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PROFIT IDEAS Do We Really Need That?
By Dave Wendland Endless shelves. Stores without boundaries, such as Walmart’s initiative to offer more than one million items on the Web. Is there still a place for SKU rationalization? Back when traditional brick-and-mortar retailers and manufacturers keen to produce the next big hit realized that too much assortment is counter-productive, rationalizing the availability of items became the norm. But the “new normal” is that the Internet makes it incredibly easy to offer “virtual aisles” and “limitless assortment.” From the consumer’s perspective, SKU rationalization doesn’t make sense. This is the paradox that Walmart.com, Amazon.com and others have brought to light. Will a limitless assortment truly increase market basket size? Will it improve the shopping experience? Cleaning the Garage Let’s examine rationalization in our daily lives. If you are like me, you may accumulate things over time and then realize that the garage, workbench, desk drawer or glove box no longer can accommodate all of your stuff. You go through a SKU rationalization process. You make decisions regarding the things you truly need to satisfy your needs and the things that were once necessary but have outlived their usefulness. For example, consider garden hose repair kits. If you have a 1” diameter hose and repair kits for 1/2”, 3/4” and 1”, the simple elimination of the extra SKUs will make your repairs easier and save you precious room on the shelf in the garage. Not to mention the fact that your frustration will be mitigated by making available the exact item you need to complete the repair. Or perhaps you decide to review your book collection. You now realize that the paperbacks you once relied on in college or high school have become dust collectors. They have lost their relevance. What do you do? Rationalize. We do it every day without regret and with positive outcomes. A Place for Everything Why short-circuit this practice at retail? Distribution warehouses are not large enough to house the stuff that is not necessary. And consumers don’t need to be overwhelmed with countless choices to solving the same problem or concern. Within the health care industry we can work together to create sensible inventory levels and refined assortments that mutually satisfy consumers and all other stakeholders in the supply chain. Adding physical space to a distribution center or to a retail store does not come without immense cost. And when the return on that investment is honestly evaluated, it is generally found to be an expense that could be avoided. Whether evaluating a brand new must-have item or an item that is being considered for elimination, I recommend weighing the following five factors. Then and only then, after the criteria have been met, should the decision be made to add the item to inventory, to continue carrying it, or simply to eliminate it from the line-up. Five P’s of Success In essence, my recipe includes four relatively basic ingredients: u 1) Product differentiation — what is the “secret sauce” that makes the product special? u 2) Placement — where on the retail shelf does this product belong (this not only demands research to understand the principles and direction of the retailer, but this requires innovation, honesty and solid rationale). u 3) Promotional support — it’s not enough to put a product into the distribution channel, it’s about driving it through to the consumer’s shopping basket. u 4) Profit-unities — in other words, how is stocking this product going to generate incremental (new!) profit for the retailer? u 5) Profile of the shopper — this is a factor that is perhaps not considered often enough, but it should be a huge win for the retailer. Shopper insights have become one of the most coveted and oft-requested gems within the sales presentation. Every retailer wants them and it seems nobody has determined the best way to dimensionalize the shopper and truly create a profile that leads to action. I believe this can be done effectively — with fresh thinking and experience! My advice? Let’s continue to be rational about our product decisions. 12/02/09 Dave Wendland, vice president, Hamacher Resource Group, Inc. The experts at HRG bring their unique balance of art and science to the retail health care supply chain to deliver customized marketing services, category management, strategic market research and business development consulting, data analysis and aggregation, and a portfolio of complementary capabilities to clients across the retail health care value chain. Contact them at (800) 888-0889, or visit www.hamacher.com for more information.
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