Podcast: Applying the Rule of 17 to post-COVID retail

When it come to post-COVID assortment rationalization, the Rule of 17 is more important than ever

The changes that we’ve seen during the first half of 2020 in the wake of COVID-19 have shifted the retail paradigm. Customer behaviors before, during and after COVID are very different. Consumers were forced to change during the pandemic – preferences, demand, and brand loyalty have all been upended.

What remains unclear is the long-term impact. Will these new buying patterns remain, or will consumers return to their roots?  And how quickly and accurately can retailers respond? Correctly answering these questions is the difference between continued success and improved profits for some retailers while the rest struggle with frustrated consumers looking elsewhere to meet their needs.

In this podcast, I’m exploring how retailers need to be able to look at the new consumer’ to be able to rationalize assortments to both maximize shelf space for customer satisfaction as well as drive efficiency in the supply chain by relieving unnecessary strain caused by not understanding shifts in demand.

How do retailers do this? The first step is an immediate category analysis based on current customer behaviors and applying the Rule of 17 to optimize assortments moving forward.

Interested to learn more?

  • Read Podcast Transcript

    So, the first thing is, we need to speak to this condition that we’ve highlighted previously around true demand. And that is customer behaviors before, during and after COVID are very different. Customer behaviors before will not be the same as after, customer preferences, consumer demand, items that they are seeking out are different post-COVID.

    You’ve got a situation where the customer has changed fundamentally across almost every category in the grocery store.

    So, what we are seeing is that, as things are opening up, consumers are continuing with their changed behaviors. Click and collect is continuing to be high. It’s not falling off the cliff. Customers’ choices are continuing that of items that they bought. There’s another factor here as well, 49 million households in the United States have had 25% or more of their household income reduced.

    So, consumers are changing and being forced to change even with COVID restrictions being lifted. So, what we see is, is that there will be a softening of some of these changes, that customers that we’re not doing click and collect before, did it during, many of those will continue, some of them will stop, but it’s not a wholesale a 100% return to the behaviors of before COVID.

    And in fact, because of the length and the duration, we’re seeing changes to behaviors and preferences even down to the SKU level.

    The period of time during COVID provides many data points and observations that inform learning systems. So, when customers bought a substitute, that gave information to the system about what a customer would be willing to buy. So the idea of switching analysis and consumer decision trees and other aspects that are typically used as elements of any type of assortment review, and decision process, are completely different than they were before COVID.

    You can’t use a switching analysis pre-COVID to do an assortment review and decision for post-COVID. So the first condition is, all of the data that you had before is less relevant because the customer has changed. The next piece of information is, is that customers have changed and the change is so rapid and dramatic, that retailers must respond rapidly.

    You’ve got a calendar that says, maybe you’re going to do a reset in October, but you’re here in May and the customer’s completely different. In order to seize on the opportunities of having shoppers in your stores, you need to be aligned with what customers’ expectations are. And so our recommendation should be, a thorough review of every category immediately.

    You can worry about the timing of when you execute a category reset based on priority, value and resources in the store or third party, but every category should be reviewed with new information from the consumer to determine what the right assortments are. We do know that the rule of 17 applies now, just like it applied before. That there are SKUs in the categories that the consumers do not identify as different or value-added and are substitutable.

    And as the supply chains have been strained, the benefits of the rule of 17 are perfectly aligned with the challenges of the supply chain. If you’re able to reduce the SKUs from your stores and meet customer’s expectations, you alleviate strain on the supply chain. You open up your ability to deliver more individual items. You could use the example, let’s say you had 300 items, and each of those items a case was shipped, so that’s 300 cases.

    It’s a kind of an extreme example, but let’s just say that that’s the case. If you didn’t need 17% of those, doing math, 10% would be 30. So about 55 SKUs would be removed from that 300 SKU count category. And if you were still only sending one or more units to the shelf, you now have improved the ability for your trucks to handle more categories or to utilize the space more or to ship more individual SKUs to meet the needs of increased demand.

    So you cause your supply chain to be 17% more efficient, to be able to handle more flow and volume for individual remaining SKUs than what you could do with the full 300 SKUs. So the rule of 17 applies even more today. And it’s something that every retailer should be engaged in immediately, taking an agile approach, reviewing and understanding the challenges, and then revising the assortments with an eye to removing duplication, applying the rule of 17, and then creating the longterm benefits to the supply chain and to the customer by having a category that is easier to shop, and that is more aligned with customer’s expectations. So really it’s taking the rule of 17 and applying it to these challenges that retailers are faced with right now.

    I think the way to say it is, is that you need a systemic approach to understanding switching, decision analysis, halo and cannibalization, and total store effects. You need a systemic approach. Using a consultative approach where you have people who are building out these values and then providing it through some integration or some feed into system, is too slow. You don’t have time for that. You don’t have the resources for it, and you won’t be able to meet the needs of right now.

    You need all of that information to be delivered systemically based on the data that is coming in from customers behaviors now, that had learned, from the activities and data points and observations through COVID, that inform switching and brand loyalty and other things, but do not overinflate because it was an anomaly environment. You can learn from anomalies. You don’t have to examine the anomaly as the state of behaviors going forward, but you can learn from it.

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