BrainTrust Query: SKU Rationalization Done Right
a special arrangement, presented here for discussion is a summary of a current
article from Applied Predictive Technologies’ The Insight Aisle blog.
a bid to cut expenses and increase revenue, the Girl Scouts are reportedly
testing a plan to reduce their assortments to just six different cookies. It’s
their own version of SKU rationalization.
According to a report in The Wall
Street Journal, "A dozen
councils testing the cutbacks with licensed baker Little Brownie Bakers, which
is owned by Kellogg Co., hope to streamline sales, speed up cookie delivery and,
ultimately, increase profits."
In other words, the Girl Scouts are trying
the changes before implementing them full scale. This is common sense. For
most retailers, correct and profitable SKU rationalization is harder than for
the Girls Scouts. The Girl Scouts’ test
will be focused on one key question: When we reduce assortment, what happens
to the sales of the remaining cookie types, ideally vs. a control group? Reducing
assortment in some (test markets), but not all parts of the country (control
markets) should inform the decision about whether to reduce the cookie assortment.
For retailers, SKU rationalization needs to go a few steps further and it requires
transaction level (T-Log) data, which is not always easy to analyze.
understanding total economic impact goes beyond individual product profitability
measures such as GMROI. It encompasses two criteria about any product on the
shelf that can be learned from the T-Log data and some key questions:
1) Product Loyalty:
- How loyal are customers to each product? Have they
demonstrated a willingness to substitute with competing products, or do customers
who buy this product always return for the same SKU?
- How does that product loyalty
picture look among the retailer’s
highest value shoppers (most frequent and/or highest spending)?
2) Basket Profiles:
- Is this product typically included in higher value baskets?
- Is this product
a "driver" of the trip, or more frequently
Answering the above questions should inform which products
are candidates for SKU rationalization. As the Girl Scouts show, the final
step is to try the changes in a small, low-risk test before rolling them out
everywhere. Only by testing the changes can retailers measure and understand
customer response and adjust their product assortment accordingly in a full
- SKU Rationalization Done Right – Applied Predictive Technologies
- Cookie Cutters: Girl Scouts Trim Their Lineup for Lean Times – The Wall
Discussion Questions: What criteria and steps should guide any SKU rationalization effort for retailers? What are some common mistakes you’ve noticed around recent or ongoing SKU rationalization efforts?