Monday, August 12, 2013

Category Management Series: Managing The Product Range And Its Consequences Inspired By The Ikea Edge From Anders Dahlvig

The first blog post I wanted to share about my reading of Anders Dahlvig's book The Ikea edge is actually linked to category management. Indeed, as a category manager, we are responsible of the listing and unlisting of products, and therefore, we need to master the width of one product range.

Most of the time, category manager tends to look after the largest product range. Indeed, owning the largest listing allows your category to become a leader in its trade: The more you have products, the more customers will consider your category as performing. Also, the larger the product range, the larger the sales, as you cover the most customer needs.

But as a category manager, it is also important to always understand what impact having a large range also implies:
  • High inventory,
  • Larger stores to show out your range
  • High wadges due to the manutention cost to put products on shelves.
Ikea is for sure the definition of a hard discounter, or a low cost company as you like. Anders Dahlvig's philosophy is: while choosing between a large product range and supply chain/ operationnal efficiency, Ikea will always choose operationnal efficiency.

As Dahlvig says, Ikea has a target of 2 500 products in its listing. Ikea, thanks to its concept and the attraction of its store, could sell almost anything, and has a lot of great products that supplier show them all the time. But because of their eagerness to get high efficiency on the operationnal point of view, they always keep their 2 500 products threshold. Keeping a short product range allows Ikea to keep low prices because they master their retailing costs.

Should you apply this rule to any kind of retail? Of course not! Amazon's goal is to get as much products as they can, because their business modell is much different than a hard discounter. But when thinking about category management, it is important to always keep in mind the cost of one new product in the range is.

In the Category Management Series: