As many of you know, I was among the first IT execs in the United States to successfully implement a merchandise planning system. The planning process at that time was pretty straightforward, and has remained more or less the same for the past twenty-five years. But that’s changing now, in some really fundamental ways.

First: the computing power we now have available to us allows us to build our plans from a sku-level demand forecast. That’s very different from the key item planning of the past and for folks like me, is actually hard to wrap your head around. “You’re telling me you want me to build a demand forecast for every single sku? ” Yup, that seems to be what we’re saying. And you won’t have to take a lunch break while it calculates.

Second: The wealth of customer data we now have available to us from online, social and mobile channels provides new opportunities, and suggests some new approaches. And that’s the area I want to focus on today.

Merchandise plans are typically viewed as a cube of three dimensions: Product, location, and time. When the on-line world came along, the ecommerce channel was generally viewed as a separate location, so it got tucked in there.

All planning systems worth their salt have always allowed alternate hierarchies in each of these three dimensions. So:

• Products could be rolled up either to class, department and category, or to buyer
• Time could be rolled up to months and seasons or, in the case of retailers who also sold through catalogs, to catalog “lifecycles “
• Locations could be rolled up geographically or by regional management

Of course, other alternatives are available to slice and dice products and locations. Attributes are also frequently used to group seemingly unrelated elements. In fact, in this year’s recent Merchandising Benchmark, 61% of Retail Winners (those who out-perform inflation in year over year comparable store sales) rated attribute-based planning systems as very important technologies.

It’s also worthy to note that 50% of respondents to that same survey also said they see incorporating customer data into their merchandising processes as a top-three opportunity. So if customer data is that integral are attributes enough to do the job?

That’s what really got me thinking. I’ve run the concept of “customer ” as part of the planning model through my head for several years. But it’s hard enough to think of a cube, what to speak of a tesseract (apparently this is a four dimensional object) for merchandise planning purposes. I just couldn’t wrap my head around how it would look or even function.

We have always picked our store locations based on how well they geographically matched up to our target customer segments. Or as the mantra goes, retail is all about “location, location, location. ” But in an omni-channel world, don’t we have a chance to flip the thing around? The stores aren’t going anywhere, but can’t we look at customer segments across geography, not as an attribute of a location or a product. Why shouldn’t customer segment be an alternate hierarchy of location? In fact, as the world goes more and more virtual, you’d almost expect location to be the alternate hierarchy of the primary hierarchy: customer segment.

Making this a reality is obviously more complicated than what I’ve laid out here. It begs a few questions like: “What does the customer segment hierarchy look like? ” and “Doesn’t there need to be reconciliation between segments and locations, and if so, isn’t it really a planning tesseract after all? ” I’ve just begun this thought process and am interested in continuing.

One thing I’m pretty sure of is one day someone is going to ask me “Seriously, you want me to build my customer segments from the bottom up? ” and I’m going to reply “Yup, that’s the best practice today. “

In the meanwhile, all thoughts are welcome. In fact, we’ll be hosting a webinar on September 25 to unveil the research we’ll be conducting in 2013, and I think you’ll see how customer segmenting will be shaping our 2013 merchandising survey. We hope that you’ll attend, because we greatly value your feedback!