Best Practices for SMEs: Achieving Greater Success through Strategic Assortment Optimization

Marie Kondo has become a globally celebrated icon of organization with her decluttering tips, and her books have been translated into 27 languages. However, decluttering is not just beneficial at home; it can also be highly advantageous for businesses. SMEs can leverage regular assortment optimizations to significantly enhance their market position. Although his name hasn't become a verb like Kondo’s, enomyc author Jan Ulrik Holsten is an expert in corporate decluttering. In this article, he shares some of his insights.

Assortment optimization goes beyond merely updating the product and service offerings. It involves drawing a clear line between profitable, market-relevant products and those that consume resources without yielding appropriate returns. Those who undertake this task must not shy away from complex processes, comprehensive data analyses, and a structured engagement with market dynamics.

However, the effort is worthwhile. A well-thought-out assortment optimization can significantly boost profitability by creating a focused product and service range that not only aligns with customer needs but also optimizes economic and strategic factors from the provider's perspective. This process helps improve margins, streamline inventory management, and reduce capital tied up in inventory. The only catch: successful implementation requires in-depth expertise and specialized tools.

A genuine assortment optimization necessitates detailed analyses—from profitability assessments to examinations of product dependencies. Modern business intelligence (BI) tools and experienced consultants are indispensable, as they help process and interpret complex data sets, providing insights far beyond traditional analytical methods.

Assortment Optimization as a Performance Catalyst

Assortment optimization directly impacts corporate performance for various reasons:

  • Reduced Complexity: A streamlined assortment reduces complexity, enabling more efficient inventory management and stock control, which in turn lowers costs and improves operational efficiency.

  • Enhanced Customer Orientation: When the assortment is better aligned with the actual needs and desires of the target audience, customer satisfaction increases, leading to stronger customer loyalty and higher sales.

  • Higher Margins: Focusing on highly profitable products and eliminating those with low margins or poor performance improves average margins and overall company profitability.

  • Increased Adaptability: An optimized assortment allows companies to respond more quickly to market changes and more effectively incorporate new trends and customer requirements into their offerings.

Best Practices: Proven Strategies

Our approach to assortment optimization is based on several strategies that have proven successful in practice:

  1. Data-Driven Analysis: We begin with an analysis of sales data, customer feedback, and market trends. This enables a precise evaluation of each product's performance in the assortment, highlighting which products are most valuable to the company and its customers.

  2. Product Segmentation: We then categorize the assortment based on factors such as margin, volume, and strategic importance. This segmentation allows for targeted management and optimization of each category.

  3. Strategic Realignment: Based on the data analysis and segmentation, we determine the levers for assortment optimization, including decisions on which products to introduce, retain, or eliminate. This realignment also considers the introduction of innovative products that meet current market trends and customer needs. Pricing strategies play a crucial role, as different segments typically offer opportunities for a skimming strategy (pricing for the initial phase of the product lifecycle) to capture premium margins.

  4. Continuous Adjustment: Technical innovations and changing preference patterns must be continuously reflected in the assortment optimization process. Ongoing reviews and adjustments ensure that the offering remains up-to-date and market-relevant.

The graphic shows an example and highly simplified (because it is two-dimensional) of the strategic directions of a mechanical engineering company's product range optimization:

Screenshot 2024-05-21 150544

Use Cases: Assortment Optimization in Practice

For a kitchen appliance manufacturer, our data-driven analysis revealed overlapping products. By consolidating and introducing new products with unique features, such as integration into smart home systems, we streamlined the assortment and better addressed customer needs. As a result, the company now offers higher-value and more differentiated items, leading to a significant increase in gross profit.

In another project, we assisted a bathroom fixtures retailer in refining its overly broad and unstructured assortment. The decision to exclusively offer high-quality and exclusive product lines, while eliminating items with low contribution margins and demand, led to a comprehensive repositioning of the company—with multiple positive effects. The new, more exclusive, and higher-quality assortment shifted the company's perception from a traditional (and interchangeable) retailer to a premium provider in the bathroom fixtures sector. The result: more satisfied customers, increased demand, and a significantly more profitable business.

Less Clutter, More Competitiveness

These examples demonstrate that assortment optimization can be a crucial lever for SMEs to successfully compete in a highly competitive market environment. The key lies in the strategic alignment of the assortment, supported by in-depth analyses and the use of advanced BI tools.

Based on our experience and expertise, we develop tailored solutions that not only enhance efficiency and profitability but also sustainably strengthen our clients' market positions.

Do you have questions about the potential for increasing revenue and value through assortment optimization? Book a free initial consultation with our expert Jan Ulrik Holsten to assess your cost-saving opportunities. Click here to schedule an appointment. 

About the Author
Jan Ulrik Holsten, a partner at enomyc, is responsible for Sales and Marketing. He oversees comprehensive turnaround and value enhancement projects as a consultant and interim manager. This article highlights a central approach from our consulting portfolio that has proven to be a valuable lever for improving profitability and increasing competitiveness. Other key areas of Jan Ulrik Holsten's expertise include Corporate Profit Improvement and Working Capital Management. Learn more about Jan Ulrik Holsten here.

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