Category reviews are a critical component of your business planning process, helping to ensure your business success. If you want to stay ahead of your competitors in these trying times, you need to use the latest merchandising techniques. It is no longer enough to make decisions about assortment, price, and promotion based on a one-size-fits-all customer strategy and outdated analytic models. Retail winners are using new techniques that include assortment analytics, basket analysis, and customer segmentation to uncover new insights and ways to improve business performance … and deliver the desired shopping experience. If you want to stay ahead of your competitors in these trying times, you need to use the latest merchandising techniques.

1. Do not print
tHe
in Category review for retailers

2. table of contents
introDuCtion 2
Category reviews are time Consuming 4
applying DemanD sCienCe to your assortment DeCisions 6
applying DemanD sCienCe to your priCing DeCisions 8
applying DemanD sCienCe to your promotion DeCisions 10
summary 12
assortment optimization assessment 13
the
private label opportunity assessment 14
strategic pricing assessment 15
in category review for retailers about DemanDteC 16
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3. “
IntroductIon
If you want to stay ahead
of your competItors In
these tryIng tImes, you
Category reviews are a critical component of your business
planning process, helping to ensure your business success.
If you want to stay ahead of your competitors in these trying
times, you need to use the latest merchandising techniques.
need to use the latest
merchandIsIng technIques. ”
It is no longer enough to make decisions about assortment,
price, and promotion based on a one-size-fits-all customer
strategy and outdated analytic models. Retail winners are
using new techniques that include assortment analytics,
basket analysis, and customer segmentation to uncover new
insights and ways to improve business performance … and
deliver the desired shopping experience.
in tHis DoCument, we proviDe you witH praCtiCal
tips on How to unDertake a Category review
tHat leverages:
• Customer insights to ensure that you are serving your most
profitable customers
• Assortment analytics to provide new insight into which
products to add or drop based on incrementality
• Basket analysis to measure the full impact of promotions
• Image item analysis to confirm the best image items for
each customer segment
2 Introduction 3
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4. cateogry revIews
are tIme consumIng assortment priCe promotion
How much space What role does my category have?
should I give my How does that impact price and
category? promotion policy?
Category
How do I effectively remove a product from
Category reviews require you to focus on all aspects of the my assortment? What price will be most
business, leaving little time for detailed analysis of any one effective in this goal?
component. In a category review, you must look at all of your
merchandising levers—assortment, price, and promotion—and How do I How does my How does my
then evaluate your strategy for the category, competition, differentiate my base price compare promoted price
private label, and customers. The chart on the right details offering? to that of my compare to that of
Competition
competition? my competition?
some of the most critical questions you must answer during
a category review. Traditionally, merchants have struggled to
obtain enough data to make decisions and have relied heavily
on their intuition. How can I use Should I have a How do I use
private label to tiered private promotion to
As businesses become more complex, and retailers are being private promote customer label strategy? encourage trial
driven to make decisions not just for a category or for a label loyalty? What is my and repeat
optimal price gap to purchases?
store, but also for specific customer segments, the need
national brand?
for deep, data-driven insights about customer demand has
grown. Application of consumer- demand intelligence can be
Which products What are the best What promotional
invaluable in making those decisions. By applying econometric attract my best image items for tactics work for
models to your data, you can gain insight regarding consumer and opportunity each segment? which customer
Customer
behavior as it applies to your products. By going one step customers? segments?
further and applying those models to specific customer
segments, you will gain deep and rich insight into how to
drive growth with the customers who matter the most to your
business.
4 Category Reviews Are Time Consuming 5
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5. applyIng demand
scIence to your
assortment decIsIons
In a category review, you will need to determine which products adds incremental sales to the category. By applying the principles of
to add and which to delist. Many retailers take a traditional incrementality and transferable demand, you can understand what will
ranking-report approach to creating assortments, in happen to the demand for a product if it is delisted. Will that demand shift
which they simply rank all of the items in a category by sales to other products you carry, or will it transfer outside the store, or, even
and—with some modification based on their experience and worse, carry the customer entirely out of the store? Applying this type of
good judgment—more or less replace items from the bottom demand science to your assortment decisions can help you increase the
up. While this approach is easy to execute, it often produces variety in your assortments, improve SKU rationalization and assortment
assortments with too little variety and too much duplication. localization, and boost the effectiveness of your tactical efforts, such as
The result is diluted sales across similar items, no improvement making one-in-one-out assortment decisions.
in store traffic, and underwhelmed customers.
DemanD sCienCe Can Help you answer
By applying demand intelligence to your assortment questions like:
decisions, you can dramatically improve that process by
using econometric models to determine which items should
• Which items are my best sellers?
be stocked, by store or store cluster, based on the customers
who shop at that store, the competitive environment, • Will I lose customers if I drop low-selling items?
and a quantified understanding of whether each item in a
• What products are most important to my various
category is merely duplicative or truly provides variety and
customer segments?
• How does private label play into my assortment?
• Which products should I private label?
6 Applying Demand Science To Your Assortment Decisions 7
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6. applyIng demand
scIence to your
prIcIng decIsIons
A standard part of any category review will be to reassess your tHis insigHt proviDes you wHat you neeD to:
priCing strategy for the category. Do you have clarity
on the right role for the category? Have you identified which
• Define the role and intent for each category based on importance to
are the right image items for that category? What is your
competitive strategy for the category? Answers to all these customer, customer segment, and business in general
questions can be improved by applying consumer demand • Update image-item lists, including at the segment level, ensuring
intelligence.
competitive pricing on the right items without unnecessary margin loss
Rather than basing pricing on cost-plus strategies or merely • Develop forecasts for pricing actions for categories that are
reacting to competitors’ pricing, many retailers today are
leveraging powerful consumer, demand, and market insights underperforming or losing share
to price every item in the store. By applying econometric • Understand which promotional levers are most effective at the category
models and optimization techniques, you can capture
the elasticity of each item, in addition to cannibalization, and item level
halo effects, cross-category pull-through effects, trends, • Determine what price to charge for private label items, including gaining
seasonality, and a host of other causal factors to deliver a true,
accurate depiction of demand forecast. Moreover, you can insight into the ideal price gap between private label and national
understand these factors for all customers in aggregate, or by brands
specific customer segment.
8 Applying Demand Science To Your Pricing Decisions 9
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7. applyIng demand
scIence to your
promotIon decIsIons
promotion strategy is another critical component of a tHis insigHt proviDes you witH tHe ability to:
category review, and once again, applying consumer demand
intelligence to promotions will enable you to maximize the
• Understand forecasts associated with various promotional options
total store impact on all categories, as well as the impact
on specific customer segments. By taking into account based on price and associated tactics
cannibalization, halo effects, and cross-elasticity effects • Determine the optimal promotional price
of regular retail and markdown programs in place, you can
quickly determine the best discounted price for any item • Understand which promotional levers are most effective at
or promoted item group; the best type of temporary price
the category and item levels
reduction, such as buy-one-get-one, percent off, and multiples
discounts; and the best use of merchandising support, such • Understand the effectiveness of promotional levers by
as ads and displays, to maximize the incremental lift and total customer segment
store impact of every promotion. Moreover, consumer demand
science can help you understand how to reach certain • Determine which customer segments drove a particular
customer segments through promotional levers. promotion’s performance
10 Applying Demand Science To Your Promotion Decisions 11
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8. summary 1. assortment optimization assessment
provides merchants an analytically based assessment of
their assortment, taking into account incrementality and
transferable demand at the segment level.
This assessment delivers recommendations for an
DemandTec offers a wide array of technologies and services optimized assortment based on transferable demand and
that enable retailers to drive analytical insights into their cannibalization, not ranking reports. These recommendations
category review. We leverage our industry-leading optimization incorporate customer insights to ensure the proper
technology and the expertise we have gained in working with assortment for the target customer segments. Moreover,
more than 100 of the world’s leading retail banners during the recommendations are tailored by available shelf space
the last 10 years. and include recommended facings for each store cluster
and integration into space management tools for store-
Whether or not you are currently working with DemandTec, specific plan-o-grams. Finally, forecast of the sales and profit
we offer three service engagements that not only provide implications associated with the new assortment prior to
analytical insights, but can offload the work of developing execution are provided.
those insights from you to our professional services team.
These services are complementary and can be performed
independently or together.
demandtec offers a wIde array
of technology and servIces that
can enable retaIlers lIke you to
drIve analytIcal InsIghts Into theIr
category revIew.
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9. 2. private label opportunity assessment 3. strategiC priCing assessment provides
delivers a set of analyses that combine Nielsen data and an analysis of historical sales to help you understand how
DemandTec models to create deep understanding of private customers are responding to price changes; how you are
label performance and pricing opportunities to drive profitable positioned relative to competition; and what the resulting
private label growth. market share is for all products across the store.
With this assessment, you will gain an understanding of In the Strategic Pricing Assessment, DemandTec will deliver
which private label categories are performing to expectations a definition of the role and intent for each category based on
and which need course correction. DemandTec deliverables importance to customer, customer segment, and business
include: in general; an updated image item list, including at segment
level, thereby ensuring competitive pricing on the right
items without unnecessary margin loss; recommendations
• Recommendations for adjusting private label pricing based
and forecasts for pricing actions for categories that are
on competitive positioning underperforming or losing share; and finally, an understanding
• Identification of the promotional levers that drive the most of which promotional levers are most effective at the category
and item level.
sales at the category level
• An understanding of pricing for private label products
relative to the marketplace
For more information about these services or how DemandTec
• Recommendations for price gaps between private label
can help you with category reviews or merchandising
products and the national brand alternatives and marketing optimization more broadly, contact us at
650.645.7100 or visit www.demandtec.com.
14 Summary 15
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10. about
demandtec ContaCt us
DemandTec
One Franklin Parkway
Building 910
San Mateo, CA 94403
USA
inquiries
DemandTec (NASDAQ: DMAN) enables retailers and consumer Phone: +1.650.645.7100
products companies to optimize merchandising and marketing Please visit www.demandtec.com
decisions, individually or collaboratively, to achieve their
sales volume, revenue, shopper loyalty, and profitability
objectives. DemandTec software services utilize DemandTec’s
science-based software platform to model and understand
consumer behavior. DemandTec customers include more than
230 leading retailers and consumer products manufacturers
such as Ahold USA, Best Buy, ConAgra Foods, Delhaize
America, General Mills, H-E-B Grocery Co., The Home Depot,
Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee, Target,
Walmart, and WH Smith. Connected via the DemandTec
TradePoint Network™, DemandTec customers have
collaborated on more than 3.5 million trade deals.
16 About DemandTec 17
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