Ensuring the Understanding of Transferred Demand

Symphony Retail has offered an on-demand webinar for a few months that provides their point of view on why better assortment planning is more important in 2021 and beyond.  Like many current thought-starters in the industry, this was partially a reaction to the COVID-19 pandemic.  The team here at Middlegame was ahead of me, but I finally got the chance to watch it.  Julian Miller (Head of Category Planning International) and Gina Hargrave (Head of Category Planning USA) offer a few superb gems in the video and I highly recommend anyone working in revenue growth management to also watch.

I love how Julian puts the question of "optimization" to the test with a quick example of the real size of the problem for assortment managers.  So many other marketing consultants suggest that they have a tool that quickly produces the best answer, but he says, "not so fast".  For a shelf where we need to select just 300 SKUs from a population of 500 potential SKUs, the number of unique possible combinations is 5.00E+184 … the number 5 followed by 184 zeros.  To put that into context, Julian points out that the number of atoms in the universe is 1.00E+18 … 1 followed by 18 zeros. 

We often discuss how "push-button optimization" routines for assortment as well as pricing and merchandising is somewhat of a stretch when explaining the Middlegame approach.  Symphony Retail takes a little different approach toward getting to a realistic answer than Middlegame by using shopper data, but we applaud that they build their recommendations from the data up and not an optimization down.  in the video, Julian explains how their artificial intelligence algorithms leverage SKU loyalty and substitution across shopper households to improve the assortment. The key to both our approaches is the importance of estimating the evolving levels of transferred demand among the SKUs.  Gina does an excellent job at explaining how Symphony Retail applies a lot of the things Julian describes, but I think an article she published last summer is the perfect "tip of the hat" to how closely we are connected.  She outlines how transferable demand (we call it transferred demand) is the essential lever to ensure that total category turnover is maintained while shoppers remain satisfied when retailers determine which SKUs deserve space on the shelf.

We like to extend this across the full context of revenue growth management … the availability of the right products, at the best possible prices, with merchandising and promotional support, that creates win-win profitability outcomes throughout the value chain (retailers, distributors, and manufacturers) which is feasible to operationalize and maintains a focus on what the shoppers want.  Gina points this out suggesting that "if the products shoppers feel strongly about are not on the shelf, they might buy a comparable product from a competitor or leave the store altogether" … ah yes, on to incrementality!

Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Like the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.

Contact us at info@middlegame.com