Have you noticed that some of your favorite brands and products are no longer available in the size, color or flavor you used to buy?
For example, clothing retailer Lands’ End has reduced the scope of colors on their popular Super-T t-shirts.
For various reasons, product-makers are cutting back. The Covid pandemic caused many companies to take a focused look, perhaps overdue, at product assortment. According to a report in The Wall Street Journal, “the furniture retailer Malouf sells beds and bedding in a fraction of the colors it did a few years ago. Newell Brands, the Sharpie maker, has retired 50 types of Yankee Candle. Coca-Cola offers half as many drinks.”
Good marketing has many important components, some of which are not sexy and don’t get the proper attention they deserve.
One important marketing management component is SKU management, sometimes called SKU rationalization. Basically, this means conducting regular reviews of your product assortment, item by item, to track sales and understand their relative importance to customers and profitability.
The results can be eye-opening. The Pareto Principle (also known as the 80/20 Rule) often applies, meaning that a disproportionate percent of sales comes from a small number of SKUs.
There can be hidden costs to keeping items with little or no sales volume, such as:
- Excess inventory can negatively impact working capital and overall profitability.
- Keeping underperforming products on the official list of products for sale can decrease supply chain performance and potentially increase costs.
- It can be confusing to the sales team, and hurt priority management, if they are expected to promote an overall portfolio that’s bloated with products customers are not buying.
- Unnecessary product assortment may siphon limited R&D resources from critical product support, new product development and/or innovation initiatives.
3 Easy-to-Implement SKU Management Action Steps
Managing SKUs is a matter of marketing discipline, and marketers shouldn’t wait for the finance team to come calling with questions.
Get the Data
One way to do this is to incorporate an SKU review annually as part of the marketing plan/marketing budget process.
It’s not hard to do, yet make sure you capture the important variables when you run the reports. Look at geography. Understand the customers. Factor in seasonality, if appropriate. It’s important to dig into the numbers and ask questions, though. Sales could be off on a particular item for reasons that don’t impact the ongoing viability of the product (e.g., weather, customer’s short-term inventory management, etc.) Also, there could be a big customer order pending that only the sales team is aware of, and you wouldn’t want to miss that opportunity.
Look for Opportunities
Explore ways to further leverage the big sellers and take advantage of any economies of scale. Maybe there are untapped customers or markets? In addition, the analysis may reveal a need to add to the assortment.
Cut When Necessary
When there is a valid reason to discontinue an item, do it. A few years back, after a deep dive into the complete SKU range of part of our company’s portfolio, there were a couple of products with zero or maybe almost zero sales for multiple years. When advised to discontinue those products, the product manager (a talented technical leader) in charge of that range commented: “I can’t do that.” The gentle reply was: “Yes, you can. You’re the product manager!”
It’s a funny remembrance and the purpose of sharing that anecdote is definitely not to disparage, but instead to reinforce an important point about the entire process. Don’t bother with the analysis if you’re not going to take action when warranted.
(Images in this post were generated by Microsoft Designer Image Creator AI)
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