09Aug2009
SKU Rat Redux
PRODUCT LAUNCHES HAVE doubled in the past decade but frozen and dairy space hasn’t. If your marching orders are to cut back on SKU counts, your job is tougher than ever. So here’s how to determine which items to let in, which to keep and which to cut. Sorry, you’ll have to figure out your own hurdle rate for the benchmarks mentioned here.
LET IN SKUS THAT:
- Have a ton of marketing support for the launch.
- Come with a sales guarantee or Scan-Based Trading program.
- Are growing sales somewhere else.
- Are unique to the shopper.
The last point means that shoppers have no alternative in the store. Yes, dairy and deli buyers may need to negotiate. If pretty-much the same item is already in the other department, you might want to forget it. Pick your battles – standing your ground for product duplication is not wise. By the way, shoppers have no clue about internal turf issues.
KEEP SKUS THAT:
- Have significant market penetration.
- Deliver marketing and merchandising funds.
- Are growing sales in your stores.
- Support your local go-to-market strategy.
Customers expect to see items in your store that they see elsewhere. But if your stores are the only place in town to get a local restaurant’s spaghetti sauce, for example, why give this differentiation to a competitor?
CUT SKUS THAT:
- Are declining in sales, i.e., in the sunset phase of a product’s lifecycle.
- Are redundant to the shopper.
Beyond the easy-to-spot sales slide, look for multiple sizes of the same basic product and multiple brands, including private label. (Be careful here and extra careful with store brands. Brand loyalty is real, even though it may be going through some big changes during the recession). Notice that “insignificant market penetration” is not a criteria for cutting a product. W
HAT’S OLD IS NEW
This methodology is based on shopper perspective, supported by data. Not the other way around. Concentrating solely on data can lead to complications related to shopper dissatisfaction and defection.
If you trim items using the above guidelines, few shoppers will notice. I once conducted a SKU-reduction study driven by the shopper perspective. Even though SKU count declined by 6% to 22% in the six study categories, 80% of shoppers surveyed saw no difference.
Even better, 16% thought the shelves contained more – not fewer – items after the reset. Oh, and sales actually increased 1.6% with the redundant items off the shelf.
Today, shoppers still have trouble finding what they want and out-ofstocks still hurt sales. However, some categories probably need more pruning than others. So consider this:
- Run a category analysis of sales per SKU. If sales/SKU are declining and sales are increasing or flat, you probably have a saturated category and it’s time to cut. If sales/SKU are flat or increasing, you need to continue nurturing category growth. Add SKUs that are not redundant.
- Find out what shoppers would substitute. You can ask them directly through focus groups or connect through your favorite social media network. Set up a group of fans on your FaceBook page to tell you what they think about your SKU plans before you make a decision. They can help. Really.
Or, you could force out-of-stocks in a test store and watch what happens in your loyalty card data. You could even see if shoppers bought the item at one of your other stores.
Consideration for the shopper’s idea of variety is easier said than done. Robust data systems and strong market basket analytics help. But SKU rationalization still needs a heavy dose of personal involvement by the category expert. Especially when you consider that different stores could benefit from slight variations in assortment.
But that’s a topic for another day.
