Mike Mauti: There are a lot of sophisticated ways to try and estimate what an additional SKU will give you in sales based on competing items and gaps in the marketplace. But really the trade-off is satisfying an additional customer need, versus the cannibalization of like items. And every item carries a cost with it. There are procurement costs, replenishment costs, handling costs and shrink costs to name a few. Shrink costs specifically tend to increase in more SKU intense operations. To get a good understanding of the benefit of an additional SKU, one must weigh the negatives of all these costs versus the benefit of satisfying an additional customer need. This cost/benefit analysis can be difficult because you might think you’re satisfying a new customer need, when what you’re really doing is transferring a need from one product to another. In the meantime, you’re adding all the costs I mentioned.
Cored pineapple may be a good example of satisfying a new customer need. Many people do not want to go through the trouble of coring a pineapple, but they would quite happily purchase a pineapple that has already been cored. At the other end of the spectrum, adding another bagged salad SKU might just cannibalize what’s already available rather than driving incremental sales.
Read the full interview here: Retail 101: Part One with Mike Mauti
