Optimal Category Mix in Multi-Category Retailing – Insights from an Experiment

Abstract

In brick-and-mortar retailing format, retailers need to ensure minimum level of inventorydisplayed at each store for each category irrespective of the revenue or profit generated by aparticular category. It is observed that majority of bricks-and-mortar retailers in India assume;(a) existing category mix is ideal for their stores, (b) any modification in the existing categorymix could possibly lead to loss of sale of an existing category, (c) it is preferred to havecategories generating higher average transaction values and most importantly,(d) categorieswith lower average selling price products and generating lower average transaction valuesnegatively impact store’s revenue. Such assumptions and widely followed practice havecreated a predisposition and mindset in store managers and they believe that, their storedelivers revenue and profit to the best of its potential with the existing category mix. In thisresearch, we have analysed the existing category mix of a select retailer, attempted to alter theexisting category mix through an experiment and evaluated change in (a) category levelprofitability, and (b) overall store profitability.