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Retail Management Institute Newsletter - Fall 06
Out of Stocks Prove Full of Insight About Super SKU's
by Colleen Carr
Top: Peter Boatwright, Associate Professor of Marketing, Tepper School of Business. Bottom: Kirthi Kalyanam, Director, Internet Retailing, Santa Clara University.
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The beauty of retail, from an academic standpoint, lies in its accessibility. However, as a student of retail, I can attest to the often limited scope of textbook material. Sometimes the text can only offer a glimpse into topics that entreat further examination.
Fortunately, the natural retail environment just outside our doorsteps provides an abundance of opportunities to explore such matters more thoroughly. On the topic of inventory management, my textbook covers the subjects of building a retail assortment and managing merchandising assortments, yet offers little insight beyond definitions and general retail trends.
A more nuanced, theoretical perspective simply didn’t exist... until I had a chat with Kirthi Kalyanam and Peter Boatwright. Having collaboratively written Deconstructing Each Item's Category Contribution with Sharad Borle, Kirthi and Peter have jointly created a new sales model founded upon what they call a “Super SKU.” Central to the Super SKU theory is the notion that some SKU’s have a value beyond what is estimated, a value that can only be examined in light of the entire category. Having never seen a Super SKU grace the pages of my retail textbook, I sought further explanation.
1) What is unique about your research?
After careful analysis of sales data from hundreds of stores, we find that certain individual SKUs are critical to the viability of the entire category. It is not simply that certain SKUs account for most of the sales of a category—that may well be the case for some categories—but our findings are more general. We find that certain items, even ones that appear to account for smaller portions of category volume, contribute more than their own sales. If one of these SKUs is absent, the default idea is that category volume would decline by the volume contributed by that SKU. We find that category volume declines by much more than the sales of that SKU.
2) What was your process in arriving at this conclusion, and how did you maintain a natural experiment?
Many natural experiments involve price changes. Promotions of products cause prices to fall, and the resulting increase in sales will reveal the relationship between prices and sales volumes. In our case, we were interested in the role of product assortment, meaning that we required the set of products to vary. As it turns out, the set of products naturally varies on the shelves, due to item out of stocks. We were able to rely on in-stock positions to assess the role of the presence/absence of individual items on category sales volume.
3) What implications have you arrived at? Do you think retailers should reexamine the weight of variety’s role in merchandising management?
Retailers already value variety, and our results confirm that retailers should be interested in maintaining variety. However, variety is not exactly the central issue, but the availability of the right set of products. All products are not equal, not in sales volume nor in their impact on the sales volume of the entire category. Our work shows a way for retailers to assess the broader role of individual products, and our work reveals the importance of doing so.
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Back to Newsletter -Fall '06
Retail Management Institute - Santa Clara University
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