Asif Wazir Ali on finding the right balance in product assortment.
There is a perception among brands and shoppers that more choice leads to higher chances of the brand taking off. Yet, is this true or a myth? Imagine entering a store and being confronted with a shelf displaying 50 different kinds of bread? Sounds great? Or just overwhelming and confusing, when all you are looking for is your regular loaf?
Let us look at the Jam Test conducted by the Universities of Columbia and Stanford in 2000. In the study, shoppers were exposed to two tables; one with six different jam flavours, the other with 24 different flavours. The initial results were in line with the conventional perception; 60% of the shoppers stopped at the table displaying the greater variety compared to 40% who stopped at the other table with less variety. However, the purchasing patterns told an entirely different story because 30% of the people who stopped at the table displaying six flavours bought a product compared to merely three percent of the people who stopped at the table displaying 24 flavours.
In this day and age, shoppers spend merely 20 to 25 seconds per shelf, giving manufacturers limited time to convert this visibility into sales. This ‘choice overload’ not only extends the decision-making process before converting it into purchase outcome, it can also be overwhelming and discourage shoppers from buying a product.
This raises an important question. Can marketers afford to put infinite choices in today’s retail space? In Pakistan, the average general store has a shelf area of 216 square feet with a capacity to stock close to 30 categories, leaving only 7.2 square feet of space per category. A one-litre UHT carton measures 0.8 square feet, which means that a maximum of nine one-litre packs can be stocked in this space. When the manufacturers’ sales rep pays his weekly visit to the store, he can either stock a range of all four SKUs (250ml, 500ml, 1lt and 1.5lt) and risk being out of stock in the highest selling SKUs, or he can just stock one to two SKUs. This sums up one of the main dilemmas for brands.
In Pakistan, the average general store has a shelf area of 216 square feet with a capacity to stock close to 30 categories, leaving only 7.2 square feet of space per category. A one-litre UHT carton measures 0.8 square feet, which means that a maximum of nine one-litre packs can be stocked in this space.
If we apply these insights to the handful of modern stores in Pakistan where every inch of shelf space is available to brands at a cost, we see a number of challenging decision-making dynamics because in this scenario, the need for ROI is even higher. There are two ways to go about this. A brand can either stock multiple SKUs on one shelf or opt for less-cluttered and more appealing shelf space. Consider a consumer visiting a modern trade store for her start-of-the-month bulk purchases. She comes to where the cooking oil is stocked. On one shelf, she is faced with 14 different SKUs and on the other, she sees a visually-appealing assortment of only one-and-five-litre SKUs. In this scenario, despite the variety the first shelf offers, the SKU on the other shelf has a better chance of being picked up seven out of 10 times – and it is this seven to 10 probability that presents the optimal ROI and the highest chances of attracting consumers (ignoring pre-determined consumer preferences).
According to a Nielsen and McKinsey and Company’s analysis conducted in Latin America in 2015, the top two trade challenges for manufacturers are reducing stock-outs and ensuring implementation of the planogram (a diagram that shows how and where specific retail products should be placed on retail shelves or displays in order to increase customer purchases). In traditional trade markets, brands face both limited shelf space as well as a small retailer spending kitty, yet despite this, companies continue to offer a large assortment of choice to consumers. According to Nielsen’s Retail Audit Report, almost half of the SKUs contribute to the bottom two percent of category sales. So, imagine redirecting your focus to the top-selling SKUs and reducing the chances of running out of stock.
In another study conducted by Nielsen, a brand was faced with the same question of how to satisfy consumer choice while reducing the chances of running out of stock on key selling SKUs. The study recommended delisting 74% of the item list and pushing the rest of the items in all stores. The results were phenomenal, showing a 14% value jump at the brand level at hypermarkets.
We can also look at multi-country data to see if there is any correlation between the number of SKUs and market share and quite frankly, there is none. So more is not always the merrier; in fact, in the assortment world it could be a question of “the best things coming in small packages.”
Asif Wazir Ali is Country Lead –Sales & Marketing Effectiveness, Nielsen Pakistan.