Through a special arrangement, presented here for discussion is a summary of a current article from Applied Predictive Technologies' The Insight Aisle blog.
In 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.
For retailers, 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 an afterthought?
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 scale rollout.