Why “Less is More” in Retail?

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Retailers find they sell a lot more of nearly everything by reducing the number of brands on offer, but figuring out what should stay and what should go is not easy. In economics they call it the "paradox of choice," the idea that a shopper, when faced with multiple options tends to focus too much on which item to choose, and is therefore less satisfied with the item she finally picks.

Reducing the number of products can help companies increase sales by as much as 40% while cutting costs by between 10 and 35%, according to a 2007 study by consultant Bain & Co.

Here is an extract from an interesting article in The Globe & Mail:

Several months ago Wal-Mart Canada Corp. decided to overhaul one of the staples of its grocery business – the peanut butter aisle. It dropped two of its five lines of peanut butter to free up scarce shelf space for cinnamon spreads. But the decision didn’t cost the retailer a single jar in sales. With fewer selections to browse, customers wound up purchasing more than before.“Folks can get overwhelmed with too much variety,” said Duncan Mac Naughton, chief merchandising officer at Wal-Mart in Mississauga. “With too many choices, they actually don’t buy.”

In a reversal, retailers are now reducing the amount of choice on their shelves. After years of tempting customers with ever expanding arrays of brands, hues, sizes and flavours, they’re racing to simplify their offerings. The recession has encouraged them to focus on top sellers and private labels while throwing marginal products overboard.

But look at the India situation:

Here are some facts from a recent article by  Meenakshi Radhakrishnan-Swami

FMCG companies in India have had a fairly smooth run until now - given that the average kirana is 150-200 sq ft and has space for less than 1,000 SKUs, they didn't need to create endless product variations and extensions of the same brands.

Compare this with Barry Schwartz's list in his 2004 bestseller The Paradox of Choice: Why Less is More, based on a visit to his local supermarket in the US:  285 types of cookies (21 options in chocolate chip alone), 95 different snacks, 360 shampoo types, 40 options for toothpaste, 275 varieties of breakfast cereal, 175 types of teabags.

Schwartz's supermarket was a "not particularly large store", but Indian consumer goods companies would struggle (and fail) to stock even that level of products (and remember, this book is three years old): Cadbury India has over 100 SKUs in two categories, Procter & Gamble sells over 320 SKUs across five categories, while Hindustan Lever has more than 700 SKUs in over 20 categories.

If hypermarket visitors are not to be confronted by acres of empty shelves, then, consumer goods companies will have to expand their portfolios substantially. "

Here is my view:

1.   I wonder if Retailers would like to explore using their Loyalty data to understand purchase behaviour at an SKU level. Companies like Big Bazaar & Spencers would have humongous amount of data which can be used effectively.  Analytics on this data would throw up actionable insights.
2. Also I am sure that a Retailer could partner very effectively with a credit card company to further overlay information on his loyalty card behaviour and analyse his assortment better. Partnered analytics is still a new concept in India and I wonder how it could explode action-ability.