Internet has changed the retail sales in many aspects. Some are obvious, some surprising. Among other things, one of the biggest surprises is the range management. Before era of Internet, the retailers always tried to make some order in their offer. There are many reasons for that, mainly related to sales increases by managing magic sales formula. That formula sees sales (critical parameter for retail) as a combination of 3 measurable parameters – visitors, conversion rate and transaction value. Range has an impact on all 3, making first of all the reason to come (visitors), making customers buy more often (conversion) and more or more expensive items (transaction value).
The practical execution of those is either the “collection” or “price ladders”. Collection is a bunch of products coordinated among certain feature, e.g. fashion, technology, design, brand etc. The “price ladder” is a concept, when goods are coordinated in so called Range Groups, where they substitute to each other, with the sequence of price (more or more useful features – the higher the price). The first was typical for retailers which were either producers by themselves, or closely connected to producers (or in general believed in the power of the brand). The second was typical for multi brand retailers, which try to make the range their competitive advantage.
Whatever the logic was, it was. And had some consequences. Below you may find an example of such a coordinated range. I took the version with a price ladder mixed up with specific supplier collection.
The “right” range management helped to build traffic (competent image and wide selection), price ladders helped build transaction value and by filling-in range gaps, it also helped the conversion rate.
But it was so so far. Not anymore. It does not have to be so any more, and as it was both expensive and difficult, it was rapidly eliminated from the market. If something can be done quick and cheap, it takes the opportunity, due to higher profitability.
How does it work from now on? The range does not have to be arranged by any way, as the Internet provides totally new technical possibilities. It is a “range from the Search Engine”. Internet has changed the way the product and store are searched and approached. First of all, the pre-dominant is search by product, then by the shop (in traditional retail was the opposite). The search is either directly by category of products, product or by a solution which the product serves. The technical possibilities to find a product and compare to other both products as well as retailers is by far easier than ever. The search of the store is secondary. Even ROPO (“Research On-line, Purchase Off-line”) mechanism is strongly supported by direct product search.
The potential influence on the retailer can be disastrous, however in the positive meaning of this word. The coordinated range is a useful, but at the same time every expensive tool. It costs money in stock, range administration itself, but also in long term relationship to suppliers. It is a consequence of the “keep the promise” rule.
OBS! “keep the promise”. The retail word is a keep the promise word. If you promise right away availability, you need to keep the word. If low price, as well. Of course, if you do not, do not have to keep it as well, but then the risk is the customers are not attracted by the promise and do not come. It is same applicable to range, one you promise wide selection, you need to keep it.
Example – our product versus whole category available and accessible online. The product becomes a part of a wide and easy to search selection of similar and comparable products, as well as a bunch of accessible and easy to find online shops.
How customer is reaching the online product of store?
So far, the world of retail was a world of geographical barriers and making the product unique and difficult to compare. Intentionally. It was needed to go to the Commercial Center, pick up a store, the find and pick up a product, check the features, go out, compare to another product in another store, always not being sure the product is comparable. Features are described and presented in a way to make the comparison as difficult as possible. Stores were also located in different locations, different sizes, with different service, different price policy etc. Not anymore.
Today not only product is much easier to find and compare, in a way that comparison is not only possible (what was difficult at all), but also easy. The selection of stores went to another level, from different location by Commercial Center model, up to the homogeneous space of products and retail facilities. It is very often, that customer does not even see a particular store, until the moment of decision taking. And even then it see it as it’s’ reliability, product accessibility or time and cost of delivery. All those are very important elements of the shop offer, but not directly related to range and range management.
Such a space looks more as a dept. store then the model of Commercial Centers. Here the depts. Are located next to each other, not divided by cash registers, walls or brands. Or even more likely it is just a store, with different product brands and features. Such a perception of the store is totally changing the approach to the range.
Range and Pareto Rule – the „long tile”
SEO range is also a solution for the Pareto Rule. The overall Rule is that sales of bestsellers require existence of “long tile”. The Rule is of course not a cause, but just a consequence, but fact is fact. The Rule shows how real reasons work in practice. It reflects the condition that customers need a selection to decide, as well as the wide range is necessary to create traffic necessary to bring enough people to make sales.
In the B&M world the Rule is inevitable. If a “clever” shop cuts the range to best sellers, the overall sales drops dramatically, due to loss of traffic and selection. The SEO range makes it possible to use virtual “long tile”, using the others’ range as supplement to selected products.
Way of thinking
The SEO range makes possible a totally new way of thinking. And those online retailers, who just copy the “traditional” approach to the range may lose the unique possibilities. The price ladders or collections are no more needed. One may focus on most profitable products, high sales or high margin items, unique ones.
OBS! “old ways of range management still make sense”. Of course, the traditional ways of range management may still have sense. But it must be properly managed on the web site. If the layout and site construction does not use the opportunities of collection or price ladder, together with cross- and up-sell, it is just a burden, not an opportunity. And more of the e-commerce sites do not use this opportunity, due to lack of understanding of sales magic formula.
The new approach to range management is not just a question of definition. There is a lot of money in question. Money one may earn or not to lose. It is a way, how to “cheat” the Pareto Rule, using the “SEO range” as necessary “background”. This background is from this perspective free of charge; let the others pay high costs of maintaining it.
The advantage is lower (much lower) stock together with related sell-out costs. Let the others compete on low margin easily comparable products, focusing on unique, niche and high margin. Also just by definition, narrow range make the administration costs of its maintenance much lower.
Internet is very often perceived as a threat to traditional retail. Make prices transparent, products comparable and retail trick to cheat customers (add-on, price ladders, and promotions) much more difficult. Low cost models of pure players can successfully compete with well-established and well known, but much more expensive retailers. And they must be expensive by definition, as they exercise the much more business model, partly due to old fashioned range management.