Increasing sales is based on knowing “what items are bought together” so that retailers and distributors can improve merchandising and drive more sales through all channels. As shoppers, we all buy items in groups. It is the task of the retailers to figure out what kind of items are bought together, to optimize merchandising and increase revenue.

1.
Assortment Planning and Up‐selling
based on “This Sells With That”
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ABSTRACT
Increasing sales is based on knowing “what items are bought together” so that
retailers and distributors can improve merchandising and drive more sales through all
channels. As shoppers, we all buy items in groups. It is the task of the retailers to
figure out what kinds of items are bought together, to optimize merchandising and
increase revenue.

2. Emcien: Assortment Planning And Up‐Selling Based on “This Sells With That”
Walmart’s (formerly Wal‐Mart) announcement of a SKU rationalization project
contained in this year’s 10‐K filing with the Securities and Exchange Commission
confirms the importance of this initiative for all retailers. In SKU (Stock Keeping
Unit) rationalization, a retailer examines the profitability of items and vendors as a
whole. When done in a linear fashion it results in lost sales and bringing back the
SKUs.
Increasing sales is based on knowing “what items are bought together” so that
retailers and distributors can improve merchandising and drive more sales through
all channels. As shoppers, we all buy items in groups. It is the task of the retailers to
figure out what kinds of items are bought together, to optimize merchandising,
increase revenue and keep customers coming back. Simple example ‐ If I cannot buy
both bagels and cream cheese at the same time, I will go to a store where I can find
them both!
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3. Emcien: Assortment Planning And Up‐Selling Based on “This Sells With That”
SKU Classification Based on Frequency of buys and Product Relationships
SKU analysis for assortment planning is based on two key metrics:
The frequency of buys. This is a metric that measures true popularity of an item
based on how often customers buy this product. For measuring popularity, it
is better metric than volume as it is not skewed by one‐time large volume
purchases by a few customers.
Correlation Or How often this item is bought with other items. This metric is a
measure of how strongly correlated this item is with other items that you
sell. If an item is always purchased with another item (like bagels and cream‐
cheese), it is very important to know the "often bought with" items, and
ensure that they are stocked together and in the right proportions. Not
having one item from a basket of high affinity products will result in loss of
the customer.
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4. Emcien: Assortment Planning And Up‐Selling Based on “This Sells With That”
These two metrics also apply for Amazon‐esque suggestive selling for online sales.
Items that have high correlation with other items are candidates for suggestive
selling, up selling, cross‐selling and add‐ons. For example, this would be a way to
detect that cables, cartridges and paper that are bought with a particular printer. So
when that printer is bought, you can automatically suggest the other items as add‐
ons. (Not to get too technical here, but the suggestions are not symmetrical. So ‐ you
cannot suggest a printer when a customer buys paper!)
The implications of these product relationships cannot be emphasized enough on
your merchandising strategy and your supply chain planning. Manufacturers,
distributors and retailers struggle to manage thousands of SKUs. This SKU
classification presents a methodical approach for assortment planning to maintain
the most profitable portfolio.
SKU Categorization For Merchandising, Up selling and Cross selling
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5. Emcien: Assortment Planning And Up‐Selling Based on “This Sells With That”
The second chart presents a more detailed discussion of the SKUs based on
frequency, how often the product is bought, and its affinity with other products.
(Affinity simply means, "This items sells with that".)
I ‐ Items that have low‐frequency/ high correlation are important to detect.
These are troublemaker SKUs. As companies goes though SKU rationalization
projects, these items often end up on the chopping block, only to brought back again
because they caused lost sales. These items are difficult to identify and there is a
need for sophisticated analytics to easily identify these items.
II ‐ Items that are bought in high quantities, but always with other items are
great candidates for merchandising and bundling. They are a natural for creating
sales lift and revenue lift. It is often counter‐intuitive, but your #1 top seller may
not be in the #1 pair of top selling items. That is why linear analysis of the SKUs
based on volume or frequency results in incorrect merchandising.
III ‐ The low frequency/ low correlation items are the targets for SKU
rationalization projects. However, these items are very difficult to identify. Hence
SKU projects typically end up cutting the wrong SKUs. We call these items Low‐
Loners. If you are a distributor, you do not want to carry these items. They are
perfect candidates for drop‐ship.
IV ‐ Items that sell in high frequency, but usually on their own, require high
service levels. We call these Hi‐Loners. Examples of these items are cigarettes and
gas at a convenience store. And by the way, beer also falls in this category. And
please do not believe the beer and diapers myth! It is a myth!
The challenge with SKU management is that companies make decisions based single
SKUs in a linear fashion. On the product relationship, decisions are made based on
hearsay, industry veterans or tribal knowledge. I think that's how the beer‐diapers
myth was started! And it is a myth!
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6. Emcien: Assortment Planning And Up‐Selling Based on “This Sells With That”
Across thousands of SKUS, and with fast changing demand patterns, this results in
errors. Companies need a sustainable process for merchandising, assortment
planning and SKU management. There is too much at stake to base a companies
sales and revenue on hearsay.
As SKU management and merchandising is getting a lot of attention, there is need
for robust solutions based on real customer buying behavior, to help companies
maintain a profitable portfolio on a continuous basis. The value is high sales, higher
margins and improved customer service.
About Emcien
Emcien provides Pattern Based Analytics that takes your sales data and
automatically reveals what choice combinations your customers are buying.
Emcien’s software‐as‐a‐service solution eliminates the need for data models and can
be deployed instantly, increasing your sales and revenue. To learn more, visit
www.emcien.com
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