On Assortment Reduction
Retailers face a critical decision when determining the number of items to include in each product category. As such, it is essential to carefully consider the costs and benefits of this decision.
The assortment issue is one of increasing importance in nowadays context. While the relationship between assortment and store brand will be better address later in the current article, one can start by noticing that shoppers consistently report that retailers’ assortments affect their store choice decisions. Its importance as key determinant for store choice decisions is always ranked behind location but is located above price in some studies (Briesch, Chintagunta and Fox 2009) and below in others (Hoch, Bradlow and Wansink 1999).
Recognizing that a reduction in SKUs can clear away clutter and lower costs (e.g. inventory, shelf space and financing costs), some retailers have been under immense pressure in recent years to begin offering a more efficient assortment by simply eliminating the low or non-selling items within a category (Boatwright and Nunes 2001; Chernev and Hamilton 2009). In this sense, it is imperative for these retailers to understand whether reducing the number of items in its assortment will lead to a decline in store attractiveness and lower likelihood of consumers choosing the store (Chernev and Hamilton 2009). In fact, this is the most critical retailers’ concern while changing to assortment reduction strategies. In general, they are reluctant to cut items for fear of losing consumers who will be unhappy with their offerings (Boatwright and Nunes 2001). Negative effects of assortment reduction may occur precisely because a percentage of buyers will no longer be able to find their preferred item in the shelves (Broniarczyk, Hoyer and McAlister 1998).
There is a recent stream of literature that focuses precisely on the impact of assortment reduction. The idea is that the benefits of greater variety are often offset by an increase in customers’ cognitive costs associated of choosing from a larger assortment (Chernev and Hamilton 2009). Iyengar and Lepper (2000) argue that making a choice from a larger assortment requires greater cognitive effort than choosing from a smaller assortment simply because it involves valuating more options. Thus, larger assortments are likely to be more confusing for consumers who are uncertain of their preferences because of the greater number of attributes and/or attribute levels that must be evaluated (Sood, Rottenstreich and Brenner 2004). Moreover, increasing variety can lead to consumers’ choice deferral (Boatwright and Nunes 2001, Iyengar and Lepper 2000).
Cherney and Hamilton (2009) alert for the fact that the success of narrow assortments depends on the concept of the attractiveness of the items that each retailer carries. The authors argue that if retailers carry, on average, higher quality options or options that match consumer preferences, they tend to be perceived as more attractive stores. Moreover, the authors also refer that smaller assortments tend to be preferred primarily in cases in which the overall attractiveness of the options in the choice set is relatively high, whereas larger assortments tend to be preferred in cases in which these assortments comprise relatively less attractive options. This way, if retail assortments can be reduced without eliminating brands, particularly consumers’ favorite brands, the associated reductions in operating costs and out-of-stocks could make SKU reduction an effective and profitable strategy (Briesch et al. 2009). The relationship between assortment size and option attractiveness is actually concave, such that the marginal impact of assortment size on choice decreases as the attractiveness of the options increases (Cherney and Hamilton 2009).
Category sales tended to increase rather than decrease, on average, as a result of the SKU reduction (Boatwright and Nunes 2001, Broniarczyk et al. 1998), especially due to the decrease in search complexity, which might induce non-buyers in a given category to start buying products (Sloot, Fok and Verhoef 2006). However, retailers should be careful because although eliminating brands and flavors to a small degree helps sales, deep cuts lead to their decrease (Boatwright and Nunes 2001).
Narrow assortments have a positive relationship with store brand share since they permit the elimination of specialty items and the positioning of store brand against the leading national brands, sizes and flavors (Dhar and Hoch 1997; Sayman, Hoch and Raju 2002). From the national brands’ standing point, encouraging the retailer to carry more brands and deeper assortments may be the most effective ways to keep store brands in check, although the importance of this variable may be dependent on the national brand market position. Low share underdogs are extremely vulnerable to assortment reductions (Dhar and Hoch 1997).
