Recent wisdom from the merchandising world has indicated that thinning product mixes helps profits. Reducing clutter, the theory goes, helps retailers boost revenue enough in some categories to outweigh the revenue lost from dumping other products. But now, a new study from Rice University's business school suggests that the issue may be more nuanced than previously understood.
A team of researchers led by Professor Sharad Borle monitored consumer behavior by tracking sales at an online grocery store. In all, they analyzed the behavior of 1,218 shoppers over a year. The online store sold products in 147 categories, ranging from fast sellers like soda, cereal, and produce to slow movers like aluminum foil and frozen potatoes. A third of the shoppers were offered a wide selection of competing products within each category. The rest were offered a limited number of brands.
The effect of reduced choice? Sales dropped and shoppers visited the site less frequently. What's more, the loss in total revenue exceeded the savings the business achieved by carrying less inventory.
Intriguingly, reduced selection disproportionately hurt the sales of slow-moving products like aluminum foil, while purchases of soda and cereal hummed along. The reason, Borle hypothesizes, is that consumers have fixed ideas about product categories they shop for only occasionally and are therefore less willing to experiment with substitutes. Though this study focuses specifically on grocery shopping--and online shopping at that--any business that sells some products quickly and others at longer intervals should think twice before deep-sixing its presumed losers.