Why Reduce Product Options
Reducing product options, often referred to as “product line simplification” or “SKU (Stock Keeping Unit) rationalization,” is a strategy that businesses may adopt for various reasons. Here are some primary reasons why a company might choose to reduce its product options:
- Complexity Costs: Managing a vast array of products can be costly. There are costs related to inventory management, distribution, sales training, marketing, and product support. By simplifying the product line, a company can often reduce these associated costs.
- Inventory Management: A reduced product range can make it easier to forecast demand, manage inventory, and reduce the costs associated with holding and moving goods. Overstock of slow-moving items or stockouts of popular items can be minimized.
- Focus on Best Sellers: By concentrating on fewer products, a company can focus its resources on the best-performing products, which might lead to higher sales and better profit margins.
- Clearer Brand Messaging: Too many product options can dilute a brand’s message or confuse consumers. By streamlining the product lineup, a company can present a more coherent and understandable value proposition.
- Improved Quality and Innovation: With fewer products to manage, companies can allocate more resources towards quality control and innovation within a narrower product range.
- Customer Decision Fatigue: An excessive number of options can overwhelm consumers, a phenomenon known as “choice overload” or “paradox of choice.” Reducing options can help customers make quicker and more confident purchasing decisions.
- Supply Chain Simplification: Fewer products can lead to a simpler supply chain, which can be easier to manage, more efficient, and less costly.
- Eliminate Underperformers: Not all products are profitable. By regularly reviewing the product lineup and eliminating underperforming products, companies can improve profitability.
- Environmental and Sustainability Reasons: Fewer products can mean less waste, more straightforward recycling processes, and a reduced carbon footprint. This can align with a company’s sustainability goals and appeal to environmentally-conscious consumers.
- Retailer Relationships: Retailers prefer to stock products that turn over quickly. By focusing on the best sellers and reducing the number of low-turnover products, companies can build stronger relationships with their retail partners.
- Reduced Returns: A confusing product line might lead to more returns if customers buy something that isn’t quite right for their needs. A simplified product line can reduce this issue.
It’s worth noting that while there are many advantages to reducing product options, there are also potential disadvantages. For instance, if not done thoughtfully, SKU rationalization might alienate some segments of the customer base who relied on specific products. The key is to strike a balance that aligns with the company’s strategic goals and the needs of its customers.
Example of Why Reduce Product Options
Let’s consider the case of Apple and its iPod product line:
In the early 2000s, Apple’s iPod was the leading portable music player in the market. Over the years, as the product gained popularity, Apple introduced various models and variations of the iPod, including the iPod Classic, iPod Mini, iPod Nano, iPod Shuffle, and iPod Touch.
As the iPod line expanded, consumers were presented with a growing array of choices, each with its unique features, sizes, and price points. While variety can be good, it also introduced potential for confusion among consumers trying to decide which model was right for them. The overlapping features and capabilities of these models could potentially dilute the brand’s message and create inefficiencies in production, distribution, and marketing.
Over time, Apple began to streamline the iPod lineup:
- iPod Mini was discontinued and effectively replaced by the iPod Nano.
- iPod Classic, which had a hard drive and was bulkier, was eventually phased out, especially as flash storage became more affordable and offered adequate storage for most users.
- iPod Shuffle and iPod Nano were discontinued as smartphones, including Apple’s own iPhone, took over the music player role. With iPhones (and other smartphones) capable of playing music and doing so much more, the standalone music player market shrank.
- The iPod Touch remains as it bridges the gap between the iPhone and other iPods, essentially being an iPhone without the phone capabilities.
By reducing the number of iPod models, Apple was able to:
- Focus on promoting a clearer product differentiation.
- Simplify its production processes.
- Reduce potential consumer confusion.
- Align the iPod product line more closely with the rising popularity of the iPhone.
- Concentrate its resources on products with the most significant growth potential, like the iPhone and later the Apple Watch and AirPods.
In this example, Apple’s strategy of product simplification allowed the company to streamline operations, provide clearer choices to consumers, and focus on the most promising areas of their business.