SKU architecture in FMCG industry: SKUs as the tools of a brand manager
SKUs or stock keeping units of a product in very simple terms are the different size/variant/price combinations in which the product is available in the market. Consequently SKU architecture for a product is all the
SKUs in which a product is available. For example Pepsi has 200ml, 300ml, 500ml, 1.5 litre and 2 litre in its SKU architecture. SKUs play a very important role in increasing the consumption and hence sales of a product. This may not seem that obvious. Let’s go to some basics and revisit this statement.
How do you increase sales of a product? You ask any manager or consultant about this and on a very fundamental level the answer will be “you increase your sales by selling to more people, selling more to the same people, or by selling to the same people more number of times”. The first is known as increasing penetration, while the second is increasing consumption and third increasing purchase/consumption occasions or frequency.
Almost all of this can be done by having the right SKU architecture and SKU innovations. Ever heard of the 1 Re shampoo sachet innovation by Cavincare’s Chik shampoo? It allowed those who were unable to afford shampoo in bottles just because of sheer price to consume them. Hence the sachet became an integral part of the shampoo SKU architecture for all major brands and not just something only used for sampling to induce trials.
This SKU innovation increased shampoo category penetration in the Indian market. Another SKU innovation which exemplifies the second way of increasing sales by selling more to the same people is the fridge pack innovation by Coca-cola. The ‘fridge pack’, so named as it easily fits into any average size refrigerator owned by most families in India, provides servings for 4-5 people and is at a comfortable price point of 35 Rs, providing the price advantage of buying in more quantity to the customer (price per quantity is less for it as compared to a 300 ml bottle). The third method of increasing sales through SKU architecture was employed by Britannia Bourbon, which introduced and not only put right no. of cookies in their SKUs, but also named them to tell people the different consumption occasions on which Bourbon should/can be eaten. See Bourbon’s SKUs here – http://www.britannia.co.in/brandstories_bourbon.htm.
So how does exactly all these decisions related to SKU architecture taken? From where exactly do these wonderful innovations come? The SKU comes in the “product” piece of the marketing mix (4Ps) jigsaw. Which SKUs should exist and which shouldn’t is a very important decision for a brand manager and extensive marketing research is undertaken by the companies to ascertain the right architecture. At the root of sophisticated quantitative techniques and in depth qualitative techniques that a marketer employs lie some basic questions to determine the consumer behaviour and the purchase behaviour. The questions that a marketer should try to answer are how, when, why, with whom and where the consumer consumes their product, what does she considers when she buys a product of a “category”. Does an SKU architecture which is different from the present will rake in more sales by triggering any of the 3 fundamental triggers of incremental sales.
What makes this exercise interesting and intricate is the fact that although the fundamental questions do not change, different categories have different usage/consumption patterns and any chance of standardising the procedure of determining the right SKUs go for a toss. Right SKUs in biscuit category for example can be ascertained by the fact that people do not like to store biscuits after the pack is opened, as they become soggy. It can be limited by an absolute price as in biscuits people seek variety and have a large repertoire of purchase consisting different types of biscuits and hence apportion their budget accordingly. So anything above a certain price may not sell. On the other hand, for a detergent’s small sachet the important consideration can be the quantity of detergent to wash “x” no of clothes, which is on average the quantity washed in a bucket as it is for
one time usage; right quantity should be neither more nor less. For a chocolate, it is obviously important to maintain rounded price points as this being majorly an impulse purchase which happens at a typical kirana store or a pan shop where issues of lack of “change” crop up, hurting sales.
Summing up, there can be a no. of variables important to the determination of the “perfect” SKU architecture of a product in a category. Some more important than the other, but the important thing is how a marketer manages these variables according to their importance, works in certain constraints which operate in the category and create that architecture which boosts sales of his brand. With Modern trade slowly but surely increasing in its reach in the country, the battle for the wallet share will increasingly be fought at the point of purchase. As opposed to traditional retail, buyers in the newer retail format have an opportunity of feeling the brands; comparing them and then buying. In this world of modern trade the right SKUs will play a very important role in helping companies win in the shop.Aditya is currently pursuing PGDM (2011-2013) from IIM Calcutta. A mechanical engineer from IET DAVV Indore, it’s marketing which keeps him going. A Hindi poet, he has written a number of poems over many years. In his free time he either likes to be alone and think hard or hang out with buddies and not think at all. An Indori at heart, he feels that Pohe is the best food ever and would want to market it someday. He dreams of becoming a Marketing God some day (it is a different thing that he considers him one now :D). He will be spending his summer of 2012 doing sales and marketing for Cadbury. He can be reached at firstname.lastname@example.org