Consumer Choice vs. Profit Margins: The Balancing Act in Product Line Management

The CNN article, “Stores don’t sell your favorite product anymore. That’s on purpose,” examines how companies like Hormel, Levi’s, and Dollar General are reducing their product assortments to optimize profits through a strategy called “SKU rationalization.” This involves cutting unprofitable, duplicative, or niche products to focus on top-performing items. For example, Hormel has consolidated 25% of its pepperoni offerings, and Hasbro has eliminated half its product lines. This strategy gained traction during the pandemic when supply chain issues forced businesses to prioritize efficiency. Retailers argue this approach reduces costs and simplifies choices for overwhelmed consumers, but it comes with risks—over-cutting may alienate loyal customers, as evidenced by Walmart’s failed attempt in 2009 and Taco Bell’s reversal on discontinuing its Mexican Pizza.

Note: An initial draft of this blog post was created by ChatGPT.

Relevant Essentials of Marketing Chapters:

1. Chapter 8: Elements of Product Planning
   • Focuses on product assortment and line length, aligning with companies’ strategies to streamline SKUs for profitability and reduced complexity.
2. Chapter 12: Retailing and Wholesaling
   • Explores how retailers like Dollar General and Levi’s use marketing strategies, such as narrowing product lines, to enhance operational efficiency and better meet consumer preferences.

Class Discussion Ideas:

In-Class Activity Ideas:

1. SKU Analysis Exercise:
   Have students research a product category from a major retailer, list the SKUs available, and propose which could be eliminated or consolidated for efficiency.
2. Debate: Choice vs. Simplification:
   Split the class into two groups to debate whether reducing product variety benefits or harms consumer satisfaction.

Discussion Questions:

1. How does SKU rationalization align with product line strategy as discussed in Chapter 8?
   Answer idea: SKU rationalization emphasizes prioritizing profitable items and minimizing unnecessary complexity, reflecting strategic decisions about product line length.
2. What are the benefits and risks for retailers reducing product variety? (Chapter 12)
   Answer idea: Benefits include cost savings and streamlined operations; risks involve alienating loyal customers and losing market share.
3. Why might reducing product assortment improve marketing mixes for retailers? (Chapter 12)
   Answer idea: It can allow for more targeted promotions, efficient inventory management, and enhanced brand focus.
4. What factors should companies consider when deciding which SKUs to eliminate? (Chapter 8)
   Answer idea: Sales performance, profit margins, consumer demand, and supply chain impact.
5. How can companies balance consumer preferences with operational efficiency in SKU rationalization? (Chapter 12, Bonus Chapter 2)
   Answer idea: Conduct market research to identify must-have products while ensuring cost-effectiveness in production and distribution.