PL Buyer Editorial: Oldsmobiles & SKU Rationalizaton

Nov 05, 2004

By George Anderson

In his Warren’s Wanderings editorial in the October 2004 PL Buyer magazine, Warren Thayer, related a story of a recent car shopping trip: “My wife and I were thinking of trading in our old Subaru, since at 140,000 miles it’s starting to wear. So one day I saw a brand new 2004 Oldsmobile Alero GL sedan for 54 percent off, or $9,970.”

“I asked around, and was reminded that 2004 was the last year General Motors was making Oldsmobiles. Further digging revealed that GM is getting a painful lesson in brand management. The auto giant had hoped its aging Oldsmobile die-hards would switch to other brands in its stable, such as Buick or Pontiac. Nope. By and large, they’re going for Japanese imports. For GM, ‘hoping’ wasn’t equivalent to ‘steering.’

In a nutshell, it didn’t plan well. It didn’t think enough about the effects of its action on its customers, and its customers’ choices. So instead of a trimmed-down offering churning out higher incremental profits, GM today merely has lower market share.”

GM’s Oldsmobile experience offers lessons for retailers in their sku rationalization efforts. Too often, reasons Mr. Thayer, decisions are made on what products, i.e. brands, stay or go in a shelf set based on measures that do not include consumers’ relationship with the product.

“I don’t know about you, but every conversation I hear about brands coming and going in a category focuses on scanner data and profitability. Aside from slotting, that’s it. This is good to a point, but it ignores some of the category dynamics now being learned by GM. Where’s the shopper going to go when Product X disappears?”

Mr. Thayer offers this advice: “As a retailer, what should you do about introducing a new ‘replacement’ brand that might cannibalize your private label? Assuming your private label in the category has a role and position behind it, the answer is really simple: Don’t do it. Pick a different ‘replacement.’ Your alternative is to keep changing the role of your private label in the category, thus confusing the shopper. Or you could introduce the cannibal anyway. Either approach will weaken your program. The ‘Best in Class’ will learn from GM’s mistake.”

Moderator’s Comment: Do retailers, and perhaps more importantly manufacturers, need to reassess their method for
rationalizing brands and/or skus?

Here’s another insights from our very own Wandering Warren: “There have been good arguments set forth for customer equity vs. brand equity, and how we’d
be a whole lot wiser to look at a particular demographic and manage products for that segment, rather than blindly focusing first on ‘the brand.’ If some of the branded manufacturers
organized their efforts this way, there’d be less in-fighting and more cohesive presentations that make better sense.”

George Anderson – Moderator

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