Sunday, May 03, 2015

Category Management: When Too Much Product Range Hurts Productivity

As a purchaser in a FMCG world, most of the time I see suppliers coming to me with extended product range, willing to spread their range in my stores. Obviously, the argument is the more products you propose, the more sale. But the ratio is not that obvious. I will probably detail this fact in further posts, but owning wide product ranges has a cost (operations, supply chain, stocks, complexity...). But this is not this fact I would like to point out.

Here is the chart

The red lign marks the private label marketshares, while in green you have part of the category they represents in terms of SKUs.

As you can see, for quite a while the marketshare rose even faster than the number of SKUs. But starting in 2009, while the number of SKUs kept on growing, the market shares started plumetting. It showed a clear plateau: More products did not meant more sales.

Obviously, while managing a category, you have to study how many products you need in order to respond to your demand. And therefore sometimes it is wise to cut some SKUs in order to perform better, and leverage other items, such as pricing or store execution in order to lift sales.