Chapter 10: Product groups

Question 1

Assortment dominance matrix (ADM)

The traditional BCG matrix is suitable for retail applications, but with some adjustments needed.

Answer 1

• We replace the “growing market/shrinking market” entry in the BCG matrix with “large market / small market”. The reason is that when the economy declines, a large market will remain relatively large, even in the event of a downturn due to economic movements. A small market will not immediately become large.
• Secondly, the assessment of the market position in ADM is not so much linked to the “relative market share” compared to the competition (as in the BCG matrix), but to the relative market shares compared to the own average performance.
• Thirdly, unlike BCG, market share in retail is not an absolute guarantee of profitability. ADM should be interpreted from the pov of recognition and acknowledgement by the consumer. A higher than average market share in a certain sub assortment means that the consumer strongly identifies this group with the company and also expresses this by spending more than average on this group.

Question 2

The “spread in market size” between large and small submarkets is

Answer 2

a measure of the attractiveness of the submarket in terms of revenue potential.
In a large market, small market shares can still represent considerable sales.

Question 3

The “spread in market share” has to do with

Answer 3

the top of mind awareness among consumers (i.e. the dominance of the assortment): higher than average market share means that, in the opinion of consumers, this group is better covered than the average assortment. Is a measure of the reputation of the sub assortment in the perception of the customers.

Question 4

The ADM thus leads to a classification of the assortment in 4 categories, the axis:

Answer 4

small or large market (horizontal)
high or low market share (vertical)

Question 5

small market recognition, high market share

Answer 5

important for reputation not for sales

Question 6

large market, high market share

Answer 6

cherish: customers recognize it, basis for sales

Question 7

small market, low market share

Answer 7

question marks - really need them? often involves service assortments

Question 8

large market, low market share

Answer 8

opportunities - find reason for low market share

Question 9

The information required for drawing up the ADM:

Answer 9

• Own sales figures per sub assortment
• Figures for the Dutch market per assortment group

Question 10

The ADM can be used to..

Answer 10

• measure the current assortment position → Compare performance of different product groups
• to derive possibilities for improvement in the future,
• to measure the developments in the assortment position over time → Compare performance
• of different product groups over time
• to identify changing market positions per sub assortment
• Helps to formulate a strategy for product group
• Sets priorities

Question 11

In the online world, one can make use of the so-called longtail

Answer 11

This longtail means that in the online world one can offer any product one can imagine, because store space or shelf space is not a limiting factor. However, we believe that the proper handling (gestione) of the ADM can lead to higher profitability.

Also because for increasingly more online players, keeping products in stock is becoming important in order to guarantee the speed that the customer wants. At the same time, this means that the costs of stock will start to count.

Return on stock will also become an important indicator. Retailers who know how to make the right pre-selection for consumers by offering the right assortment will be more attractive.

Question 12

To arrive at an overall picture of development, it is convenient to construct a dynamic ADM.

Answer 12

We divide all the outcomes of the second ADM by the outcomes of the first ADM and we place the numbers found per department in a matrix, whose cross-axis is 100/100. If all market shares would have remained exactly the same in both years and if all markets would have remained constant in size, all numbers found would end up exactly in the point 100/100.

Using this overview matrix (dynamic ADM), it is possible to see at a glance what and by which departments the change in the average market position was caused.

Sometimes it is not possible in practice to obtain the data needed to draw up an ADM. This may be because the market data is not available or does not appear to be reliable. In such cases, we can still use an analytical model that is very similar to the ADM, based on the company’s own data: the goldmine analysis (GM)

Question 13

Goldmine analysis (GM analysis)

Answer 13

Partly similar to the ADM, but rather than the analysis of market position, it focuses on the analysis of the contribution of assortment groups to the profitability of the firm.

The ‘large / small market’ input in the ADM is replaced here by the ‘high sales share / low sales share’ input.

The ‘high market share / low market share’ input in the ADM is replaced here by the ‘high / low gross margin’ or ‘contribution margin’ input.

The goldmine matrix thus describes how, in terms of the formula Return = Sales * Margin - Costs, the assortment contributes to R.

Question 14

Can’t find all the relevant data for the ADM?

Answer 14

Use the goldmine analysis
- No external data is needed
- Not focused on market position, but on:
o Contribution of assortment groups (high/low market share)
o Profitability (high/low gross margin)

In the GM-analysis, by analogy with the prioritisation in the ADM, we can develop a sequence of desired approaches.

Question 15

Suppose we want to improve profitability from the assortment mix:
Goldmine matrix

Answer 15

1. Profit makers (low dominance, high profit): strengthening these groups contributes much more profit development.
2. Goldmines (high dominance, high profit): high sales and higher than average profitability. Further expanding sales will be more difficult than with the profit makers. But it contributes much more to profit development.
3. Volume makers (high dominance, low profit): from a profitability pov, you should work on margin improvement in these assortment groups. May be very difficult because these are volume groups in probably very competitive submarkets (hence the low profitability)
4. Concerns (low dominance,low profit): in order to improve profitability you should clean up these groups from a conceptual pov, is more profitable than further expansion.

Question 16

Link between goldmine and ADM analyses

Answer 16

Goldmine analysis –> profit portfolio analyses
ADM Analysis –> Sales-portfolio analyses

By comparing the desired prioritisation of approach from both analyses, we gain insight into which groups are of great importance for both improving profitability and improving market position (attack). In one single action, we improve profitability and strengthen the assortment concept at the same time. We also see groups that will not contribute much to sales improvement and not to profitability (reorganize).

Question 17

Fair share analyzes

In those cases where the market size is stable over time and there are no great dynamics in the market development, we use a simpler method:

Answer 17

We measure where we compare our own performance with a predetermined standard (a benchmark). The result is an index compared to the norm. If the index…

Fair share > 100% or 1: performing above the predetermined benchmark
Fair share < 100% or 1: performing below the predetermined benchmark

The benchmark (index) itself can take different forms
It’s impossible that everyone perform above → means that the benchmark should be higher