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A Wake-Up Call for Retailers: Best-Selling Items Not Necessarily the Most Important Driver of Category Sales

Author:Mark D. Burd 412-268-3486

Release Date: Sep 22, 2008

PITTSBURGH—Retailers nationwide, seeking to improve sales performance, are paring   product variety to focus on a smaller number of best-selling items. However, they may want to take note of recent research co-authored by Peter Boatwright, associate professor of marketing at the Tepper School of Business at Carnegie Mellon University. Adding a new dimension to the concept of retail category management, the research provides compelling evidence about the unexpected and critical impact of infrequently purchased items on overall category sales.    

In the study, researchers analyzed sales and inventory data provided by a leading U.S.-based national retailer for men’s T-shirts in eight colors and four sizes by a single manufacturer over a two-year time period. Using an advanced model that identifies every item’s contribution to and impact on sales in a particular category, the study’s findings buck conventional wisdom, identifying that “best sellers” don’t necessarily have the biggest impact on overall sales in a product category. The presence – or lack thereof – of lesser-selling items appeared to have a significant and overlooked impact on sales performance overall. In just one example, tan extra large T-shirts rank 10th among customers’ T-shirt purchase preference, but are among the top five items for influencing total category sales.

“We’ve identified a schizophrenia in retail buying that underscores the need for broad assortment to sell the category, despite the fact that only a few items are major sellers,” said Boatwright. “The bottom line is that variety is key to the sales health of the entire category and retailers need to adopt a more sophisticated mindset when it comes to understanding the impact of individual items – best sellers or otherwise – on sales and the overall product assortment.”

The study’s findings have big implications for the way retailers approach inventory, merchandising and marketing, according to Boatwright. “Retailers need to do a better and more sophisticated job of tracking and analyzing their sales and inventory data to really understand what drives sales in a particular category,” he said. To start, retailers need to move beyond just historical sales information and integrate better inventory data that can help to pinpoint the impact of specific items on the overall category performance. They should also look beyond marketing tactics such as general category advertising to the proactive role that “key” category items might play in stimulating overall category demand.

Boatwright believes that this new understanding of the importance of product assortment has particular significance for boutique retailers, which inherently have a smaller assortment of products. In addition, he suggests that product manufacturers would benefit from working more closely with retailers to understand the dynamics of product mix, as this can impact manufacturer profits as well.  

The study, “Deconstructing Each Item’s Category Contribution,” appeared in the May-June 2007 edition of Marketing Science. It was co-authored by Kirthi Kalyanam of the Leavey School of Business at Santa Clara University and Sharad Borle of Jones Graduate School of Management at Rice University.

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