Are you offering the right amount of choice to shoppers?
Many things in life are about finding the right balance between not enough and too much. One square of Dairy Milk is not enough, the whole bar is too much. One glass of wine may not be enough, but after 4 or 5 you probably wished you had stopped at the first one. Do too much of anything and, what was good, can end up turning into something that is bad.
Economists would call this the Law of Diminishing Returns. Every additional square of Dairy Milk is a bit less enjoyable than the previous one. We like to call it hitting the Sweet Spot. Enough of something to maximise benefits, but not so much that those benefits end up working against you.
So, why are we talking about this? Unsurprisingly, we think there is a parallel to what has been happening in the FMCG and Grocery Retail world. In recent years we have seen two extremes at play. Firstly, you have Discounters who deliberately offer limited choice – often only 1 or 2 options in a category and only about 1500-2000 SKU’s in the whole store. Secondly, is where Tesco have got to – offering shoppers hundreds of options in some categories and tens of thousands of products across the store.
What was a competitive advantage for the likes of Tesco has, over time, become a disadvantage. Once the choice for the shopper gets too complex, the range simplicity of Discounters wins. This is one reason why most of the Top 4 Grocers are engaging in range rationalisation exercises. If Discounters have been winning and one of the reasons they are winning is range simplicity, then we need less range, right?
Yes, to a certain extent. But just arbitrarily cutting back range by x% isn’t the answer. We think it is about finding the range sweet spot in each category. So that the Top 4 retailers offer more choice, but importantly, a much clearer choice, for shoppers. Something the Discounters business model doesn’t allow them to do.
So, what do we mean by this…?
Having a simple, clear understanding of consumer needs or usage occasions in a category. Then making sure that the range in a category covers off those key needs or occasions. Are all the right bases covered?
Coverage of the most relevant product and pack formats. In many categories product format takes priority for shoppers. They don’t just want one option in a category but are often deciding whether they want the box of Quaker Oats, the individual sachets, the Porridge Pots or the bars. Sometimes buying different formats for different needs.
Clear price & quality hierarchies in a category. Good, better, best is still a valid choice to be offering shoppers. Shoppers can then decide which tier they want to buy into, not the retailer. Importantly, price & quality hierarchies need to be protected. Too many promotions blur the lines.
Back winning products – brands, flavours & variants. The key word here is ‘winning’. The ones that shoppers want to buy and Discounters often struggle to offer. Lead the range with these products. Too many peripheral products sit on shelf for the listing fee not because of shopper demand.
Above all, remove duplication. One of the biggest causes of range complexity has been the amount of different products all meeting the same consumer need. A clearer range means fewer products covering more of the right shopper needs.
Over the next few weeks we will talk about some of these things in more detail. The question is not about whether to offer more choice or less choice. It is about offering the right choice. We think winning retailers and manufacturers will be those who can identify this sweet spot in their categories. Do you know what your sweet spot is?
Feel free to forward. Have a great weekend and speak to you next week.