Most retailers offer too many product options. This has evolved over time. I believe there is some confusion over what choice really means.
Most retailers offer too many product options. This has evolved over time. I believe there is some confusion over what choice really means in retail terms. And there is a widely held view that offering more options will attract more customers and translate into more sales.
“Superficially, the attractions of widening an offer are seductive… However, there is a price to be paid”
Richard Hyman, founder of RAH Advisory Ltd and richardtalksretail.com
I think having too many options damages the brand and hits cash flow and performance.
Some of this proliferation can be blamed on the internet. Physical space exercises an obvious constraint on ranges and offers but it no longer dominates in the way it used to. At headline level online accounts for about 11% of total retail sales, but in many fashion businesses the figure is moving ever nearer to 20%.
Superficially, the attractions of widening an offer are seductive. The incremental costs appear on the surface to be negligible. Google’s model encourages product proliferation. Vendors with bigger offers are rewarded: more URLs produce better search engine optimisation. However, there is a price to be paid.
Firstly there is the matter of basic economics. What is an expanded SKU count doing to your stock turn? This most promotional retail market in modern times reflects a shift in the relationship between supply and demand. More promotions and markdowns hit cash flow, erode margins and there are higher financing costs from holding stock for longer. But in some ways, I think these are less far-reaching than the impact on the brand and customer relationships.
Retailing is becoming increasingly polarised. There are the category killers at one end, focusing on convenience, price and a one-stop-shop approach. At the other end are retailers with a more targeted, niche offering that is aimed at a clearly defined customer segment.
The DNA of the relationship with customers is embodied in the brand. A brand is a promise to the customer. It represents a commitment to deliver its unique values and characteristics. It is what the brand says that counts.
The best branding is based on deep customer understanding. It is as much about the customers a brand does not target as it is about those it does. And editing ranges is at the heart of that. Choice is not about quantity, but relevance.
Brands are living entities with a beginning and an end. Expanding the target market for a brand requires a dilution of its handwriting in order to widen appeal. There might be a short-term gain in sales and margin, but that is likely to be followed by a dilution in performance. I see product proliferation as a potential symptom that a retailer is not close enough to its customers and needs to hedge its bets as a consequence.
Too much offer and too many options will erode the idea that the retailer is able to edit product on the customer’s behalf. And this starts to undermine the essence of the relationship. At the heart of every successful retail business lies its ability to range on behalf of its customers – to understand not just what its customers want, but also what they do not. Making the customer do this job will not work.
Retailers need to get better at delivering greater relevance, range editing and building enduring customer relationships through their brand – and to not compromise on any of these.
- Richard Hyman, founder of RAH Advisory Ltd and richardtalksretail.com