Taxonomizing your business need not be taxing. Successful taxonomies help optimize sales by grouping like products into categories that allow you turn sporadic or inconsistent sales data into usable metrics.
There are many ways to determine the best way to categorize your products. I will focus on three: similar offering, similar style and similar seasonal cadence.
Similar Offering: Products categorized based on directly competing with other products in their taxonomy
Think of buying slim denim jeans. Levi’s has several slim fit jeans that compete against each other, like the 511 style and the 513 style.
Business Analysis Example: It is September and the busy season for denim sales and no slim jeans (511 and 513) are selling well. You may want to consider buying different types of denim bottoms in-season to capture some sales (from bootleg, bell bottoms) since slim jeans are NOT performing.
Similar Style: Products are complements of each other
Think of shopping for towels at a home store. A taxonomical category “bath linens” might have branches “bath towels,” “hand towels,” and “washcloths,” which complement each other. They make sense to merchandise together since you would likely buy several of them together.
Business Analysis Example: If hand towels in blue are selling really well and this isn’t a color you offer in bath towels, you may want to consider adding blue bath towels. The color blue is performing in the hand towels so you could have sales opportunity for that color in bath towels.
Similar Seasonal Cadence: Products will peak at a certain time of year
Think of swimsuits and cover-ups. These would both sell at the same time of year, and would likely have high sales in the same months. Therefore, it would make sense to bundle them together.
Business Analysis Example: It’s May and bikinis are doing well and cover ups aren’t. You maybe want to look at buying different cover-ups because the customer is buying bikinis and the seasonality is the same so they should both be selling at the same time.
But how do I break down my products into categories? The answer depends on how you run your business and your understanding of what products compete with each other, which products are trade-offs, and which products peak at certain times of the year.
A good gut check is: does this make sense from a consumer end of shopability? Is it weird to lump ketchup in with ice cream? Probably. Is it normal for ketchup and mustard to be together? Yes. Trust your gut and your business knowledge and taxonomize your business to yield great results.