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Working Paper

Brand-level Effects of SKU Reductions

Jie Zhang and Aradhna Krishna, 2005 [05-104]

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When retailers make product assortment changes by eliminating certain stock keeping units (SKUs), how does this affect sales of individual brands?That is the main question Jie Zhang and Aradhna Krishna address in this study. Previous research on product assortment changes has primarily focused on their impact at the store and product category levels. While a category- or store-level analysis is very useful for retailers, a brand-level analysis has direct relevance not only for retailers but also for manufacturers.

Utilizing data from an online retailer who implemented a permanent systemwide SKU reduction program, the authors investigate how consumers reallocate purchases among the remaining brands. They use a joint model of purchase incidence, brand choice, and quantity and then conduct a “would-be” analysis that controls for changes in the marketing mix before and after the SKU reductions.

The results reveal substantial differences in how brands are affected by the SKU reductions. In exploring possible factors driving those differences, the authors find that reduction in the number of brand sizes offered has more influence over a brand’s purchase share after an SKU reduction than the reduction in the number of SKUs. They also find that brands with higher market share and those with frequent promotions tend to gain share and that an increase in a brand’s share of SKUs in the category increases its share of purchases.

These findings suggest that the practice of deleting SKUs based on their share of brand sales should be used with caution, because eliminated SKUs’ share of brand sales does not appear to be a good predictor of the change in a brand’s sales after the SKU reduction. Finally, the results indicate that the SKU reduction effects on category purchase incidence, sales quantities, and revenue are generally negative, although the extent varies by category. Retailers seeking to make product assortment changes and manufacturers affected by those changes will both find the study’s results of interest.

Jie Zhang is Assistant Professor of Marketing and Aradhna Krishna is Isadore and Leon Winkelman Professor of Marketing, both at the Stephen M. Ross School of Business, University of Michigan.

Included in the following collections:
MSI Reports 2005

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