Share of C-Category Items (SCI) is an insightful key performance indicator (KPI) in e-commerce that relates to ABC analysis. It focuses on understanding the proportion of products that contribute to the bottom 5% of total revenue.
This KPI is based on the Pareto Principle or the 80/20 rule, which states that 80% of a company’s revenue comes from 20% of its products. By analyzing the SCI, companies can uncover inefficiencies in their product assortment, identify underperforming products, and refine their inventory for maximum profitability and customer satisfaction.
Key Takeaways
- Definition: Share of C-Category Items (SCI) is a key performance indicator (KPI) that measures the proportion of products that contribute to the bottom 5% of total revenue in an e-commerce business.
- Calculation: SCI is calculated by dividing the number of C category items by the total number of SKUs and multiplying by 100.
- Strategic Importance: The SCI helps companies optimize inventory, allocate resources effectively, develop strategic plans, improve customer satisfaction, and increase overall profitability.
- Optimization Strategies: To improve SCI, companies can review product performance, implement dynamic pricing, improve marketing efforts, consider product bundling, and capitalize on cross-selling opportunities.
- Limitations: While valuable, SCI has limitations, including not necessarily correlating with profitability, potentially overlooking niche products, limited insight into customer preferences, potential bias in inventory decisions, seasonal variations, overemphasis on top sellers, lack of consideration of supplier relationships, and reliance on ABC analysis.
- Complementary metrics: SCI should be evaluated alongside metrics such as inventory turnover and gross margin return on investment (GMROI) for better inventory management.
Why does Share of C-Category Items matter for your business?
The SCI metric brings forth numerous benefits for an ecommerce business:
- Inventory Optimization: SCI helps in identifying the underperforming products, allowing businesses to make informed decisions regarding inventory management and product discontinuation.
- Resource Allocation: Understanding the SCI enables businesses to allocate resources more effectively by focusing on products that drive higher revenue.
- Strategic Planning: Through SCI, businesses can develop strategic plans to promote or improve the positioning of C-category items, enhancing their performance.
- Customer Satisfaction: Knowledge of SCI allows businesses to eliminate less popular products, enhancing the shopping experience by making the assortment more relevant to customer needs.
- Profitability: Focusing on products that contribute significantly to revenue, businesses can improve overall profitability by minimizing the focus on low-performing items.
How to calculate Share of C-Category Items (SCI)?
Explanation of the parts of the formula:
- Number of C-category Items represents the quantity of items that fall under the C-category in ABC analysis. These are typically products that contribute to a smaller portion of the total revenue, often around 5%.
- Total Items (SKU) is the aggregate number of different items or stock keeping units (SKU) available in the inventory. This encompasses all items, irrespective of their classification in the ABC analysis.
- The ratio provides a sense of the proportion of C-category items in relation to the total variety of products available in the inventory. It generates a value between 0 and 1 (or 0% to 100% when represented as a percentage).
- Multiplying this ratio by 100 converts it into a percentage, offering a clearer insight into the proportion of C-category items.
In essence, the share of C-category items KPI is an indicator of the balance and efficiency of the product assortment within the inventory. A higher percentage might indicate an opportunity to optimize the assortment by possibly reducing some of the C-category items or focusing on improving their sales.
Example Scenario
Let’s assume that in a specific period:
- Your inventory comprises a total of 10,000 items (SKUs).
- Out of these 10,000 items, 7,000 are classified as C-category items.
Incorporate the numbers from the example scenario into the formula:
- Share of C-category Items = \((7000 / 10000) × 100\)
- Share of C-category Items = \(0.7 × 100\)
- Share of C-category Items = 70%.
This implies that 70% of the total items in the inventory during this period are C-category items, contributing to around 5% of the total revenue.
Tips and recommendations for optimizing Share of C-Category Items
Review product performance regularly
It is critical to consistently evaluate the performance of all items, especially C-Category items. By conducting regular reviews, you can identify opportunities for improvement or determine if certain items are no longer meeting customer needs. This assessment allows you to make data-driven decisions about whether to improve underperforming C category items or remove them from your inventory to optimize your product offering.
Implement dynamic pricing
Consider implementing dynamic pricing strategies for C category items. Dynamic pricing allows you to adjust the prices of these items based on various factors, such as demand, competition, or market conditions. By using this strategy, you can make C category items more attractive and competitive, attracting customers with compelling prices that reflect their willingness to pay and market dynamics.
Improve marketing efforts
To increase visibility and sales of Category C items, it’s essential to improve your marketing efforts. Develop targeted marketing campaigns specifically tailored to promote these items, highlighting their unique features, benefits and use cases. In addition, consider offering discounts or incentives for customers to purchase C category items, or bundle them with more popular products to further increase their visibility and appeal.
Consider product bundling
Another effective way to increase the appeal of C category items is to bundle them with popular products. By pairing these items with well-known or highly sought-after products, you can create a perceived value proposition that entices customers to purchase. This bundling strategy not only increases the appeal of C category items, but also encourages customers to explore other offerings, potentially leading to increased sales and customer satisfaction.
Examples of use
Discounting Strategies
- Scenario: An ecommerce store identifies a significant portion of C-category items in its inventory.
- Use Case Application: Applying discounts or creating exclusive offers on these products can be an effective strategy to improve their attractiveness and clear out inventory, ensuring that the product assortment remains optimized.
Targeted Marketing
- Scenario: Certain C-category items have potential but are underperforming.
- Use Case Application: Creating targeted marketing campaigns to boost their visibility and attract potential buyers could improve their performance and overall contribution to revenue.
Product Bundling
- Scenario: An ecommerce business wants to increase the appeal of C-category items.
- Use Case Application: These items could be bundled with best-sellers or A-category items, creating a more attractive offer and encouraging customers to consider purchasing them.
Cross-Selling Opportunities
- Scenario: An ecommerce store realizes that certain C-category items are often viewed or purchased together with specific popular products.
- Use Case Application: The store can capitalize on these patterns by promoting C-category items on the pages of these popular products, or vice versa, enhancing cross-selling opportunities and possibly improving the performance of C-category items.
Customer Feedback and Reviews
- Scenario: An ecommerce business observes that certain C-category items have fewer customer reviews or lower ratings.
- Use Case Application: Encouraging and collecting more customer feedback can be beneficial. It can offer insights into potential improvements, adjustments in product descriptions, or highlight unique selling points that may not have been adequately emphasized, thereby potentially increasing the attractiveness and sales of these products.
Share of C-Category Items SMART goal example
Specific – Reduce C category items in inventory by 30%. C-category items are those that contribute the least revenue, and reducing them will help optimize inventory by making room for more profitable items.
Measurable – The percentage of C category items is assessed by comparing the percentage of these items in the inventory before and after the reduction strategy is implemented. The goal is to see a 30% reduction in the presence of C category items in the total SKUs.
Achievable – Yes, by performing a thorough ABC analysis to identify the C category items and then developing a strategy to either discontinue, discount or bundle these items to increase their turns. A periodic review of inventory is also conducted to reevaluate the categorization of items.
Relevant – Absolutely. Reducing the percentage of Category C items is consistent with the goal of optimizing inventory and improving overall business profitability and operational efficiency. It is a strategic approach to focus on higher margin items and improve assortment.
Timed – The goal is to achieve a 30% reduction in C category items within the next three months. Regular monthly reviews will be conducted to monitor progress and make any necessary adjustments to the strategy to ensure that the target is achieved within the defined timeframe.
Limitations of using Share of C-Category Items
While the Share of C-Category Items is a valuable metric for understanding the diversity and performance of products in an ecommerce inventory, it comes with its own set of limitations when used in business analysis:
- Not Necessarily Tied to Profitability: A high share of C-category items indicates a larger number of low-revenue-generating products, but it doesn’t necessarily correlate with low profitability. Some C-category items might still have high margins despite lower sales volumes.
- May Overlook Niche Products: C-category items may be niche products that cater to a specific customer segment. Overemphasis on reducing these items could alienate certain customer groups and lead to a loss in market segments where a business could have a competitive edge.
- Limited Insight into Customer Preferences: Focusing on the share of C-category items doesn’t provide in-depth insight into why customers prefer certain products. Understanding the reasons behind the popularity of A or B-category items might offer more strategic value.
- Potential for Skewing Inventory Decisions: An undue focus on reducing C-category items might lead businesses to make drastic inventory changes that don’t necessarily align with broader market trends or long-term business strategies.
- Seasonal Variations: Some C-category items might perform better in different seasons or during specific promotional periods. A failure to account for these variations could result in misguided inventory decisions.
- May Lead to Overemphasis on Top Sellers: Concentrating on reducing C-category items might lead to an overemphasis on top-selling products, risking inventory diversity and making the business vulnerable to market fluctuations.
- Doesn’t Factor in Supplier Relations: C-category items might be sourced from suppliers who offer favorable terms, ensuring reasonable profitability despite lower sales volumes. Overlooking supplier dynamics might lead to overlooked cost-saving opportunities.
- Dependency on ABC Analysis: The classification of items into categories A, B, or C is based on the ABC analysis, which itself could be subject to biases and inaccuracies, affecting the reliability of decisions based on the share of C-category items.
In summary, while C-category share is critical to inventory management and optimization, it should be used in conjunction with a variety of other metrics and analyses to make well-rounded and strategic business decisions. It shouldn’t drive inventory and assortment strategies alone.
KPIs and metrics relevant to Share of C-Category Items
- Stock Turnover Rate: Indicates how often the inventory is sold and replaced over a period, helping businesses understand inventory efficiency alongside SCI.
- Gross Margin Return on Investment (GMROI): This metric assesses the profitability of inventory investment and can be analyzed alongside SCI for better inventory management.
Final thoughts
Share of C-Category Items (SCI) is critical to optimizing inventory, focusing on profitable products, and ensuring that product assortments are aligned with customer needs and preferences. By understanding and effectively applying this metric, e-commerce companies can improve strategic planning, profitability, and customer satisfaction.
Share of C-Category Items (SCI) FAQ
What is the Share of C-Category Items (SCI)?
SCI is a KPI that helps in identifying the proportion of products contributing to the lower 5% of total revenue in an ecommerce business’s assortment.
How does the SCI impact inventory management?
SCI aids in optimizing inventory by focusing on eliminating or improving the performance of underperforming products.
Why is it essential to analyze the SCI?
Analyzing the SCI allows businesses to make informed decisions regarding product assortment, ensuring that only profitable and appealing products are prioritized.
How can I improve the performance of C-category items?
Improving marketing efforts, employing dynamic pricing, and considering product bundling are strategies that can enhance the performance of C-category items.