Product Ranging: The first step into profit maximization

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The product ranging decision is one of the most stressful decisions that a retailer makes. If a retailer gets their core product ranging decisions wrong, then it can make them unprofitable for the whole product cycle. By taking in consideration their target consumers and the channel sales history, the retailers will draft a forecast that includes both brands and products volumes to achieve sell-out targets. Those choices need to support their business objectives, help create a compelling Unique Consumer Proposition (UCP) and manage the risks that they are exposed to (those risks include cost of inventory and that ties up capital and aging stock).

Not all products are equal. Product ranging focuses on the link between the margin, volume of each product and each category. Depending on the retailer’s classification, the volume and value drivers will define the retail floor offering. A luxury car showroom will execute a value strategy and based on low volume sales with higher profit. A Supermarket will execute a volume strategy based on high volume and low value products sales with lower profit.

The retailers 3 key products categories are:

-profit Boosters:

Under this product category, the retailers will focus on ranging products with lower volume but higher profitability. This category can be ranged as the main store category in the case of luxury stores or a higher upgrade in the case of diversified products ranging.

-Profit Players:

This category will be defined as the center focus of the retailer’s business. The retail and sales team will work closely with the retail marketing team to drive sales. This core product ranging will usually be generating more than 70% of the store volume and value sell-out.

Traffic drivers:

Under this product category, the retailers will define products that has low profit but generates a higher store traffic. The aim is to boost store visits and give the opportunity to the floor sales team to convert the visitors from a low volume product buyer to a high value and profit generating products.

Author: Jalal JIHAZI
(Global Retail TV Director)

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