Saturday, February 26, 2011

Rationalize Your Inventory by Pooling

“SKU rationalization” refers to a retailer regularly reviewing the inventory mix to rationally decide which items—referred to as Stock-Keeping Units—to add, which to retain, and which to eliminate. The impetus for the development of SKU rationalization methodologies was the growing body of research evidence that each consumer tends to use an infinitesimal fraction of the numerous items available. For instance, a recent article in The Wall Street Journal points out that although almost everybody uses just one brand and type of toothpaste, there are currently more than 350 toothpaste varieties available in the marketplace. Retailers can reduce inventory ordering and storage costs by stocking fewer different SKUs.
     But will those retailers still sell as much? From a shopper psychology perspective, the three biggest challenges with SKU rationalization are:
  • Consumers have fortress brands. These are the ones which win deep allegiance from the consumer by becoming highly integrated into daily rituals, even quite mundane routines. Brushing my teeth doesn't feel right unless the taste of the paste and the look and feel of the tube are familiar. One source told the WSJ reporter of fears that if the retailer who supplies a faithful customer’s toothpaste deletes the fortress brand, there’s a measurable possibility the consumer will go elsewhere to look for it, and while there, buy the rest of the items on their shopping list.
  • Consumers want customization. Over the past years, shopper desires have been drifting from the general to the specific, from the one-size-fits-all to the specialty and the personalized. If a retailer offers only a limited selection, the shopper will strike out to find the trendy shop.
  • Consumers want choice availability, even when they will select the identical option repeatedly. People overestimate the extent to which they’ll get tired of the same types of cereals and sunglasses. They think they’ll want to make a change when, in fact, they’ll end up sticking with a favorite.
     Research findings from University of Navarra in Spain and University of California-Los Angeles indicate that one way to lessen these problems is to do SKU rationalization by pooling product images. In advertising and signage, use different marketing messages for the same product. This works best when combined with personalizing the face-to-face selling. Maintain pleasant eye contact in ways that are culturally appropriate, call customers by name when possible, and ask customers questions that include the word “you.”

Click below for more:
Switch Brand Selection with Shopper Anxiety
Update Your Niche Whenever Necessary
See Through Consumers’ Boredom Fears
Personalize the Selling Message
Pitch the Synergy of Multifunction Items

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