Failing to group product families effectively in your retail business can have several negative consequences. Firstly, it can make it difficult for customers to find what they need in your store (brick-and-mortar or online shop), leading to frustration and lost sales. Poor or non-existent product family groupings can also result in poor inventory management, leading to overstocking of some products and understocking of others. By organizing products into groups, retailers can better manage their pricing, optimize sales, and increase revenue, while without it, your profit can fall through the cracks. What’s more, ineffective product grouping can also impact your brick-and-mortar store’s visual appeal, making it appear cluttered and uninviting to customers. All of these factors can ultimately result in decreased profits and a decline in customer loyalty, so it is critical to take the time to properly group product families in your retail business.
At Pricefx over the last decade and more, we have assisted hundreds of retail businesses across the globe to build profitability and streamline efficiencies. Many of those are retail organizations that we have helped by supplying them with the technology to effectively arrange, track and adapt their product family groups on the fly in response to seasonal and real-time changes in sales, conditions, and product attributes.
In this article we will first explain what a product family is and does and why they are good for effective retail pricing. We’ll close it out by giving you 8 tips to effectively group product families in your retail business and examine why administering the groupings through pricing software is best for your business.
What are Product Families in Retail & Why Are They Grouped?
Product families in retail are an effective merchandising strategy to increase sales and profits for retailers. Grouping related products under one category makes it easier for customers to locate what they are looking for, which can lead to increased sales.
By organizing products into families, retailers can target their pricing strategy on the customer or product segments that will have the most impact on their unique positive business outcomes (usually increasing, sales, revenues, margins, or profit).
What’s more, great grouping of product families can simultaneously encourage customers to make additional purchases by providing them with a comprehensive shopping experience while also facilitating cross-selling opportunities.
For example, a kitchenware retailer may group kitchen appliances, utensils, and cookware into the product family of cooking essentials. By doing so, customers are more likely to purchase multiple items from the same family, which can increase the average transaction value and ultimately drive more revenue for the retailer.
Additionally, product families in retail can help retailers with inventory management by identifying which products are selling well and which are not. This information can help retailers optimize their inventory levels and avoid stock-outs or overstocking, which can negatively impact profitability.
How Grouping Products into Families Provides a Holistic Multi-Dimensional Sales Approach
Grouping products into product families based on pricing strategies can facilitate a multi-dimensional approach (rather than a simplified lateral view) to retail pricing. Retailers can group their products into distinct categories based on everyday prices, promotional prices, and mark-down or clearance prices.
For example, Nike polo shirts may be grouped together at an everyday price of $30 per shirt, with no difference in price between colors or sizes. During promotions, the retailer may group Nike polos together with other products, such as Under Armour, and offer a 25% discount. Mark-downs may be used for specific colors or sizes of the Nike polo shirts that are not selling well.
This grouping strategy allows retailers to analyze sales and revenue data based on product categories and pricing strategies. By analyzing sales data, retailers can adjust their pricing strategies to optimize sales and profit margins.
Retailers can also compare their prices with those of competitors and analyze sales data across different sales channels.
Grouping products based on pricing strategies also provides flexibility in setting up the master data process. Rather than being limited to a fixed hierarchy, retailers can use a flexible platform to group products according to their pricing strategy.
Analyzing sales data is an essential part of this pricing strategy. Using our example above, a clothing retailer can start by analyzing their Men’s Nike polo sales for the last fiscal year, by looking at the number of units sold, revenue, and market share. They can then drill down into the data to see how many units were sold at everyday prices, promotional prices, and clearance prices. Retailers can also analyze sales data across different sales channels, such as online and in-store sales.
Clearly then, grouping products into product families based on pricing strategies facilitates a multi-dimensional approach to retail pricing. This approach allows retailers to analyze sales data across distinct categories and pricing strategies, adjust their pricing strategies to optimize sales and profit margins, and compare their prices with those of competitors.
Analyzing sales data is essential to this pricing strategy and allows retailers to make informed decisions about their pricing strategies.
8 Tips for Effectively Grouping Your Product Families
As we have examined above, by organizing products into groups, retailers can better manage their pricing, optimize sales, and increase revenue. However, doing so efficiently can be a challenge.
Let’s look at the top 7 tips that your business can consider for organizing a multi-dimensional grouping of your product families that can be used together in concert (for more complex businesses) through to standalone organizational techniques for less complicated retail business models.
1. Analyze Your Sales Data
As mentioned beforehand, the first tip for efficiently grouping your family of products is to analyze your sales data.
By examining sales patterns, you can identify products that sell well together or have complementary features.
For example, if you sell shoes, you may notice that customers who buy running shoes also tend to purchase socks and sweatbands. By grouping these products together, you can create a bundle deal that entices customers to buy more, increasing your revenue.
2. Group Your Products by Category
Another way to efficiently group your family of products is by category. This is especially helpful for retailers who offer a wide range of products. By grouping products by category, you can ensure that customers can easily find what they are looking for.
For example, if you sell clothing, you may want to group your products by gender, age range, or season. This makes it easier for customers to navigate their way through your online shop or alter the floor plan of your bricks-and-mortar stores differently according to the season, to find the products they need.
3. Consider Your Pricing Strategies and Top-of-Mind Business Goals
When grouping your family of products, it’s important to consider your pricing strategy. One common strategy is to create tiered pricing based on the number of products purchased.
For example, if you sell office supplies, you may offer a discount for large corporate customers who buy in bulk once a quarter. Another strategy is to offer bundle deals, where customers can purchase multiple products for a discounted price. Whatever strategy you choose, grouping products together is crucial to making it work. And of course, the chosen pricing strategy will need to be in line with whatever it it is that are your company’s unique businesses objectives (increasing profit, revenues, margins, etc.).
4. Use Product Attributes
Product attributes can also be used to efficiently group your family of products. By assigning attributes like color, size, material, or other features, you can group products together that share those characteristics.
This can be especially helpful for retailers who offer customizable products.
For example, if you sell t-shirts that can be customized with assorted colors and designs, you can group them together based on the color or design options. Going one step further you might break that down even more.
In your cooler climate stores, your darker t-shirt colors that absorb heat might be in one value-priced price corridor (reflecting the desirability for darker shirts in cooler climates and willingness-to-pay of your customers there).
In those same stores in cooler climates, you might offer your lighter colored shirts at a promotional price ladder level and discount them to move stock off your warehouse shelves.
Naturally, that pricing ladder model might flip entirely for your stores in warmer areas.
5. Grouping Product Families by Geography
Grouping product families differently by geography is a smart retail strategy that can help businesses tailor their offerings to local customer needs and preferences.
For example, a home improvement retailer may group its products differently based on the geography of its stores. In one region where there is a high demand for outdoor living products, the retailer may group products such as patio furniture, grills, and outdoor décor into a “Backyard Oasis” product family. In another region where customers are more focused on home organization, the retailer may group products such as shelving units, storage bins, and closet organizers into a “Home Organization” product family. By grouping products in this way, retailers can create a more personalized shopping experience for customers and increase sales.
Furthermore, grouping product families differently by geography can also help businesses optimize their inventory management. For instance, a grocery retailer may group products differently based on the dietary preferences of customers in different regions. In one area where there is a high demand for vegan and gluten-free products, the retailer may group products such as plant-based meats, dairy-free milk alternatives, and gluten-free bread into a “Healthy Living” product family. In another region where customers prefer organic and locally sourced products, the retailer may group products such as organic produce, locally made honey, and grass-fed beef into a “Farm-to-Table” product family.
By grouping products in this way, retailers can ensure they have the right mix of inventory in each store to meet customer demand and reduce waste.
6. Monitoring Competitor Pricing
As mentioned previously, when grouping your family of products, it’s important to keep an eye on your competitors’ pricing.
By monitoring competitor pricing, you can adjust your prices accordingly to remain competitive. This can be done by grouping your products together based on their price range/s, so you can quickly and easily adjust prices as needed.
7. Use Your Customer Data
Customer data can also be used to efficiently group your family of products. By analyzing customer data, you can identify patterns in purchasing behavior and group products together based on those patterns.
For example, if you sell makeup, you may notice that customers who purchase foundation also tend to purchase concealer and powder. By grouping these products together, you can create a bundle deal that is more likely to appeal to customers who have previously purchased foundation.
8. Test and Iterate
Finally, when grouping your family of products, it’s important to test and iterate. What works for one retailer may not work for another, so it’s important to experiment with different grouping strategies to see what works best for your business. This can be done by analyzing sales data and customer feedback to determine which strategies are most effective.
Don’t be afraid to experiment, and of course, if you’re using pricing software to analyze the impacts and insights of your product family groupings. If something doesn’t work, you can easily adapt and change your strategy on the fly.
Using Science & Pricing Software for the Best Product Family Grouping Outcomes
Using science and pricing software for the best product family grouping outcomes can have a significant impact on a retailer’s sales and profitability. By leveraging the data and analytics components of pricing software to understand customer preferences and behavior, retailers can group their products in a way that maximizes sales and meets the needs of their customers. This agile pricing approach not only enhances the customer experience but also helps retailers optimize their inventory management, reduce waste, and ensure that their pricing strategy is effective and profitable.
Above all, pricing software can help retailers ensure that their product families are priced competitively and profitably. By analyzing market trends, competitor prices, and customer behavior, pricing software can recommend optimal prices for different product families in different regions. This approach can help retailers achieve a better balance between revenue and profit and avoid over-or-underpricing their products. Overall, using science and pricing software for the best product family grouping outcomes is a smart retail strategy that can drive growth, improve efficiency, and enhance the customer experience.
Fully integrated pricing software tools like Pricefx bring all this essential data together for more specialized analyses that support optimal pricing decisions and help you understand exactly how much revenue is gained from each transaction and where money might be leaking.
With AI-informed Pricefx Price Optimization, the right data will not only decrease risk but work for your bottom line by revealing profit and margin opportunities as well as helping you find ways of mitigating costs.
To learn more about getting more scientific and data-driven with the pricing for your retail business, check out the handy article below for more information on the modern metrics your company needs to track to become more robust:
John Gilbo is an enterprise account executive at Pricefx, where he puts into practice his deep experience in pricing strategy, client account management, software procurement & implementation and financial analysis. He formerly led pricing strategy at Kirkland’s, Academy Sports + Outdoors, and Safeway, where he was hands on with AI-based analytical tools, retail strategy and change management. John is also an avid marathon runner and triathlete.