‘SKU Rationalization’ is fine – if it is truly a process of ‘rationalization’.

Despite a career spent using all forms of traditional research, I maintain that the best way to learn about shoppers is to get into an old-fashioned conversation with one.  Let me share a story a shopper told me this past week which will illustrate how revealing one conversation can be.

For the sake of anonymity, let’s call the shopper “Eva”. Eva is a new mother and her baby daughter has just started eating solid food. Eva’s done her homework and wanted to feed her little one Earth’s Best, a popular organic brand that was well rated by other mothers online (there’s the ZMOT at work!).  So she went shopping…

In her close & convenient Walgreens, Eva found the brand… but only the “2nd foods” varieties (for babies 6+ months). Eva needed “1st foods” for her 4-month-old, who is just starting on solids.  So off to the small-chain local supermarket.

No baby food at all. Or at least Eva couldn’t find it, if it is there. (That store just reinforced her perception that they are unreliable and disorganized!)

Long-story-short: Even after traipsing to CVS and TWO local ‘organic’ stores, the same problem: everyone had Earth’s Best ’2nd’ and ’3rd foods’… but no ’1st foods.  So five stores missed a sale that day, or from the manufacturer perspective, Earth’s Organics struck out five times and lost an ‘intending trialist’.

Eva’s question to me was: “Why would ALL these stores start at Stage 2?” They didn’t even have a space on shelf for Stage 1, so it wasn’t just out of stock. It made no sense to her. And with good reason!

I told her that, although I am not working with these stores, I can make a reasonable guess as to the culprit: something category managers call ‘SKU Rationalization’ (or ‘SKU Rat’ for short). Then I explained why I think SKU Rat might be the cause of Eva’s plight.

You see “1st foods” are made for 4- to 6-month old babies, aka ‘supported sitters’. However, some babies might not start on them until 5 months, or even later. So, they are in the average baby’s repertoire for 1, maybe 2, months at most.  By comparison, ”2nd & 3rd foods” each have a full 3-month window to sell to moms, and babies at those ages tend to eat a bigger quantity, so the jars are bigger and cost a little more.

So, when most retailers start ‘rationalizing SKUs’ in baby food, they focus on sales (and, in connection, profit) at a SKU level and ‘rationalize’ (read ‘eliminate’) the bottom of the list.  One can assume that “1st foods”  - with their smaller sales window, and lower value – vanishes first (perhaps only after some awful flavor option that NOBODY wants!!).

The flawed logic here is that Stage 1 represents a critical category entry point for a shopper like Eva. If you don’t carry Stage 1, you force every ‘Eva’ – and their substantial future spending on their babies! – to look elsewhere. Or worse! In Eva’s case, she went home and ordered a steamer and hand blender online – abandoning Earth’s Best and the baby food category altogether! (Score one more to Amazon!)

Walmart famously had to reintroduce 8,500 ‘previously-rationalized’ SKUs in 2011, after recognizing they may have made some ‘irrational’ choices that alienated shoppers like Eva.  Cases like this can be easily avoided, if retailers start putting a little of the ‘rational’ back in ‘rationalization’.  That means considering criteria other than unit or dollar sales for a particular SKU before saying “off with it’s head”.

Imagine instead starting with a mindset of “why should we keep this SKU?” rather than “why should we kill it?”, just to start. I mean really considering all the ‘rationales’ for keeping a SKU. Like the roles it plays in establishing variety; locking in a unique group of shoppers; providing a value- or time-based entry point to the category… and countless more.

Maybe then shoppers like Eva will see your decisions as a little more ‘rational’.

the orange sheep