Executive Summary
Shoppers consistently report that retail assortments affect their store choice decisions. Most theoretical and empirical research suggests that shoppers prefer larger assortments, but recent grocery store studies have failed to find a positive relationship between assortment size and category sales. In light of these seemingly conflicting findings, the authors investigate the impact of product assortments on consumers’ grocery store choice decisions. Extending existing store choice models, the authors add assortments as a predictor, specify a general structure for heterogeneity, and estimate store choice and category needs models simultaneously. The models are estimated using market basket data from a household panel.
The authors find that contrary to shoppers’ self-reports, store choice decisions are more responsive to changes in assortment than to changes in price. They also find that the number of brands in an assortment and the presence of a household’s favorite brands increase that household’s probability of choosing a store; however, the number of stockkeeping units (SKUs) per brand, the number of sizes per brand, and the number of unique SKUs (a proxy for private labels) do not. These results suggest that the effect on store choice of adding or deleting an SKU depends on how it fits in the category assortment: Does it increase/decrease the number of brands or sizes offered? Is it unique to that retailer? Is it a favorite of many households? The seemingly conflicting findings in the literature may be a result of more limited characterizations of assortment.
Unobserved heterogeneity, reflected in the distribution of household-level response parameters, is much greater for assortment than for either convenience or price. Although shoppers uniformly prefer lower prices and shorter travel distances, the analysis shows that shoppers may prefer different assortment characteristics.
Specifically, a substantial minority prefers stores that offer more SKUs per brand, more sizes per brand, and more unique SKUs but fewer different brands. The analysis of consumer heterogeneity further reveals that response to assortment is correlated with response to travel distance (r = .43). Thus, the less importance a household ascribes to assortment, the more it values convenience, and vice versa.
This research has implications for both retail managers and academic researchers. It provides qualified support for the argument in favor of SKU reduction, as prescribed by the grocery industry’s efficient consumer response and category management initiatives. If retail assortments can be reduced without eliminating brands, particularly consumers’ favorite brands, the associated reductions in operating costs and out-of-stocks could make SKU reduction an effective and profitable strategy.
The results must be interpreted carefully. They suggest that assortment response is nuanced and that the effect of assortment changes, depending on the characteristics of the items being added or removed. The heterogeneity in assortment response further suggests that retailers should not necessarily match one another’s assortment levels either. Ideal assortment levels could differ substantially among retailers, depending on the preferences of their customers.
Biography
Richard A. Briesch is Associate Professor of Marketing in the Cox School of Business at Southern Methodist University. He received his PhD in Marketing from Northwestern University. His primary area of research is the general area of modeling consumer decision making. His articles have appeared in Journal of the American Statistical Association, Journal of Consumer Research, Marketing Science, Journal of Retailing, and other leading academic journals. He has won the William R. Davidson Award for the best article in Journal of Retailing.
Pradeep K. Chintagunta is Robert Law Professor of Marketing in the Graduate School of Business at the University of Chicago. He is interested in studying strategic interactions among firms in vertical and horizontal relationships. His research also includes measuring the effectiveness of marketing activities in pharmaceutical markets, investigating aspects of technology product markets, and analyzing household purchase behavior. He is an area editor of Marketing Science; associate editor of Journal of Marketing Research, Management Science, and Quantitative Marketing and Economics; and a member of the editorial boards of Journal of Marketing and International Journal of Research in Marketing.
Edward J. Fox is W.R. Howell Director of the J.C. Penney Center for Retail Excellence and Associate Professor of Marketing in the Cox School of Business at Southern Methodist University. His research interests include retail management, consumer shopping behavior, and customer relationship management. His recent projects focus on retail assortment management, pricing, and inventory management, as well as consumer “cherry-picking” behavior. His work has appeared in Journal of Marketing Research, Journal of Marketing, Marketing Science, Operations Research, and Journal of Business.
J Marketing Research, Volume 46, Number 2, April 2009
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