An item group is a collection of products which share similar attributes like color, production, features, or usage. Item groups can also be formed based on the markets in which they’re sold or if they’re similar in price. For example, if an iPhone is an item group, then items in that group would be iPhone 5, iPhone 6 and iPhone 6s.
Even though the items are grouped together, each item from the group is a standalone product and can be purchased separately.
How are item groups useful?
New items are added to existing item groups to expand your product line or to replace an old item or group which isn’t performing well. Here are the advantages of item groups and how they can help your business function more effectively.
To reduce the risk of introducing new products
Having item groups reduces the risks associated with launching a new item variant in the existing item group, and serves as a low risk strategy by making it for visible to the customer. This is because the end customer is familiar with the brand, and if the newly launched product fulfills their needs, they wouldn’t hesitate to try out the new item.
To aid in market expansion
A wide range of products can cater to different market segments by fulfilling the customer’s varying needs. This enables the company to benefit from selling different items from their item groups to a multitude of customers without spending a lot on customer acquisition. Also, extending your item groups will widen the choices for your customer, thereby increasing your market share.
To study the performance of a particular set of items
Item groups help you find the cost and profit margins for a specific type of product. It gives you insights on how the product is performing in the market and which variant is doing well. For example: Volkswagen can study the profits of its product Polo line and analyze the sales and its performance in the market. This information will help the company make decisions on which variant is doing well and which can be removed from the market
To maintain the same manufacturing process
When a company sells or manufactures similar products such as a furniture company which sells different models of chairs and tables separately planning and manufacturing for each material isn’t effective. For this reason, companies place products with similar manufacturing characteristics into an item group and the variation to the items will be added in the final stages of production or as add-ons once the production is completed. The furniture company mentioned above could use item groups to sort wooden tables separately from glass tables, to more easily keep track of what materials they need. This reduces cost and material usage during manufacturing.
To help organize your products
Imagine if your inventory is scattered with many items without a proper arrangement. You might be unsure as to what to order, which products are similar to each other, and how to price them. Creating an item group will help you organize items with similar attributes together, price them effectively, and know when to order a particular item from an item group based on the overall performance of that particular line of products.
What is an item mix?
An item mix is a collection of all the items that the company offers to the market. It is made up of both item groups and the individual items. Item mix can help you know how many different item groups can be formed with a variety of items. If you’re a small business owner, you’ll face limitation on the number of products you’re able to offer. An item mix will help you derive the ideal range of items for your customers and eliminate items which have a lower sales ratio. This will help you declutter your selling and storage space in the inventory and offer products your customers want without incurring inventory holding costs. There are four different dimensions associated with the item mix:
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Item group length
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Item group width
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Item group depth
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Item group consistency
Item group length
It gives us the total number of products in all the item groups. Item group length is determined by the number of item groups multiplied with the number of items in that item group. If a company has 8 item groups and each group has 10 items, then the length of the item group will be 80.
Item group width
Item group width is the number of item groups you have, which helps you know the number of product lines offered by the company. If a company has 8 item groups and 10 items within each group, then the width of the item group is 8. Therefore the item group width is equal to the total number of item groups
Item group depth
Item group depth helps us know the total number of items in an item group. If a company has 8 item groups and each group has 10 items, then the depth of the item group is 10. Item group depth is the total number of items in an item group.
Item group consistency
To determine the item group consistency variations between the items are considered. It is determined based on the usage, production, and distribution. The fewer the variations between items, the higher the item group consistency. For example: Ferrero’s top variations are Kinder, Rocher and Nutella which are all chocolates, hence their item mix consistency is high. Whereas, Apple has item groups where their product lines are not related to one another: iPhone is different from Macbook, which is different from their airpods, so their item mix consistency is low.
Learning how to create the right item groups with related items is crucial when you start selling your products in the market. Item groups help keep your inventory organized by helping you stack and dispatch related items, thereby helping in effective inventory management.
