The Power of Choice Could Be Hurting Your Business
I was walking through a grocery store recently, searching for the perfect sausages to grill on a hot summer day. Easy enough, right? Well, not when your local store carries more than 30 brands of sausages and more than 70 SKUs. I was instantly paralyzed by choice as I stared at the assortment within the aisle. At this moment, the first thing that came to mind were two words: Howard Moskowitz. And the first thing I did was curse his name.
In the 1970s, Moskowitz, a well-known market researcher, pioneered the idea of horizontal segmentation and intermarket variability as applied to the food industry. What this means is that Moskowitz demonstrated how producing slight variations of a product could increase sales. He was of the school of thought that there could be no perfect product, only perfect products. This idea was cemented in his research on spaghetti sauce, which found that there are overarching taste preferences, but no singular product to meet all needs. This is exactly why he encouraged Prego to expand its product line at a time when it only carried one spaghetti sauce. And just like that, Prego’s sales skyrocketed and the age of one product for every preference was born. I hold Moskowitz personally responsible for my sausage dilemma.
Today is a different story. Research shows that more choices, or SKU proliferation, can make shopping more difficult and can ultimately kill a sale. With shopper data, retailers can see whether an item brings new shoppers to a certain category or if it’s cannibalizing existing sales. For example, if a shopper only buys MorningStar, then it’s reasonable to think that taking it off the shelves could lead that shopper to abandon your store and make their purchase at a competitor. When we look at the data though, we see that most shoppers are likely to simply switch brands if their first choice isn’t available. It’s only the fear of losing a shopper that often leads to a marketplace that's overloaded with duplicate items.
The days of proliferation and choice as a comparative advantage are ending. Instead, retailers need to be better curators like Ahold, Lidl, Trader Joe's and others have figured out. Here’s what I recommend:
- Recognize that each category has an optimum number of choices beyond which there are diminishing returns — and increased complexity. One category could have three, another 33 as the preferred number of choices. More often than not, most categories are over-SKU'd and very few are under-SKU'd.
- Focus on limited core SKUs and push these sales hard. Highlight what differentiates them, using visually appealing and informative signage.
- Make your business more efficient by carrying larger quantities of fewer items, which also lowers shipping costs.
- Include private brands to round out options since consumers expect quality at reasonable prices. But don’t be fooled. If private-label products don't get critical mass and are dying on the vine, it won’t help to carry them without sales to justify the stock.
To stay ahead of the pack, retailers must move past SKU proliferation by making bold moves before the competition does. This starts with enhancing the shopping experience so that it's seamless for consumers by curating products using analytics and supplying better product information. Smart retailers will recognize the importance of consolidating products, and consumers will reward those who simplify. Love it or hate it, the question of choice could make the difference between doing and dying in the retail landscape.
Jim Holbrook is the CEO of Daymon, a provider of expert global retail strategies and services.