SKU Proliferation: Everything you need to know in 2023
In this article, we will explain exactly what SKU Proliferation is and how to manage it to optimize your inventory and improve profitability. Read on to learn more.
What is SKU Proliferation?
SKU proliferation is the process of introducing new product variations into a company's inventory to capitalize on the popularity of certain items and enhance sales.
Example: Apple once offered only one iPhone model. With SKU proliferation, they now provide various models, sizes, and colors, catering to different consumer preferences and expanding their sales.
Pros & Cons of SKU Proliferation
SKU proliferation can be both beneficial and detrimental, depending on the context. We explore this below:
Meeting Diverse Consumer Needs: Offering a variety of products allows companies to cater to a broader range of customer preferences and demands.
Increased Revenue Opportunities: More SKUs can lead to more sales opportunities, especially if each product variation appeals to a different customer segment.
Competitive Differentiation: Companies can stand out in a crowded market by providing unique product variations.
Flexibility in Pricing: Different SKUs can cater to various price points, allowing companies to target both premium and budget segments of the market.
Inventory Complexity: Managing a large number of SKUs can be challenging, leading to stockouts of popular items or overstock of less popular ones.
Increased Costs: Producing and managing more SKUs can lead to higher manufacturing, storage, and administrative costs.
Dilution of Brand or Product Value: Too many variations of a product might confuse customers or dilute the perceived value of the core product.
Operational Challenges: Increased SKUs might strain a company's operational processes, from production to distribution, requiring more sophisticated systems or added resources.
9 Steps to Managing SKU Proliferation
1. Understand Your Market: Research the market to see if there's a genuine need for more product variations.
2. Predict Demand and Group Products: Use sales data to guess how popular new products might be. Group similar products together to make them easier to manage.
3. Manage Stock Effectively: Use systems to keep track of how much of each product you have and when you need to order more.
4. Check Product Performance: Look at how well each product sells and if it's profitable. This helps decide if you should keep selling it.
5. Efficient Delivery: Make sure you can deliver a wider range of products to customers without problems.
6. Advertise and Get Feedback: Tell customers about new products and ask for their thoughts. This helps improve what you offer.
7. Review and Remove Products: If some products aren't selling well, consider stopping them to avoid wasting money and space.
8. Train Staff and Use Technology: Make sure your team knows about the new products. Use computer systems, like Enterprise Resource Planning (ERP, a tool for managing business processes) and Supply Chain Management (SCM, which helps manage the flow of goods), to help manage the new product range.
9. Work with Your Suppliers: Talk to the companies that supply your products. Ensure they can handle the changes you're making.
Example of the SKU Proliferation Process
Sunrise Groceries, a local grocery store, faced SKU proliferation challenges. We will tackle how the grocery store addressed these issue and how it improved efficiency and profitability using the framework above.
1. Understand Your Market: Sunrise Groceries conducted surveys and market studies in their locality. They wanted to find out what products residents wanted that weren't currently available in their store.
2. Predict Demand and Group Products: Based on feedback, they introduced a range of organic products. They grouped these together in a dedicated "Organic Section," making it easy for shoppers to find and for staff to restock.
3. Manage Stock Effectively: Sunrise Groceries implemented an inventory system that alerted them when organic products were running low. This prevented stock-outs and ensured fresh produce was always available.
4. Check Product Performance: After a few months, they analyzed sales data. Some organic products flew off the shelves, while others lagged. This data-driven approach helped them adjust their stock accordingly.
5. Efficient Delivery: They coordinated with their suppliers to schedule deliveries during off-peak hours. This ensured the store was not overcrowded during peak shopping times, and fresh inventory was shelved promptly.
6. Advertise and Get Feedback: Sunrise Groceries launched a local ad campaign promoting their new organic section. They also placed feedback forms at checkout counters, encouraging shoppers to suggest products or share concerns.
7. Review and Remove Products: After a year, based on sales data and feedback, they discontinued some underperforming products, freeing up shelf space for more popular or new items.
8. Train Staff and Use Technology: They trained their staff on the benefits of organic products, ensuring they could answer customer queries. They also invested in an integrated Point of Sale (POS) system, linking sales directly to inventory, to better manage stock levels.
9. Work with Your Suppliers: Sunrise maintained open communication with organic product suppliers. They negotiated bulk discounts, ensured timely deliveries, and even collaborated on in-store promotions.
By following this framework, Sunrise Groceries not only expanded their product range effectively but also increased their profitability and enhanced the overall shopping experience for their customers.
We hope that you now have a better understanding of what SKU proliferation is and how to effectively manage this to optimize inventory and improve the profitability of your business.