Consumer-goods companies, take note: It may be time to clean out the clutter.
Manufacturers and retailers have expanded their product offerings at unprecedented rates over the past decade, often by taking a popular product and selling it in various sizes, brands, colors, fabrics and flavors.
Some of these companies think that by being all things to all people—say, by offering 17 varieties of toothpaste—they will increase sales and deter competitors from entering the market. Others are afraid to remove products that have been around for a while—or are declining—for fear of turning off important customers. And sometimes, big retailers ask manufacturers to produce a unique version of a product just for them, so they can prevent customers from comparison shopping.
But instead of improving profitability, these tactics often lead to bloated product portfolios that raise a company’s costs, reduce supply-chain efficiency, confuse consumers and lead to shortages of popular products.
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A slimmer product lineup, on the other hand, offers numerous benefits. Marketing executives can better monitor sales, competitive developments and crises such as product recalls. Manufacturers can cut back on costly assembly-line changeovers and the payments they offer retailers to guarantee shelf space for products. Retailers offering a smaller selection of similar goods have fewer suppliers to manage, more shelf space for their best-selling merchandise, and fewer customers leaving stores overwhelmed and unable to make purchase decisions.
Since it can be challenging to prune a product portfolio without turning off key clients and customers, here are some suggestions on how to do it right:
Don’t Ask Consumers
If you ask customers whether they want more variety, I can tell you right now what they’re going to say: Yes. After all, who doesn’t think they want a lot of choices? And it’s common for consumers to be both sad and angry when a product they like is discontinued.
So don’t bother asking. It’s better to depend on data, rather than what is often a mistaken emotional response.
Gather information from point-of-sale systems and loyalty programs, analyze product data such as sales per square foot, and conduct field experiments to determine what effect offering a wide selection of similar goods—say,
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One of the beneficial side effects of all the retailer driven assortment rationalization is that the CPG firms had to re-assort their features and benefits across the remaining SKU’s or replacement SKU’s in order to have their brand promise fully represented. After years of SKU proliferation as a defense against Private Label, this was not easy but was definitely a step in the direction of greater relevance and tighter delivery of brand promise to consumers
Tim O’Connor
RetailNet Group