“One way stores attempt to beat this price-comparison game [while in a store, using smartphones to check online for better prices elsewhere] is by stocking products that manufacturers have slightly modified exclusively for them, signaling the phone that no other store has the product.”
Phone Wielding Shoppers Strike Fear Into Retailers
Wall Street Journal 12/16/10
Miguel Bustillo and Ann Zimmerman
As retailers and manufacturers increase use of retailer-specific SKUs to combat price comparisons, there are pitfalls both parties should be aware of.
Retailer-specific Stock Keeping Units, or derivative SKUs, are not new. In heavily advertised categories such as appliances and consumer electronics, the tactic has been around for decades. One can see why retailers like them – to protect margins. But these derivative SKUs have to be approached with care… especially by manufacturers.
- - Inventory investment will likely be higher due to safety stock, tying up working capital.
- - It’ll be hard to get the mix right, so there’ll be some combination of lost sales when availability is below demand, then discounts and write-offs later on when supply exceeds demand.
- - Special SKUs create complexity during the sales and customer service process, so the manufacturer will need processes robust enough to gather the necessary information from the customer and act on it internally. Marketing and selling expenses will go up, sourcing and supplier management get a little more complicated and expensive, and production costs may be higher with shorter runs.
If a retailer is willing to pay a high-enough price for the derivative SKU, all this may work out profitably. Otherwise, seller beware!