Trendify helps different organizations like #retail #ecommerce #game #insurance industry to segment products — SKUs and manage process.

In this article series, especially we we will talk about product / SKU segmentation and importance for business.

This is the second article of our post series and its content about;

II . How Do Business Use Product / Sku Segmentation ?

  • Inventory Management
  • Forecasting / Ideal Stock Level
  • Pricing Strategy
  • Advertising and Marketing

II . How Do Business Use Product / Sku Segmentation ?

Product Segmentation is done with the aim of facilitating the management of the products in the process. The main topics that will provide input are; 

Inventory Management

In the process, the KPI (Key Performance Indicator) parameters that need to be developed can be determined instantly in which product groups. An ideal roadmap can be drawn to reach the right decisions. Any business that keeps inventory for sale or internal use can track products by scanning groups of SKUs. This allows businesses to make smarter, more targeted purchasing decisions and avoid both overstock and obsolete inventory.

Trendify does this in 3 steps by separating the products that add / do not add value to the process, without increasing the complexity cost in the supply chain.

First, Trendify identifies and analyzes all relevant performance and cost drivers that can serve as segmentation criteria.

The second step is to create the product/SKU segments using this segmentation criterion. Thus, the boundaries of the segments are determined for the supply chain and the SKUs are allocated to the segments.

The third step provides insights on how to derive the strategy for each identified segment. 

The following example shows the ideal stock management inputs and outputs for retail. Product segmentation should be done in order to have a positive effect on key KPI metrics in the process. While in traditional methods, the inputs are evaluated separately and the user is expected to make their decisions, in product segmentation, groups are formed according to the criteria of the inputs that create / do not create common value, and decisions are made according to these groups. 

Forecasting / Ideal Stock Level

By using the created product groups, it can understand which product is most preferred and can arrange the stocks accordingly, thus providing an optimal inventory management and by presenting the required product to the user at the right time, sales and profits are directly increased. Talking about the concept of Long Tail and drawing Long Tail 

For ideal stock management, we need to talk about two concepts. One of them is Pareto analysis and the other is the concept of long tail. Pareto analysis is a principle that helps identify problems and prioritize solutions. The idea, also known as the 80/20 rule, is 80% cause, 20% effect. When it comes to stock management, 80% of problems are caused by 20% of stocks. The Pareto technique remains a popular technique prior to 2000. While Pareto increases the overall efficiency, it can ignore important products remaining at micro levels. 

The another concept of Long Tail first appeared in Wired Magazine in 2004 with an article by Chris Anderson. In his article, which was later turned into a book, he argued that today’s consumers are moving away from mainstream products and increasingly into niche markets. 

Long Tail is a strategy that allows companies to make significant profits by selling low-volume, hard-to-find products to many customers, rather than selling a few popular products in large volumes. Unlike Pareton, this strategy considers all products and focuses on the features of niche products remaining in the tail section, allowing strategy determination. 

Trendify product segmentation reveals critical points in products. It creates a meaningful historical data for forecast calculation in product groups whether they have long tail or not for products. By operating a forecast based on segmentation, it ensures optimum management of stocks for all product groups. The following chart shows the appearance of products with head and long tail and the actions for these groups. 

Pricing Strategy

Quick response from the customer can be obtained by making appropriate pricing according to the product group in terms of pricing. As mentioned in the previous article, making decisions based on the 80/20 pareto now misleads companies. Finding the hidden information in 80 of the products / customers has become much more important. 

Quick response from the customer can be obtained by making appropriate pricing according to the product group in terms of pricing. As mentioned in the previous article, making decisions based on the 80/20 pareto now misleads companies. Finding the hidden information in 80 of the products / customers has become much more important. 

Advertising and Marketing

In addition, by highlighting the products that are in the background and with the potential while determining the advertising strategy, you can cause the user to encounter these products more and increase the tendency to buy. 

Segmentation of products and their marketing strategy implications are very important to marketing managers. Market structure definition and analysis provides an important basis for market segment identification and competitive advantage analysis. So whether you’re launching or marketing a mature product, segmentation for durables, non-durables and services is critical and will impact your marketing strategies and budgets. 

In summary; SKU segmentation is a great tool for businesses looking to reduce costs or be more efficient. Through SKU segmentation, you can plan and forecast everything related to logistics, from production to shipping of products. This gives you a certain amount of convenience when you want to allocate and fine-tune resources. If you know which of your products is the fastest selling product, you can better anticipate your needs. By using a historical data system that focuses on the product at hand, the results you produce will be much more reliable. 

Thanks for reading

Date : 05.01.2021

Author : Mustafa Gencer (Data Scientist , TRENDIFY)

Related Blog Posts
Product / SKU Segmentation 1

You can manage your processes in the most effective way by making a correct product segmentation. What is Product / Read more

Eren Retail goes beyond borders with cloud-based data warehouse project

Our "Modernization of Data Infrastructures and Analytical Applications" Project, which we started with Eren Retail, was crowned as a Success Read more

Product Segmentation for Inventory Management

Product Segmentation is the process of the parsing products into separate groups relationally with robust analytics and machine learning algorithms. Read more