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SKU’s (stock keeping units) are key identifiers in consumer packaged-goods inventory systems. Each SKU code relates to a particular item—brand, variety, and size—that a retailer offers for sale. They are much in the news as retail merchandising evolves. Some notable retailers are lowering their cost structures by offering fewer SKU’s and they are gaining market share by passing along cost saving to consumers. Others, particularly in the online space where inventory is more flexible, offer more SKU’s so Consumer X can get the exact Product Y that she or he wants. These battling strategies will continue for years to come.
How about more typical retailing with a reasonable number of SKU’s to satisfy the majority of consumers, with a price point that consumers also find reasonable? What do we need to know about SKU’s?
It’s Thanksgiving and Tim is invited to his sister’s house for dinner. His job is to bring his rendition of Grandma’s pumpkin pie, for which he is in possession of the index card with the recipe, in Grandma’s own handwriting. He faithfully buys each ingredient, as instructed by the index card. How susceptible is Tim to a promotion for a brand of pumpkin pie filling other than the one Grandma used?
The next week, it’s back to normal. Tim is grocery shopping and in the cereal aisle, where he usually buys four boxes each week for his children: the sixth grader, the fourth grader, and of course the second grade, identical twins. They have short attention spans during breakfast and get bored easily. How susceptible is Tim to a promotion for a different brand of cereal than he bought last week?
You’re right. Your intuition matches research findings suggesting that frequency of category purchase can be associated with brand disloyalty. What does that mean with respect to the timing and targeting of promotions? If you want Tim to try a new pumpkin pie filling, don’t go after him right before Thanksgiving. Or maybe give up on Tim and target regular pie bakers who purchase frequently in the category. As for cereal, he’s ready and waiting for you.
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