of by
(Value) Turnover Segment retailer
SKU 1 18,000 29.4% 29.4% Y

Products to be
reviewed for SKU 2 15,600 25.5% 54.9% Y
addition (that
are not SKU 4 7,000 11.4% 85.2OIo Y
stocked by the
retailer) SKU 6 2,300 3.8% 92.9%
SKU 7 2.000 3.2% 96.0% Y
SKU 8 1,600 2.6% 98.6% Y
SKU 9 500 0.9% 99.5% N
SKU 10 250 0.5% 100% Y
TOTAL 61,165 100% 100%
Output
There are two outputs from Step 4, based on the consumer andlor retailer performance measurements:
SKUs recommended (validated) for addition: this set of SKUs fared well when evaluated.
SKUs recommended not to be added: this set of SKUs fared poorly when evaluated.
The Process
Addition validation varies somewhat from deletion and retention validation. The six-step process uses
consumer and retailer performance measurements, but employs slightly different retailer measures as the
retailer is not stocking the SKU and cannot supply measurements reflecting its experience. Therefore, the six-
step process suggests using marketplace turnover measurements and extrapolating them to the retailer (e.g., if
SKU X moves at Y rate of sale in the market, we assume it would move at a similar rate in the retailer-
generating a "fair share" of turnover and profit). With this exception, the process and logic are identical.

SKUs currently unlisted but within the desired market coverage usually get added to the final assortment
because their consumer and projected retailer performance are exceptional. Additionally, these SKUs tend to
be stocked by major competitors of the retailer. Lastly, some retailers and suppliers find that the failure to
stock these relatively popular SKUs often reflects itself in segment assessment trends.
Once practitioners have completed this step, the results are retained for final disposition in Steps 5 and 6.
Step 5 -Assortment Finalisation
Purpose
This finalises the assortment by reflecting the various decisions (delete, retain, add) from Steps 2, 3 and 4.
This step, like all preceding steps, is most effectively executed at the level of the segment or subcategory.
Step V: Assortment Finalisation
1 Segment "A" SMALL 1 MEDIUM 1 LARGE
I --
Brand "A" I Retained 1 Deleted
1 Brand "B" 1 Retained 1 Added 1

1 Brand "C" 1 Retained 1 Retained
Own
Label Added
1 Retained Deleted
Output
The output of Step 5 is a recommended assortment that reflects the results of the previous decisions made
regarding market coverage, consumer and retailer measurements.

Chapter 3
The Process
Assortment/recommended halisation is basically a quantitative and qualitative comparison of the current

assortment with the "new" assortment. Experience shows this process is significantly facilitated by arranging
SKUs in a segment or subcategory in a matrix, with brands down one axis and a second characteristic like
size, flavour, etc., along the other axis.
- Compare the number of SKUs offered by brand and by size, flavour, etc., in the new versus the old
assortment.
- Check desired market coverage in the new assortment versus the original coverage goal.
Review the reason for adding or deleting each SKU. "What was the principal consumer or retailer
performance reason for your decision?
"Where an SKU was deleted, check to insure that an adequate alternative exists for the consumer.
Review all the important consumer characteristics in the market (price point, package type, formula
variation) to ascertain consumer choice and market share coverage within each characteristic.
Experience suggests that only a small number of additional changes will be made at this point based
on rational, principled, fact-based choices.
At this point, the assortment is "finalised and practitioners move to Step 6 - assortment quantification.
Step 6 -Assortment Quantification
Purpose
This quantifies the decisions made by comparing the current and proposed assortments on a variety of
performance measurements.
Output
The output is a quantified final assortment ready for recommendation to management as part of the
Category Business Plan. This assortment recommendation is then used as a basis for the development of
related tactics in pricing, shelf presentation, promotion and product supplyllogistics.

The Process
The process consists of comparing the proposed and current assortments on a variety of consumer
performance measurements.
S t e VI:
~ Assortment Quantification (Decision Reca?)
Market Old Assortment Index
Share
18
Segment "DL'
Begin by defining both assortments. The next is to array both by segment, comparing:
Market share of the segments

Number of SKUs
Market coverage
Indices of loyalty/consumer worthIGMRO1
All of these data are normally available from the previous steps in the process. The example above describes
how such a comparison might look in one category.
Then compare the assortments on various retailer performance measurements such as:
Turnover
Profit
Inventory
GMROIIROA
This is done by using data from the retailer regarding the current assortment. As far as the proposed
assortment is concerned, practitioners may use data from previous tests of similar assortments or they may
use norms developed from tests across a variety of categories. The four key assumptions are:
Adjust current category turnover upward - assume new SKUs will attain the same turnover rate by
the retailer as they have in the market (cash rate of sale in the market) and assume that the percentage
of that new turnover accounted for by exclusive users will be incremental to the category by the
retailer. In other words, only a portion of the SKU'S turnover is net extra to the category and this
adjustment will correct for a straightline estimation of turnover potential based solely on market
availability.
Adjust current category turnover downward - assume deleted SKUs will reduce the category turnover
by 10-33% of their current turnover contribution. This assumes deleted SKUs have fared low on the
consumer validation and most of the existing turnover will transfer to remaining SKUs in the category.
Adjust category profitability by adding the gross margin from the incremental turnover to the retailer's
current category profitability.

Chapter 3
Reduce inventory by that of the deleted SKUs; add inventory of new SKUs at average segment or
category levels.
The example below depicts how this comparison might appear.
Step VI: Assortment Quantification

Performance Measure Impact
Category Management Process Integration
If these six steps have been completed in the context of completing a Category Business Plan, the Assortment
Quantification impacts are then incorporated into the overall category performance measures (scorecard) to
reflect the expected results from the proposed assortment tactics.

CHAPTER 4: DATA INTEGRATION
Assortment decisions have always relied on various kinds of data. In most cases these have been the retailer's
own internal movement data, often augmented by profitability measurements, sometimes enhanced by
market-share trend data.
The suggested ECR efficient assortment process uses a broader array of data from the following types:
Efficient Assortment Data
Consumer Data Financial Data Productivity Data Market Data
SKU Loyalty SKU Turnover Value SKU TurnoverIMeter SKU Market Shares
SKU Substitutability SKU Profit SKU ProfiVMeter Retail Distribution
SKU Purchaser Profile SKU Gross Margin SKU GMROI SKU Turnover
Exclusive Purchasers SKU Unit Volume SKU ROIIROA SKU Cash Rate of Sale
Consumer Worth
The synergistic combination of these data types enables the process described in Chapter 3. Most
importantly, the addition of the consumer data enables the practitioner to make more informed assortment
decisions than have been made in the past. The six-step efficient assortment process described in Chapter 3
can be used without the expense or time of obtaining an absolutely perfect array of all the data, provided a
reasonable cross section from each of the main data types is available.
Consumer Data
HouseholdIDiary Panel Data. These data types are usually referred to as "household panel" data or
sometimes "diary panel" data. Data suppliers, such as AGB, Gflc, I N , and ACNielsen, capture data by
household at the individual SKU level and then present andlor manipulate the data in various ways. For
example, data suppliers can present and/or analyse whether households buy one particular brand or size in a
category or whether they switch among several brands/sizes/types. For some retailers, retail brands may be
viewed as a brand with the same dynamics as branded products. For others it may operate on a different
dynamic and have a unique role.
Retailer Loyalty Card Data. Customer loyalty cards are another valuable source of consumer data for the
assortment process. Advanced practitioners supplement (not replace) the panel data with loyalty card data.
One of the most valuable measures provided by customer loyalty cards is a consumer's worth to the category
and to the retailer's overall business. Retailers and suppliers would want to avoid removing SKUs that may
be low in turnover but are frequently purchased by the most valuable consumers in the category andlor,
especially, the entire store. It must be recognised, however, that loyalty card data only captures consumer
purchases within the specific retailer. Panel data is needed to analyse loyalty patterns across retailers.

Data Intergration
Household panel and/or retailer loyalty card data allow practitioners to calculate measurements such as:
Loyalty to brands, segments, sizes, types, etc.
Exclusivity of purchase.
Brand switching/substitutability.
Worth of a consumer (the annual value of category purchases).
Each of these measurements can play an important role in developing a more efficient and effective
assortment.
Loyalty is defined as "share of requirements satisfied." It measures the percentage of a purchaser's annual
category needs that are satisfied by a specific brand, segment, subcategory, etc. For example, if the average
purchaser of detergent bought 10 kilograms per year but that the average purchaser of Brand A only bought
5 kilograms of that product annually, one could estimate that Brand A's loyalty or share of requirements
satisfied was 50 percent.
The actual calculation of share of requirements, however, is somewhat more sophisticated than described
above. Specifically, syndicated data suppliers typically identify only consumers who have purchased Brand A
at least once in the past three, six or 12 months and create a universe of those consumers. Then they add
together the volume in the category purchased by these consumers and take Brand As share of requirements
satisfied within that consumer set. These consumers may be relatively heavy or light users of the total
category. The purpose of the loyalty measure is to gauge the extent to which Brand A's consumers fulfill their
requirements with Brand A, whatever their total requirements may be.
The value of this loyalty measurement in the efficient assortment decision can be illustrated by the following
example. Suppose a retailer has room for only one more SKU on the shelf and three SKUs are competing for
the space - one with a loyalty of 80 percent, one with 40 percent and one with 20 percent. All other factors
being approximately equal, stocking the SKU with the highest consumer loyalty reduces the chance of that
brand's loyal consumers going to another retail location to satisfy their needs in the category.
Exclusivity of Use
Exclusivity of use is defined as the percentage of a brand, segment or subcategory user base that has
purchased only Brand A (Segment A, etc.) for a specified period of time (last three, six, or 12 months).
When a brand's exclusivity of use is reported as 30 percent, it means that 30 percent of buyers bought it and
no other brand in the category during that period.
In some categories, like soft drinks, where multiple brand purchases for different household members is
commonplace, the exclusivity measure may not be particularly meaningful. But in many categories the
exclusivity measure can have significant value: it can help pinpoint the SKU to which consumers are so
strongly attached that they will almost surely postpone a purchase or, even worse, go to another retail
location in search of that SKU.
The subtle difference between loyalty and exclusivity can be explained as follows: A SKU with a loyalty
rating of 40 percent could have a consumer base with no exclusive users. Therefore, an assortment that
excluded this 40 percent loyal SKU would probably include other SKUs that its user base purchased in the
past. By contrast, if a SKU has a 40 percent exclusive user base, it means that 40 percent of its consumers
have not purchased a competitive SKU recently and that removing this SKU from the assortment would
probably drive a significant number of these exclusive consumers to another retail location.

Chapter 4
Worth of a Consumer
The "loyaltyy'and "exclusivity" concepts do not measure usage levels of the category. A SKU that satisfied a
high percentage of category requirements might be purchased by light users of the category. Similarly, a
product with a low percentage of exclusive users may be bought by heavy consumers of the category.
The "worth of a consumer" measurement provides the critical perspective on total category consumption.
The measure is often expressed as an index versus total category consumption: Brand A or Size B with a
''worth of a consumer" index of 120 is purchased by consumers that purchase 20 percent more of the
category than the average consumer of the category.
This measurement can be particularly useful in large categories with a multitude of segments, brands and
sizes, because it often reveals that some smaller, low-share SKUs are purchased by heavy consuming
households. Therefore, removing this small share SKU exposes the retailer to the possibility of alienating the
category's most valuable consumer.
Substit~tabilit~lBrand
Switching
Retailers studying the removal of SKUs from their assortment will be most concerned about driving the
consumer of that SKU to another retailer. Measures such as "loyalty" and "exclusivity" can provide valuable
perspectives on the magnitude of the risk associated with removing a SKU or, conversely, the opportunity
associated with adding a SKU.
The concept of substitutability, or brand switching provides additional perspective on this subject.
Substitutability measures the percentage of a brand's purchasers who also purchase other specific brands (or
sizes, or types) in the category. This measurement permits a retailer to gauge whether consumers of a SKU
being considered for deletion (or addition) have other choices in the assortment that they have purchased in
the recent past.
The following table illustrates a switching matrix for a category consisting of four branded SKUs and a
private-label SKU. The table is read from top to bottom as follows: 100 percent of Brand A's consumers
purchased Brand A, but only 10 percent of Brand As consumers also purchased Brand B. In the same group,
25 percent purchased Brand C, etc.
Now read below Brand C. Note that 60 percent of Brand C's consumers also purchased Brand B. Read
below Brand D and note that 75 percent of its consumers also purchased the retail branded product.

Data Intergration
Brand Switching/Substitutability Matrix

% of column also purchasing row*
Brand A Brand B Brand C
Brand 1
Brand 2
Brand 3
Brand 4
Retail Brand 5
Table is read downward as follows: 10% of those purchasing Brand 1 also

purchased Brand 2; 25% of those purchasing Brand 1 also purchased Brand 3, etc.
These figures suggest that if Brand C were to be deleted from the assortment, a large percentage of the
brand's users would probably switch to Brand B. Similarly, deleting Brand D would probably result in a
large percentage of its users switching to the retail brand.
Data of this type can be manipulated in various ways to measure the relative propensity of a brand's
consumers to switch within a set of alternatives. When used in concert with the other consumer, market, and
retail data, substitutability measurements can lead to a more efficient assortment.
Market Data
While the consumer diary panel data may be less familiar, market data are familiar to most practitioners and
have increasingly been used in assortment decisions.
Specifically, the data are provided by syndicated data suppliers and includes for each SKU:
Share of category turnover.
Share of segment turnover.
Percentage of market availability.
Cash rate of sale in the market.
The latter measurement permits adjustments for SKUs that sell extremely well but show up as only a small
share of the total market because they are only available in a small percentage of the market.
The data sets mentioned above can be analysed in various ways to facilitate efficient assortment decisions.
The most basic use of market data is to identify the percentage of the category represented by the SKUs in a
specific assortment. For example, in Segment A, the retailer may stock 10 SKUs whose cumulative share
equals 95 percent of the segment (a 95 percent coverage factor). In Segment B, however, the retailer may
stock 15 SKUs whose cumulative share adds up to only 80 percent of that segment (an 80 percent coverage
factor).

Chapter 4
Please note that this market data is more valuable when it includes all relevant channels of distribution rather
than only one channel (e.g., multiple grocers).
Financial and Productivity Data
Retail turnover, profit and productivity data, by definition, are unique to each retailer engaged in the
efficient assortment process. Some advanced retailers are using activity based costing to provide superior
measures of the true costs, profitability and return on brands1SKUs through their supply systems.
More typically, however, the specific measures used in the process are:
Retail profit per SKU.

Retail turnover per square meter per SKU.
Gross margin return on investment (GMROI) or return on assets (ROA) per SKU.
These data are more easily used when expressed as an index versus the average of all SKUs in a segment.
Experience suggests that some of these data can be difficult to generate in certain categories. Reliable ROA
and net profit data are rarely available at this stage in the industry's development. By contrast, some
productivity data (turnover per meter) are now generally available because of the widespread use of space
management systems. For the time being, these less sophisticated measurements can substitute for the more
robust ROA SKU measurement summarised below:
Return on Assets (ROA) Model
Gross Profit
Per SKU
+
Promotional
Revenues
per SKU
Contribution
Per SKU
-
Allocated
Warehouse
Costs
+
Retail Costs
+
Overhead
per SKU
=F Operating
Return
on
Assets
Warehouse per SKU
-rl
Retail
Inventory
INventory
Asset Value
Warehouse
Space per
1 Transportation
Assets per
SKU 1 + Asset Value
Retail Space
- Assets
Employed
per SKU
per SKU
SKU
1 Courtesy of The Partnering Group, Inc.
While there are many ways in which trading partners may measure financial results and productivity, the
application of ECR principles recommends the use 'of activity based costing (ABC) to determine the "true"
costs associated with managing (e.g., stocking, replenishing, maintaining) individual SKUs, brands and
categories.

Data Intergration
The chart below indicates that assortment decisions impact the operating costs throughout a retailer's value
chain.
Retail Chain Activities and Cost Drivers
Major
Number of SKUs + Number of times + Number of Retailers

handled
+ Frequency of SKU events + Distance moved + Frequency of product discrepancies
+ Type of event + Product attributes (e.g.. events
cube)
Cost + Supplier capabilities: + Type of event
+ Packaging (singles to + Variability of store
Drivers 1Technology pallets) layout
1 Proficiency + Trucks and warehouse + Number of price
Lead time utilisation changes
1Accuracy + Returns + Scan datalforecast
+ EANIBar Code usage + Number of POs accuracy
+ Delivery size variance
0= Cost drivers directly impacted by Assortment
Source: US.ECR Report: Performance Measurement -Applying Value Chain Analysis to the Grocery Industry
Most practitioners recognise that the managing of SKUs creates operating costs. The opportunity for most
suppliers and, retailers in particular, is to understand the specific operating costs associated with managing
the SKUs within each category.
The chart below illustrates how one retailer applied activity-based costing to determine the "true"
profitability of each SKU within the category. Because the category had a high level of product diversity
(e.g., turnover, sizelcube, handling, supplier, etc.) the gross profit, when viewed in isolation, distorted each
SKU'S "true" profitability
(before and after Activity ~ a s e d

Costing)
The more accurate profit data enabled the retailer to make more informed, and, ultimately, better assortment
decisions.
Experience has shown that practitioners rarely have all the data sets mentioned. The six-step process suggests
several data sets so that practitioners may use what is available to drive the process. Most importantly, even
with limited data, the use of the six-step process provides a disciplined methodology for making improved
assortment decisions.

CHAPTER 5: FINDINGSILUWINGS
In actual practice, the Best Practices Effkient Assortment process described in this report has produced a
number of key findiigs. This information has been gained from eficient assortment pilots that have
employed the six-step process.
Ingredients for Success
Trading Partner Cooperation -This eff~cientassortment approach, like any ECR initiative, works
best when supplier and retailer trading partners cooperate to increase consumer value. Each partner
has unique data and consumer knowledge to optimise the assortment. Unless partners share their
unique strengths, the optimum assortment will prove elusive and the consumer benefit will be
suboptimal.
Efficient Assortment Capabilities
Supplier Retailer
Market Perspective Retail Perspective

National Perspective Store-by-Store Perspective
Consumer Data Financial Data
Market Data Productivity Data
Product Development Analytical
Analytical Category Business Planning
Courtesy of The Partnering Group, lnc.
One issue among trading partners is the sharing of sensitive data (e.g., SKU profitability). Fortunately, the
assortment process arrays the data in a comparative (indexed) versus absolute (actual, raw number) format.
The chart below illustrates how SKU profitability indexes assist in the assortment process, yet avoid revealing
sensitive information.

As a result, retailers and suppliers can work cooperatively on assortment while avoiding concerns
related to sharing sensitive or proprietary data.
Category DefinitionISegmentation - Developing the proper category definition and segmentation (a

fundamental step in Category Management) is exceptionally important to efficient assortment. Early
experience teaches that many practitioners have difficulty with this basic step. Supplier organisations
ofien disagree internally about category definition and segmentation and especially about the
relationship of segments (category structure). One of the virtues of this assortment model is that its
foundation rests upon alignment around category segmentation from the consumer's perspective.
Category Role & Strategies -This assortment model works best within the context of a Category
Management process that is embodied in the ECR Europe Category Management Best Practices
Report. In the final analysis, assortment is merely one tactic in the broad Category Management
process. Every.step in the process holds some assortment implications. If these implications are
ignored, the success of the final assortment will suffer to some degree.
Organisationd Capabilities - One of the fundamental premises of this report is that effkient
assortment involves a retailer and its suppliers co-managing category assortments to better meet
complex consumer demands for superior value.
The joint management of co-created assortments is typically new work for both trading partners. It
calls for different organisational skills and interconnections than the conventional "buying and selling"
of the past. Assortment, like broader Category Management, has proven to be a difficult undertaking
to launch from conventional organisational platforms.
Assortment Roles & Responsibilities
Assortment roles and responsibilities are determined by trading partners. For the purposes of clarity
and definition, however, the following distinctions are generally made for the roles of the retailer and
its suppliers in planning and implementing assortment.
The retailer is typically the "category (and assortment) manager," as the store is where categories
and assortments are managed. The site of the retailer is where all the components of the category
assortment come together for decisions.
Suppliers are typically category (and assortment) consultantslpartners to the retailer - i.e., those
who supply important information and experience but are not the final decision makers on how the
particular category assortment will be managed, or how it will fit into the broader mix of alternative
category assortments.
The role of the category manager within a retailer organisation - or that of category
consdtantlpartner within a supplier organisation - encompasses and expands upon the responsibilities
of the traditional buyerJmerchandiserand account executive role.
The category manager's (and category consultant partner's) key role is the ownership of the efficient
assortment process for the portfolio of designated categories. This implies not only responsibility
across categories but also for ensuring the appropriate linkage exists between category and corporate1
departmental strategies. It also implies significant responsibility for the coordination of activities that
flow across traditional functional boundaries within the retailer and its supplier organisations. For
example, interaction with product development managers will ofien occur when the category manager
or supplier identifies a new product opportunity within the assortment.
ECR Europe Eficient Assortment - Best Practices Report

The supplier category consultantlpartner is charged with meeting company, category and brandlSKU
strategies and objectives through the co-development of the assortment with a retailer's category
manager. Objectives for the supplier consultantlpartners encompass the traditional focus on turnover
and costs, plus the broader considerations such as product distribution, product line profitability, share
within the retailer, product flow and semice elements.
Assortment Skilh
The multifimctional process-oriented nature of assortment results in an expansion of the role and
responsibility of the category manager or category consultantlpartner. This often necessitates a retailer
and its suppliers giving serious consideration to the skill requirements essential for effective efficient
assortment, the most important of which are listed below.
- Strategy development skill is the ability to take a strategic perspective when planning actions and
making decisions. This manifests itself in being able to develop category assortments that are
consistent with and reinforce the overall strategic direction of the company. The assortments
should also reflect a clear understanding of the target consumer market and how to meet consumer
demands, taking into account strengths and weaknesses vs. competition at the category level.
- Consumerlretail marketing skill is the ability to understand and apply the principles of marketing
to category assortments that are dependent on understanding and meeting consumer shopping
needs. This skill requires a clear understanding of consumer trends in the category. It also calls for
keen insight into the segmentation of target markets and how to reach these targets through
product assortment.
- Financial management skill is the ability to understand basic financial measures. The concept of
asset management - what assets are, and how their productivity is measured, e.g., GMROI, ROA,
ROI, etc. - needs to be understood by Category Management partners. The supply-side
component of Category Management necessitates a working knowledge of supply chain costs and is
increasingly leading toward activity based costing (ABC) solutions.
- Information managementlinformation technology skill involves both the data gathering and data
analysis components of the efficient assortment process. It requires the ability to id en ti^ quickly
and accurately opportunities or problems from data through a process of disciplined analysis. It
includes a working knowledge of where to find the information needed - within the company or
from outside sources - and of the technology available to access and analyse data.
Relationship management includes the skills required in managing the cooperative external retailerlsupplier
relationship and internal cross-hnctional relationships in such a way that business dealings are perceived by
all parties to be based on providing improved consumer value. This contrasts with the more traditional
adversarial relationship between buyer and seller, which is a major impediment to efficient assortment.

MuZtzfinctionaZ Category Management Support
Effkient assortment will have impact beyond the category manager and his or her supplier
consultantlpartner. The entire organisation needs to be equipped, aligned and prepared for the impact
of this practice. This impact is best communicated in terms of the relevance of efficient assortment in
achieving overall corporate objectives. It helps to make it clear that previously self-contained
functional units within the organisation will be called upon to support the efficient assortment
process. In fact, the activities performed within these hnctional units are ofien vital to the process of
providing value to customers and consumers. This usually necessitates a broad-based understanding of
efficient assortment and business process improvement techniques throughout both retailer and its
supplier organisations.
Consumer, Market, Financial Data -This approach will yield the optimal result if all data sets are
available. However, the six-step process of efficient assortment management has been applied with
many data sets missing and still yields excellent results, partly because the process helps practitioners
use available data to the maximum effect. Practitioners should not let the absence of perfect data
deter them from applying the six-step process.
Information Systems - Efficient assortment is hndamentally a data-driven, fact-based, analysis-

driven business process. Information systems plays an integral role in enabling the necessary
reporting, decision making and communication between and within cooperating trading partners.
Given the amount of data utilised in the assortment process by both retailers and suppliers, the role
of information systems includes the assurance of timely and accurate data acquisition, organisation
and analysis, plus the conversion of data to actionable information. As a result, common data
definitions and standards become a minimum requirement for success.
A variety of information systems applications exist and are currently in use facilitating various
aspects of eficient assortment. Some of these are business building applications including decision
support systems and storelshelf management s o b a r e . While each retailer and supplier must
determine the costlbenefit for information systems within their unique circumstance, appropriate
data and hardwarelsofiware solutions are important to building an efficient assortment capability.
Importantly, emerging technologies and data sources promise to lead - rather than restrict -
efflcient assortment practices in the hture.
Execution Excellence - Efficient and accurate execution is critical to the success of any category
assortment. Retailers and suppliers should develop an assortment implementation plan to insure
that the desired assortment is accurately and cost-effectively implemented throughout the retailer's
stores. The following chart depicts a format many retailers and suppliers have used to develop a
thorough assortment implementation plan.

Chapter 5
Assortment Implementation Chart
Retail Compliance Review
There are eight major activities that should be incorporated into any assortment implementation plan and
typically occur in the following order:
1. Shelf Plan-0-Gram P O G ) Develo~ment.The retailer and the supplier partner need to place the
final assortment within the allocated retail space for the category. A new assortment should trigger an
evaluation of the category's overall space, arrangement, etc. by the retailer and the supplier partner.
Several POGs may be necessary to reflect any regional or store-by-store assortments.
2. AssortmentlPOG A D D ~ O&VS~u ~ ~ l iNotification.

er The retailer should gain management
approval for the new assortment(s) and plan-0-gram(s). It is important to gain senior management
support across several functionsldepartments to insure that the assortment will be implemented
successfully In addition, it is important for the retailer to communicate the assortment and plan-o-
gram changes to the category suppliers. Retailers are more likely to secure supplier implementation
support when they meet with the supplier and substantiate the assortment and plan-0-gram changes.
In many cases, some of the material shared with senior management to gain approval may also be
useful to share with the category suppliers.
3. Product (Deleted) Dis~osition.The retailer and supplier need to develop the terms and conditions
by which the deleted product is disposed at retail andlor in the warehouse or distribution center. In
some cases, this step may require significant lead time in order to move through low turnover products
in a productive and profitable manner for b ~ t hthe retailer and the supplier.
4. New SKU Set-UD. The retailer will need to get the appropriate product information in order to
set up any new SKUs. In addition, the retailer will need to determine the introductory and regular
retail pricing, develop shelf tags and determine the purchasing parameters.

5. Retail Store Notification & Implementation. The retailer and category suppliers will need to
notify their respective organisations of the assortment and plan-o-gram changes. The following should
be communicated:
Assortment changes (additions & deletions)

Shelf plan-o-gram changes
Product disposition plan
Timing of receipt of new shelf tags
Timing of receipt of new SKUs
Timing of shelf resets
Roles and responsibilities (retailer and supplier)
Instructions for feedback (e.g., tell headquarters when the assortment/plan-o-gram has been
implemented)
6. Retail Compliance Review. The retailer needs to select a target date that is suitable and reasonable
for reviewing the assortment implementation. Usually, a good time to conduct an audit or survey is
within three to four months after the stores have been notified. Some retailers will work with a
supplier partner to conduct the retail compliance audit. Others will conduct it internally.
7. New SKU Research and Development. The more experienced assortment practitioners (retailers
and suppliers) will identify new product opportunities within the assortment process. As a result, they
will conduct a new product research andlor put together a product development plan to capitalise on
the opportunity. The plan may include additional consumer research, setting up a test market, and so
on. Importantly, this series of activities typically occurs after the existing assortment opportunities
have been implemented (Steps 1-6).
8. New SKU Marketing Plan. The retailer and the appropriate supplier may need to develop a
marketing plan (e.g., trial events, price promotions, etc.) for the new SKUs within the assortment.
The marketing plan will help create consumer awareness, trial and, hopefully, product and retailer
loyalty.
An assortment that has been implemented successfully typically has a well-documented

implementation plan containing a thorough and properly sequenced set of activities with clear roles
and responsibilities. Implementation accuracy, speed and efficiency are critical to achieving the
benefits of assortment.
Considerations and Issues
Timing and Difficulty - Like any new process, this efficient assortment process may appear
somewhat daunting at first. Some "one-time" internal preparation work is generally necessary. But
once that work is done, the actual process itself goes smoothly and quickly. Working together, supplier
and retailer trading partners can move through an entire assortment of hundreds of SKUs in
approximately one day (assuming the preparatory work has been completed). However, first-time
practitioners typically find the process takes a few days to complete until they gain more experience.
After practitioners have the initial experience of understanding factors unique to specific categories
and markets, subsequent assortment efforts proceed even more rapidly. If this work occurs as part of a
cooperative Category Business Planning process, the incremental time associated with this assortment
activity is quite modest for suppliers and retailers alike.

Chapter 5
Data Availability Issue -All of the consumer data (e.g., loyalty, etc. ) proposed for use in this model
may not be available for all brands at the local market level with acceptable levels of statistical
projectability. In some highly fragmented categories with low-household penetration, regional data,
even national data, will have to replace the use of statistically shaky local market data. While the
process recognises this issue, experience suggests that in most categories, the combination of regional
or national consumer data with local market syndicated data and the retailer's own turnover and profit
data has led to successful assortment decisions and is much more helpful than the limited data sets
and decision processes currently in use.
Local/Small Brand Issue -This is a subset of the data availability issue because statistically
projectable data are not available for many small or local brands. Experience suggests judgments
regarding these brands and SKUs can be more intelligently made by using the six-step process even
though available data are not perfect.
Syndicated Data Aggregation Issue - In some markets retailers andlor suppliers have requested that
various SKUs (e.g., retail brand SKUs) turnover and share performance be disguised for competitive
and confidential reasons. As a result, some SKUs will be combined with others and, therefore, cannot
receive the comprehensive performance validation necessary to complete Steps 2-4 in the assortment
process. The degree to which this will occur will vary by market and category. Fortunately, most of
the measures required to evaluate a SKU, such as the consumer, financial and productivity measures
will be available. In addition, retailers and suppliers often work with the syndicated data companies to
determine what products are in the aggregated grouping (e.g., "All Others") and in some cases, with
retailer or supplier permission, receive the aggregated SKUs' specific market performances.
'Black Box Approach" vs. Market Kno~ledgelJud~ment Issue -The approach and data sources
suggested in this report are not meant as substitutes for local market knowledge or the judgment of
the individual merchant. Quite the contrary. This approach works best when applied by merchants
who know their market. Like any tool, this assortment process works best in the hands of skilled and
experienced practitioners.
Data Cost Issue - Generally speaking, this assortment process does require the purchase of
incremental data, most typically, household panel data. In many cases, the data required represents a
one-time investment with broad application to virtually all retailers within a particular market.
Repeatedly purchasing similar data on a market-by-market basis could become very expensive.
Therefore, practitioners are urged to review their data needs carefully and develop an information
strategy which maximises data utility and minimises cost.
Objectivity Issue - Many practitioners are surprised at the various findings produced by the
assortment process. Sometimes a fact-based, consumer-oriented assortment decision may not initially
seem to be in the best interest of the retailer or cooperating supplier. However, experience suggests
that evaluating the assortment opportunity objectively will produce better results in the long run. If
the data in a particular instance does not make a compelling case for action (e.g., delete or add to the
assortment); or seems to be too radical a change, a properly-designed test is the typical next step.
Shelf Space Issue -The biggest constraint on an "optimal" assortment is shelf space availability.
However, it is important that the practitioners determine the "optimal" assortment before considering
the shelf space constraints. The purpose for this approach is twofold: 1) Practitioners need to have the
ability to determine the "optimal" assortment based on consumer needs, marketplace conditions, etc.
versus a "sub-optimal" assortment based on a pre-defined SKU limitation due to space availability; 2)
Practitioners need to determine the opportunity costs and trade-offs between the "optimal" assortment
that may require more space and a "sub-optimal" assortment that works within an allotted space. This
will insure that practitioners are constantly evaluating retail space opportunities and adjusting space in
a consumer-oriented, fact-based manner ultimately leading to improved business results.

Capabilities
Companywide, Regional, and Store-by-Store Assortment- The six-step process (along with the
appropriate data) can be applied on a companywide, cluster and/or store-by-store level. Key drivers for
more localised (or micro-marketing based) assortments include retail competition, widely varying
consumer demographics and differing store formats. Importantly, the retailer and supplier typically
deploy more local (vs. companywide) assortments when using this process because of the greater
insights into consumer and market differences it produces.
Seasonal Assortment -The efficient assortment process should be completed on a regional

(annually, with quarterly reviews) and timely basis. For seasonal categories, the efficient assortment
process should be completed before each key season. For example, the ice cream category may have a
Summer and Winter assortment thus the assortment process should be completed prior to the start of
these two seasons. Fortunately, the six-step process and data all have the flexibility to accommodate
seasonal and periodic assortment evaluations.
Broad Applicability - Like Category Management, this assortment optimisation model is applicable
to virtually any category. While this approach will work better in data-rich categories, its discipline can
also benefit categories with meager data. Certainly, the discipline of developing a category definition
and structure, of arraying all available products into their appropriate place in the structure and then
applying the process described herein is a logical and productive way to approach any category, even
those with little data (e.g., perishable categories).
Outcomes
Assortment Variation -The assortment process is designed to permit a unique assortment for every
retailer. Efficient assortments will vary dramatically based on the unique nature of individual
categories, the role chosen by the retailer and supplier, the target consumer of the retailer, the
performance measurement objectives for the category, business trends and strategies chosen for
category segments. As a result, retailers and their supplier partners in the same market looking at the
same category almost always will have different "efficient assortments" because of variations in the
factors mentioned above.
Deletions and Additions -The popular belief that "assortment optimisation means SKU deletions
only" does not appear to be correct. Experience indicates additions virtually always occur, although to
date deletions have outnumbered additions so that a net reduction in category SKUs has occurred.
New Product Development -This approach can help suppliers and retailers better understand
consumer behavior and, thereby, lead to the development of new products, both branded and private
label. Studying consumer data like brand loyalty, switching patterns, exclusivity of use, etc., can be
extremely revealing and a powerful stimulus to both new product development and product
improvement.
Supplier Share Changes -The share changes among brands after the adoption of a new "efficient
assortment" that are likely to occur, have been very positive on an overall category basis, but are not
always readily predictable on a SKU-by-SKU basis. However, the dynamics of the six-step process
interact with the idiosyncrasies of categories, markets, suppliers and retailers, producing overall
positive results in virtually every situation.

BenefitsICase Studies
Case Study 1I:Savoury Snacks Category
Background: The category was growing in the market, particularly in some segments. The retailer's
business was not growing as rapidly and, as a result, was losing market share.
Approach: The retailer and a supplier partner developed a comprehensive Category Business Plan
following the ECR Europe Category Management Best Practices approach. As a result, the
following was determined:
A new, consumer-oriented category structure was developed to reflect key emerging

trends within the marketplace.
The category was assigned the "preferred role which suggested a broader market
coverage (80-85%) versus the current market coverage. Interestingly, the retailer
had a low market coverage even though a large number of SKUs were being offered.
The category strategies focused on the category's heavy users, reducing out-of-stocks
through implementation of a loyalty/consumption building strategy and a retail
replenishment strategy. These strategies had two implications for the category
assortment:
a) the assortment needed to appeal to heavy category users, which
meant larger sizes; and,
b) the assortment needed to help reduce retail out-of-stocks which
meant reducing the number of unproductive SKUs that were
taking up the space needed for faster selling SKUs.
Results: The retailer added 14 new SKUs, appealing to the heavy category consumers; and deleted
62 SKUs that did not fare well during the deletion validation step of the efficient
assortment process. Importantly, the retailer's overall category market coverage increased
due to the new SKUs being significantly more productive in the marketplace versus the
deleted SKUs. In addition, the new efficient assortment helped build the retailer's Savoury
Snack business. These results are summarised in the following chart.
Case Study: Savoury Snacks Category

(Assortment Results)
Market Number Of Turnover Profit

Coverage SKUs Increase Increase
Old 1 82%
New 1 +15.6 Million +3.2 Million
Change 1 +<.I%

Chapter 6
General Benefits
Efficient assortment case studies, including the two just described, have documented the following key
benefits:
Increased category turnover and profit. The efficient assortment process, when executed properly,
typically delivers at least a 5% increase in category turnover and a category gross profit versus the same
period a year ago. Keep in mind that the results will vary by category and retailer. In addition, the
retailer supplier partner's results will vary more dramatically than the category results. Products with a
strong consumer franchise (regardless of size) tend to fare quite well.
Enhanced value to consumers; the right products for the shopping occasion, at the greatest efficiency
- Consumer-oriented decisions.
Better alignment between target consumers, category roles, performance measurements and strategies.
- "Strategic"(linked to category rolelstrategies) decisions.
-Highlights SKUs that appear to be unproductive but may be important to the target consumer.
- Decisions are quantifiable and can be reflected in the category performance measurement.
A more efficient supply chain leading in the short term to higher financial returns and in the long
term to a much more efficient manufacturing and logistics infrastructure.
-Provides the ability to delete SKUs with minimal risk and minimal negative financial impact.
-Insures meaningful, productive SKUs are added that build category turnover and profit.
In addition, an improved efficient assortment process can also produce other benefits for both retailers and
suppliers.
Supplier Benefits
For suppliers, efficient assortment offers:
A much deeper understanding of consumer dynamics in a category.
A better understanding of strengths and weaknesses of all competitors in a category.
Another perspective for developing new products, sizes, package types, etc.
A keener appreciation of the financial dynamics of a category at the retail level (e.g., the importance of
turns, retail inventory, etc.).
A tool for improving new product deployment.

BenefitsICase Studies
Retailer Benefits
For retailers, efficient assortment offers:
A better understanding of consumer dynamics in the category for both branded and private-label
products.
A greater appreciation for concepts such as brand loyalty, exclusivity and substitutability and their
implications for effective marketing.
Increased ability to identify and meet the needs of different ethnic groups, target consumers and heavy
consumers of the category, as well as various special consumer groups (e.g., senior citizens, etc.).
Higher levels of consumer satisfaction from lower out-of-stocks and an inherently more cost-efficient
distribution system.
An enhanced ability to evaluate new product introductions and post-introductory results.
A better foundation for other important tactical decisions on pricing, shelf presentation, promotion,
and product supply.
A better framework for implementing store-by-store micromarketing.
The potential for a significant increase in both category turnover and profits.
Almost always an increase in category productivity.

- Increased stock turns
- Reduced inventories
- Increased turnover per square meter
- Increased GMROIIROA.
Supplier and retailer trading partners that have used the approach described in this report did not share
specific results for competitive reasons. However, they have reported that the results are significant, both
short and long term. Interestingly, the biggest issue has been how to broadly and quickly deploy this new
capability.
The next chapter describes how this capability can be initiated and deployed
- -
CHAPTER 7: GETTING STARTED
To build an efficient assortment capability, retailers and suppliers should consider a two-phase evolutionary
deployment plan.
Phase I: Basic Efficient Assortment
Phase I uses the organisation's (supplier's or retailer's) current data, systems and people to improve the
assortment in their respective categories. Importantly, Phase I deployment attempts to capture the "low-
hanging fruit" benefits of efficient assortment, with limited additional resource investment from the
practitioner (supplier or retailer).
In general, Phase I starts with a quick review of the available data. The next step is to gather andlor acquire
the data necessary to complete the "basic" efficient assortment. Incorporate the six-step efficient assortment
process into the current category management process and conduct a pilot to gain experience and learning.
Finally, refine (if necessary) based on the learning from the pilot and provide training.
For retailers, all trading, merchandising, product development and marketinglmarketing research functions
should be considered for training. For suppliers, saleslaccount management, rnarketinglmarketing research,
product development and space management personnel should be trained.
The training should take approximately one day to properly cover the necessary material. What follows is an
example of an assortment training agenda that has produced successful results - new knowledge and skills
related to assortment.
Efficient Assortment Seminar

(One Day)
Objective & Aaenda Component: Business Process
Efficient Assortment Best Practices Overview Brief Overview

Background Step I: Market Coverage
Definition: Four Components - Workshop
Step 11: Deletion Validation
- Workshop
Component: Data Intearation
Step Ill: Retention Validation
Calculation Step IV: Addition Validation
Sources Step V: Assortment Finalisation
- Workshop
Component: Cateaory Management Framework Step VI: Assortment Quantification
Category Definition & Structure DeplovmenVNext Steps
Category Role, Assessment, Performance Target Categories
Measures, Strategies Timing
Expectations
For the best results, the training should be developed and delivered by credible assortment experts. In
addition, the training should be delivered in an interactive fashion that encourages audience participation.
Finally, workshops should be included to enable the participants to actually practice the process in a business
simulation.

Getting Started
The following chart provides a general deployment plan that applies to both retailers and suppliers interested
in building a Best Practices level Efficient Assortment capability.
-
Phase I Basic Efficient Assortment
8. Roll-Out Efficient Assortment
7. Provide Training
6. Refine Efficient Assortment

Approach Based On Pilot Trainin
5. Conduct A Pilot
1 3. ReviewIRefine Basic Assortment

Templates (Based On Data Availability)
2. GatherIAcquirelShare
"Necessary" Data
1. Review Data Availability
Phase II: Advanced Efficient Assortment
Phase I1 follows a similar path as Phase I, but with these key differences:
Build additional data capability as a supplier (focusing on the consumer data) or as a retailer (focusing
on the financial, e.g., ABC; and productivity e.g., ROA data).
Build an information systems capability to gather, store, manipulate and report the information for
the organisation to make consumer-oriented, fact-based assortment decisions quickly and easily.
Build organisation capability where needed. This may include redefining roles, recruiting new
capabilities, developing a new organisation structure, etc.
Use "advanced efficient assortment templates that incorporate the newly acquired andlor developed
data. Again, training is recommended to ensure a successful and productive efficient assortment roll-
out.

Chapter 7
The following chart presents the recommended sequence of steps in deploying a more advanced efficient
assortment capability
-
Phase II Advanced Efficient Assortment: Deployment
[-
Courtesy' O f
Conclusion
Efficient assortment is one of the four principal initiatives within the overall ECR Europe effort, along with
efficient product introduction, efficient promotion and efficient replenishment. The proper mix of SKUs
that best meets target consumer needs affects virtually every aspect of both the supply and the demand side.
By definition, consumer needs are better satisfied when the right products are available at the lowest possible
cost. Moreover, when assortments are optimised within the specific parameters of the category rolelstrategies
provided by The Best Practice Category Management process, the entire business system can work faster,
better and more efficiently.

CHAPTER 8: QUESTIONS & ANSWERS
What is the role of local market knowledge in this process?
The approach and data suggested in this report are not meant to replace local market knowledge or
the judgment of the individual trading partner. Quite the contrary. This approach works best when
applied by individuals who know their market. Like any tool, this assortment process works best in the
hands of a skilled and experienced practitioner.
Can a retailer achieve an efficient assortment without the cooperation of a supplier?
Yes, but it can be difficult, because the supplier is generally the source for the consumer data that is
necessary to attain an efficient assortment. Additionally, suppliers internal strategic objectives and
plans for the category contribute to developing an efficient assortment. Third party providers of
consumer and market data can also provide information to help retailers achieve efficient assortments.
Are efficient assortments automatically biased toward big companies and big brands?
No. Efficient assortments are biased toward brands that have strong consumer franchises and
legitimate "reasons for being" in the mind of consumers. Many smaller brands marketed by either
large or small manufacturers often have extremely strong consumer ratings, which justify retaining or
adding them as part of the assortments. The efficient assortment process enables these opportunities
to be objectively identified.
Does attaining an efficient assortment mean only deletion from the current assortment?
No. Retailers and suppliers often add items to a category in order to attain an assortment that
efficiently delivers target consumer needs and is reflective of the marketplace opportunities. Various
factors, such as the role for the category, business trends in the marketplace revealed by the assessment,
the category performance measurement, category strategies, etc., can suggest the addition of items. In
virtually all testing conducted to date, some items have been added to assortments at the same time
that some were deleted.
Is there one "efficient assortment" for a category?
No. Efficient assortments will vary from one retailer to another depending upon factors and
judgments unique to the retailer. Because retailers have different target consumers, different roles for
the same category, different market conditions, different performance measurements, etc., different
retailers in the same marketplace may have different assortments they could legitimately claim to be
"efficient" given their situation and requirements. As a result, the process described in this report will
lead to more, not less, differentiation among retailers.
How does efficient assortment relate to Category Management?
Assortment is one of the five tactics in the Category Management process (along with pricing, shelf
presentation, promotion and product supply). Efficient assortment cannot and does not take place in a
vacuum. Rather, it is best achieved within the context of a Category Management process. Each of the
steps in a Category Management process that occur prior to tactic development has potentially
significant implications for each tactic, including assortment.

Chapter 8
Does the process require the purchase of costly data for every category and every retail customer?
As a general rule, this process is typically helped by the purchase of some data. The incremental cost
will vary from retailer to retailer, supplier to supplier, category to category, and market to market.
Testing will help retailers and suppliers understand the costs of the process. Once testing is conducted,
suppliers and retailers should review their information strategies and data sourcing contracts so that
costs can be rninimised and that the most appropriate data are purchased.
Can the efficient assortment process be applied to direct store delivered products?
Yes. The process can be applied to any type or class of products for which adequate consumer and
performance measurement data are available. Initial testing of the six-step process was successfully
piloted within one of the largest store door delivered categories.
Do practitioners need to have all the data sets mentioned in this report to develop a more efficient
assortment?
No. Experience has shown that practitioners rarely have all the data sets mentioned. The six-step
process suggests several data sets so that practitioners may use what is available to drive the process.
Most importantly, even with limited data, the use of the six-step process provides a disciplined
methodology for making improved assortment decisions.

APPENDIX
EFFICIENT ASSORTMENT WORKSHEETS
THE PARTNERING GROUP
@ 1998, The Partnering Group Inc.
These worksheets have been developed by The Partnering Group. Their inclusion in this report as
copyrighted material has been approved by ECR Europe. The material contained in this Appendix
may not be reproduced in any form without the express written permission of The Partnering Group.

Market: Time Period:
Target Consumer Income

ProfilelClass
I Target Consumer Age Profile
F Target Consumer HH Size Profile
CHART DESCRIPTION
b Target Consumer Profile (e.g., age, income, lifestyle):The consumers, by profile, the Retailer is b Determine the Retailer's target consumer by the
targeting for total store consumption and loyalty growth. appropriate profiles.
% of Retailer's (or Market) Shoppers: The percent the target consumer profile comprises b Determine the total shoppers and tumover of
among all of the Retailer's shoppers.
% of Retailer's (or Market) Turnover:The percent the target consumer profile comprises
among all of the Retailer's turnover.
- each target consumer profile.
Determine the shoppers and turnover of each
segment by the various target consumer profiles.
Segment Shopper Index: The percent of the Retailer shoppers divided by the percent of the * Determine if the Retailer's targeted consumer is a
segment shoppers. large part of the segment's shoppers or tumover.
b Segment Turnover Index: The percent of the Retailer's turnover divided by the percent of the If so, that segment warrant a higher market
segment turnover. coverage.
D 1998 The Partnenng Group, Inc. Page I

I1 Time Period:
* Consider not including SKUs that are stocked in less than 25% of the retailer's stores (depends on category).
CHART DESCRIPTION
PROCESS
b Share (%) of Category Turnover: The segment turnover as a percent of the total category turnover.
b Use retailer's data (net profit is preferred to gross
b Average TurnoverISKU: The average turnover of each SKU in a given segment. profit data)
b Turnover Productivity Index: The segment's share of category turnover divided by the segment's Identify high and low productivity indexes.
share of categoq SKUs. Segments with low turnover andor profit
b Average Profit /SKU: The average Profit of each SKU in a given segment. productivity indexes could warrant a lower
market coverage than the segments with high
Profit Productivity Index: The segment's share of category net profit divided by the segment's tunrover andor profit productivity indexes.
share of category SKUs.
1
1 Page 2
0 1998 The Partnenng Group, Inc.
Time Period:
Minimum Number and Percentage of SKUs Required to Achieve Turnover (Market) Coverage
50 % 1 1 75 % 1 80 % 1 1 85 % 1 1 90 % 1 1 95 % -1
Market % of % of % of % of % of % of % of
#of Segment #of Segment #of Segment #of Segment #of Segment #of Segment #of Segment
SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs SKUs
Segment "A"
Segment "B"
Segment "C"
PROCESS
b # of SKUs: The minimum number of SKUs required to achieve a particular Use market data that represents the retailer's operating area.
turnover or market coverage of a segment. The chart should help identify segments with relatively high, medium,
or low fragmentation. A high market coverage may be
b % of Segment SKUs: The percent of the segment's SKUs required to
inappropriate for segments with high fragmentation.
0 1998 The Partnenng Group, Inc. Page 3

* Consider not including SKUs that are stocked in less than 25% of the retailer's stores (depends on category).
** Complete on a Country or Regional Basis
0 1998 The Partnering Group, Inc. Page 4

I 1 Target Consumer Development 1 SKU Productivity 1 Fragmentation
Segment "A"
Segment "B"
Segment "C"
* Optional depending on the influence of OwdPrivate Label
Retailer Assortment Strategy

Category Role
Assessment Findings
Step 2, 3, 4: Deletion, Retention & Addition Validation
I1
Segment:
CHART DESCRIPTION
SKU Description: A description of the SKU.
EAN: The SKU's EAN number.
Â¥ Market Segment Turnover Ranking Numerical ranking of SKU within the segment based on turnover in the market.
Â¥ ACV Weighted Distribution: The percent of the annual value turnover (ACV or All Commodity Volume) represented by the stores where at least one unit
of a particular SKU was sold.

Â¥ Market Weighted Rate of Sale: The SKU's average turnover per average sued store in the market.
Â¥ Market Weighted Rate of Sale Index: The SKU's average turnover per average shed store divided by the segment's average turnover per SKU per
average shed store in the market.

Â¥ Retailer Weighted Rate of Sale: The SKU's average turnover per average sized store in the retailer.
*Â Retailer Weighted Rate of Sale Index: The SKU's average turnover per average sized store divided by the segment's average turnover per SKU per
average sized store in the retailer.

Loyalty Index = The share of annual requirements for the category accounted for by the brand (sue, type, flavour, etc.) indexed against the average share
of requirements satisfied by the average brand (sue, type, flavour, etc.)
Â¥ Consumer Worth Index = The annual purchases of the category by purchasers of the brand (size, type, flavour, etc.) indexed against the average annual
purchases of the category.

Â¥ Switching Index = The cumulative percent of users buying another brand (sue, type, flavour, etc.) divided into the average cumulative percent of users
buying other brands (sues, types, flavour, etc.)
0 1998 The Partnering Group, Inc.

Assortment Finalisation
(e.g. Size: Med) (e.g. Size: Large) (e.g. Size: Ex. Large)
Current Prooosed
Retail Brand Current RODOS~
CHART DESCRIPTION
Shows all SKUs presently stocked within segment. PROCESS
Arrays data by brand and key secondary characteristic (e.g. size, Identify SKUs tar~etedfor deletion, addition or retention in steps 2, 3 and 4 with aDeletion. Addition, or Retention.
flavour, ingredient, etc.) Compare the proposed to the current assortment by brand and key characteristics (size, flavour, ingredient, etc.)
Shows SKU marked for deletion with Deletion. If an entire brand or key characteristic has been deleted, check all factors of deleted brand1 characteristic (loyalty, worth,
etc.) to assess risklensure alternative.
Shows SKU marked for addition with Addition. Check proposed assortment vs. market coverage target, role for category, strategy for segment, target consumer appeal.
*Â Shows SKU marked for retention with Retention. Check proposed assortment vs. key competitor's assortment.
Displays current and proposed SKUs in total. + Prepare profile for deleted and added SKUs rationalising proposed action.
Â¥ Displays current and proposed segment market coverage.
Page 7
Appendix

T H E PARTNERING GROUP
BEST PRACTICES REPORT
To learn more about Efficient Assortment contact:
North America Europe

The Partnering Group, Inc. The Partnering Group, Inc.
Frank Grossi, President Peter Leech, Partner
6125 Redbird Hollow Lane #3 Wyatt House, Cambridge Road
Cincinnati, OH USA 45231 East Twickenharn UK TWI 2TH
Phone: 5 13-271-8404 Phone: 44-181-395-0543
Fax: 5 13-271-8405 Fax: 44-181-395-0543
The Partnering Group, Inc. The Partnering Group, Inc.

Dr. Brian Harris, Chairman John Dye, Managing Partner
7 8 18 Veragua Drive 400 Pike Street, 6th Floor
Playa del Rey, CA USA 90293 Cincinnati, O H USA 45202
Phone: 3 10-823-7 178 Phone: 5 13-38 1-0093
Fax: 310-823-7178 Fax: 513-381-1364

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Effiaent Consumer Response

BEST PRACTICES REPORT

Prepared by The Partnering Group

THE PARTNERING GROUP

Chapter 2: Category Management Framework

Chapter 3: The Six-Step Process

Step I - Market Coverage

Chapter 4: Data Integration

Chapter 6: BenefitsICase Studies

Chapter 7: Getting Started

Chapter 8: Questions and Answers

Appendix: TPG Effkient Assortment Templates

No part of this publica~ionmay be reproduced in any form or by any

Facilitated by The Partnering Group, Inc

Reammended Price Â 30,.

ECR Europe Eff~cientAssortment - Best Practices Report

ECR Europe Demand Side Steering Group:

Graham Booth zsco

ECR Europe Efficient Assortment Advisory Board

Neil Barker Walkers Snack Foods

ECR Europe S c i e n t Assortment Consulting Resources

The Partnering Group, Inc. - Frank Grossi and Dr Brian Harris.

ECR Europe Eficient Assortment - Best Practices Report

Reflects the assortment management needs of both suppliers and retailers.

Eficient Assortment Dej?ned

The Eficient Assortment Model

Component #1: Category Management Framework - assortment is a part of Category

Component #2: Six-Step Process - a simple yet comprehensive process.

Component #4: Cooperative Trading Partner Relationship - a cooperative relationship between

Component #I: Category Management Framework

ECR Europe Efficient Assortment - Best Practices Report

Category Management Business Process

Courtesy of The Partnering Group, Inc.

Component #2: The Six-Step Process

ECR Europe Efficient Assortment - Best Practices Report

Component #4: Supplier-Retailer Cooperation

Findings and Learnings

The experience of practitioners has provided the following findings:

- A specific category definition and structure defined by consumer needs.

- Consumer, market, retailer and supplier performance evaluated via an assessment.

- Specific performance measurement targets.

ECR Europe Efficient Assortment - Best Practices Report

Clusterlstore-by-store implementation -The efficient assortment process can be applied on a

ECR Europe Efficient Assortment - Best Practices Report

ECR Europe Efficient Assortment - Best Practices Report

The Contribution of Efficient Assortment To the ECR Initiative and

Specifically, efficient assortment:

Ensures that consumers have the choices they want.

Ties directly to category or product regionality as well as neighborhood level micromarketing, an

ECR Europe Efficient Assortment - Best Practices Report

1 Effective Assortment I 4 Provide "Optimal" Variety

Efficient Assortment Defined

Consumer needs and behaviour.

The Efficient Assortment Model

Component #1: Category Management Framework - Efficient assortment is a part of Category

Component #4: Cooperative Trading Partner Relationship - a cooperative relationship between

ECR Europe Efficient Assortment - Best Practices Report

Benefits of Efficient Assortment

ECR Europe Efficient Assortment - Best Practices Report