Products, Products Everywhere : Are we drowning in product options?

Consumer-goods companies, take note: It may be time to clean out the clutter.

Manufacturers and retailers have expanded their product offerings at unprecedented rates over the past decade, often by taking a popular product and selling it in various sizes, brands, colors, fabrics and flavors.

Some of these companies think that by being all things to all people—say, by offering 17 varieties of toothpaste—they will increase sales and deter competitors from entering the market. Others are afraid to remove products that have been around for a while—or are declining—for fear of turning off important customers. And sometimes, big retailers ask manufacturers to produce a unique version of a product just for them, so they can prevent customers from comparison shopping.

But instead of improving profitability, these tactics often lead to bloated product portfolios that raise a company’s costs, reduce supply-chain efficiency, confuse consumers and lead to shortages of popular products.
A slimmer product lineup, on the other hand, offers numerous benefits. Marketing executives can better monitor sales, competitive developments and crises such as product recalls. Manufacturers can cut back on costly assembly-line changeovers and the payments they offer retailers to guarantee shelf space for products. Retailers offering a smaller selection of similar goods have fewer suppliers to manage, more shelf space for their best-selling merchandise, and fewer customers leaving stores overwhelmed and unable to make purchase decisions.

Since it can be challenging to prune a product portfolio without turning off key clients and customers, here are some suggestions on how to do it right:

Don’t Ask Consumers

If you ask customers whether they want more variety, I can tell you right now what they’re going to say: Yes. After all, who doesn’t think they want a lot of choices? And it’s common for consumers to be both sad and angry when a product they like is discontinued.

So don’t bother asking. It’s better to depend on data, rather than what is often a mistaken emotional response.

Gather information from point-of-sale systems and loyalty programs, analyze product data such as sales per square foot, and conduct field experiments to determine what effect offering a wide selection of similar goods—say, 16 similar black-and-white laser printers—really has on total sales in certain product categories.

Use the findings to identify products that don’t sell well, products with high revenue but low profitability and/or high inventory carrying costs, and products plagued by production problems. Consider targeting them for elimination.

Classify Goods into Tiers

Another way to identify products that could be ditched without hurting your performance is to classify the goods in your portfolio into tiers based on consumer behavior.

While there are various ways to do this, previous research describes how a snack-foods company divided its products into core, niche, seasonal and holiday, and filler categories. Core products were used by more than one-third of consumers and purchased more than twice a year by each consuming household. This group accounted for 20% of the company’s products, but 70% of its sales. In contrast, niche products were purchased infrequently, typically by small segments of consumers in concentrated geographic markets. These products accounted for 10% of the firm’s products and 10% of sales. Seasonal and holiday products, also accounting for 10% of revenue, were purchased by more than one-third of all households but only once a year. Lastly, filler products—those bought out of convenience rather than preference—accounted for 65% of products but just 10% of sales.

The analysis led the company to reduce the number of filler products it produces and focus on getting more shelf space in stores for the products consumers used most.

Create Product-Pruning Teams

Consider creating product-pruning teams consisting of people with marketing, sales, finance, production, and research-and-development backgrounds. Have them meet periodically to decide which products to discontinue.

See Also

Further reading from MIT Sloan Management Review

Household-products maker Clorox Co. says it has cross-functional teams that work during the year to ensure the company’s various business units are adding products that create value and removing those that don’t. As a result, about 80% to 90% of the items it sells meet internal volume and profit targets.

There are risks in cutting poorly performing products too aggressively—namely that a product’s removal could damage a relationship with a key account. Clorox tries to avoid this pitfall by meeting with retailers to make sure that they have the optimum portfolio of brands and sizes in a category to meet their customers’ needs.

Limit Product Choice

Another way to avoid the proliferation trap is to place absolute limits on the number of products you offer.

Trader Joe’s, a privately held specialty grocery chain, states on its Web site that if a product “doesn’t pull its weight” in stores, it is removed to make room for an item that will. The strategy results in more relevant merchandise for consumers and higher sales per square foot.

Retailers that have the most success with this strategy often cater to customers who are willing to accept less selection as a tradeoff for lower prices.

Implement Mass Customization

One way to provide choice without adding to product proliferation is through “mass customization”—an approach in which products are built only after customers order them.

The manufacturers that have the most success with this are those whose products are made from components that can be assembled in numerous combinations. It requires a system that allows consumers to understand and communicate their unique needs, and it relies on flexible manufacturing to keep costs low and build-times short.

Dell Inc. is commonly cited as an example of a company that has used mass customization effectively. It builds each personal computer’s memory configuration, hard drive and graphics board after the customer places an order. In this manner, Dell can produce hundreds of different combinations of computer configurations with relatively few different components.

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