Should you stock less to sell more?

This article by XOXX’s Guy Blaskey was originally published in Pet Product Marketing.

What to stock is one of the most important decisions that any store makes and offering customers as much choice as you can is the general approach, but it may be wrong.

The psychologist Barry Scwartz wrote a book called “The Paradox of Choice” explaining why more choice is not always a good thing… he even argues that it is potentially responsible for increased depression and suicide rates, but we won’t go into that here.

The basis of his argument is that with so much choice you expect the product that you buy to be perfect, but usually it isn’t… it doesn’t live up to the hype. However with less choice you have less expectation, so there is more chance that the product will meet, if not exceed your expectations. Products that exceed expectations lead to happy customers and that leads to repeat purchases and profitable businesses.

With less choice there is also less chance of buyer’s remorse, when a customer buys a product, uses it, and even if they are happy with it thinks ‘what if I had bought Product Y instead… would that have been even better?’.

So far, very theoretical, but probable… are there any facts behind this? In fact people have done tests to see the difference that choice makes.

When confronted with a choice of pension plans on joining a new company, for every 10 options of plan offered there is a drop in take-up rate of 10%. The more options, the less people take up the plans. Even when this means people are financially worse off for not taking up the offer.

Experiments have been done in the retail environment too. Sheena Iyengar ran an experiment in the US in a grocery store that offered 348 different types of jam. They offered samples of jam to people when they walked in the door. On some days they offered 6 different flavours of jam to try, on other days that offered 24 different flavours of jam to try. When they offered 6 flavours 40% of people tried them, when they offered 24 flavours 60% of people tried them. HOWEVER… of the 60% of people that tried one of the 24 flavours only 3% went on to buy a jar of jam, but of the 40% of people that tried one of the 6 flavours 30% went on to buy. That means that people were 6 times more likely to buy when you offered limited choice (and the sampling cost is significantly lower).

It looks clear that reducing range and reducing choice should increase profits for retailers. And this doesn’t just happen in experiments. In her talk on ted.com Sheena Iyengar also quotes that when P&G reduced their Head & Shoulders range from 26 SKUs to 15 their sales increased by 10% and when Golden Cat reduced their cat litter range by delisting their 10 lowest selling products their profits increased by 80%, with savings made in production as well as increased sales.

Now you have this knowledge, how do you go about cutting your range?

Competing products. The easiest way to cut the number of products that you stock is to look at cutting the amount of competing products that you have. The best way to do this is through research. Look at the products that you stock and work out which is best and why. If it isn’t clear ask the manufacturer – we are always happy to tell you why our products are better than the competition. If you have the knowledge, you don’t need to worry about customers coming in, asking for products and you not having them, because you can tell them what to use instead and why. For example if you delisted Joint Supplement X and someone came in asking for it you could say ‘We don’t stock Joint Supplement X we stock Mobile Bones instead because it has more active ingredients and looks after bones as well as joints”.

Think about the 80/20 rule (also known as the Pareto principle). This says that 80% of your profits will probably come from 20% of the products that you stock. One way to try and maximize your profits is to continually stop stocking the lowest selling 20% of your stock. Every month/ quarter/ year look through your sales and delist the 20% lowest selling products. Replace these products with a whole new set of products. Then do the same thin the next month/ quarter/ year. Some of the newly bought in products will have made in into the best selling 80%, and some from the previous best selling 80% will have dropped in to the bottom 20%. Once again discontinue the new lowest selling 20 % and get a new lot in. Keep repeating this process and your product range has no choice but to become more and more profitable. (NB Make sure you give the new products long enough to have a ‘good run’ and promote them, especially if they are less well-known, as you are more likely to build a loyal following if it’s hard to get the products elsewhere).

Categorise. People like their products categorised. Another experiment from Sheena Iyengar showed that when people were shown 400 magazines split into 20 categories they thought that they had a greater selection than when they were shown 600 magazines into 10 categories, even though they had 1/3 less choice. Maybe there is a better way to categorise the product that you sell. Most pet stores categorise into dog food, cat food, treats, toys, supplements etc. Instead you could try something like; Puppy, kitten, weight-loss, elderly etc. In the Weight loss section, for example you would have the obvious things like weight loss foods, supplements like our Slimmin’ Tonic etc, but you could also add in toys that will get pets more active and even things like running harnesses and waterproof running jackets to inspire people to run with their dogs and help both them and their dogs lose weight. The bonus of this is that everything for that customer will be next to each other, so if someone with a new kitten goes to the kitten section for kitten food, they will get their litter and other essentials at the same time and probably pick up some non-essentials like toys at the same time.