Digital Marketing & Production

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SKU Segmentation for Business Growth: How SKU segmentation can help with business efficiency, growth, and savings

As leaders in the consumer-packaged goods (CPG) industry continue to implement improvements in efficiency, smaller companies are learning from their methods quite quickly. There are many options small businesses have at their disposal when it comes to optimizing the use of their funding, as well as trimming down costs. One of the most promising options currently available is SKU segmentation by brand.

Many large companies have begun to realize that treating every unique product in the warehouse the same as any other results in monetary inefficacies. To provide an example: When you run a large retailer like Walmart, you might run out of Crest Toothpaste. If you focus on the product instead of the brand, you might order all toothpaste shipments for arrival on Monday. This could cause you to be overstocked on five unrelated brands of toothpaste, while the brand you wanted restocked is still largely unavailable. Many in the industry call this a “death by averages”. It can cause reduced sales overall because the key stock keeping units of brands that are in-demand are at a consistently low level.

A Quick SKU Overview

An SKU, or a stock keeping unit, is a product or service identification code. It is used to keep inventory of in-store products, as well as services, warranties, and other intangible products. For the most part, the SKU is seen as a bar code that can easily be read by a machine. In some cases, the numbers below it will be used online to universally identify products across marketplaces. These numbers are what we refer to when we talk about the SKU segmentation process.

What is SKU Segmentation?

When you have a list of SKU numbers for every product in your shop, you may end up with hundreds or thousands of numbers, depending on how big your business is. The goal of SKU segmentation is to allow you to search by brand and have all the SKU numbers for that brand come up.

If you search for Gatorade, for example, every Gatorade product you sell should show up as an SKU number. This is very important when you need customers to find your products or if you’re doing quick inventory check-ups on certain products.

When to use Product Segmentation?

As previously mentioned, many bigger stores have learned to use this type of organization to avoid the “death of averages.” Product segmentation by SKU number help warehouse logistics teams work on keeping everything in stock, as it becomes obvious which brand needs attention through that process. If you have something that sells much faster than a similar item, you can treat that item on an individual basis and keep the logistics surrounding the continued stocking of that item running smoothly. You can look at each product, brand, service, and customer in a detailed information breakdown, organizing them all based on characteristics and needs.

Which SKUs Sell the Fastest?

When a product sells faster than many others stocked in your store, you should look to see if you can prioritize the manufacturing of that item. This is an important task to carry out if you are a manufacturer of the products you sell in your shop.

What Is the Risk You Take When You Are Out of Stock?

You should ask yourself what could happen if you are out of stock on each product. You may be safe in some instances. But in others, you could lose business to a competitor. If the former is true, you can order the product to arrive at its normal scheduled time. If you risk losing business, you might want to think about paying for express shipping to make sure the new stock arrives in a way that keeps up with demand. As demand fluctuates over time, you can learn to order more or less, depending on the circumstances.

Are You Selling on Google?

Google has a shopping feature that will show online options if you search a product name. If you are trying to show up on this search feature, SKU segmentation is for you. Ask how much easier your life would be if you knew that all products relating to “iPhone” could show up without having to manually edit each one of them.

Overall Benefits to Using SKU Segmentation

SKU segmentation is a great tool for businesses looking to trim costs or become more efficient. Through SKU segmentation, you can plan and forecast everything associated with logistics – from the production of the products to the transportation of them. This allows you a certain degree of freedom when looking to allocate resources and fine-tune tradeoffs. Ultimately, you will have more options to effectively run your business and keep all the items you sell in stock.

Improved Accuracy When Forecasting

If you know which of your products are the quickest sellers, you can better predict your needs. By using a system of historical data that focuses on the product at hand, the results you generate will be much more reliable. This will free up employees to work on more important tasks.

Reduce Waste

When you use SKU segmentation to learn what you need to order at what time, you improve your ordering and forecasting capabilities. As such, you run less of a risk of having products reach their respective expiration dates in your inventory.

Simplifying Shipping and Transportation

If SKU segmentation can reduce your waste and predict your needs more accurately, it will also simplify your product transportation. Transportation is one of the costliest parts of getting the products to your door, generating monetary waste and long planning times overall. Once you begin to segment your products, you may realize that you are always overstocked on a certain product. By removing that problem, you remove a significant amount of unnecessary overhead.

Google Search Indexing and Ads

If you choose SKU segmentation by brand or type of product, Google can see and use this. If you are using AdWords, this can be very advantageous as it allows you to simplify your ad creation and selling process. In simple terms, it will allow you to say “show all of these types of products for sale when this term is searched” without having to go into each and list it directly. With Google’s shopping search results, this can convert to more leads.

How is SKU Segmentation Done?

Regardless of the size of your business and the number of products you buy and sell, SKU segmentation is not an expedient system. There is no one way to segment your products, but after you have learned all you can, you should be able to determine what method is the best one for you.

When you are thinking about how to segment, start by thinking about what you are doing now. Are you treating all your products and customers in a uniform manner? Do you currently have any SKU segmentation in your database? If so, is it working? If you can answer these questions, you are one step closer to saving money and time.

Next, investigate where your delivery payments are going. Companies often spend far too much trying to get a small portion of their sales stocked. To put it into perspective: If you are spending 20% of your transportation budget to make sure you never run out of soap, but soap only makes up 5% of your sales, you might need to reevaluate how you prioritize your overhead costs.

How Should SKU Segmentation be Carried Out?

After you have gotten all the information you need, it is time to determine how you need to segment your SKU numbers. There are many options to choose from, and each has its merits, based on the needs of your company. Depending on your needs, you can decide to use more than one method. To begin, we recommend looking at your inventory by brand, as well as by product or customer base.

Going by brand and by individual product will allow you to keep the needs of each product in mind to a high degree of specificity, while also addressing the needs of the brand overall. This is great for products like soda, which sell by brand and by label. However, this method of segmentation can be difficult for stores with hundreds of thousands of products available for purchase.

If you choose the other option, you’ll still find that you have enough information to make good decisions. Looking at segmentation by brand and customer base, allows you to monitor the performance of specific products near or at the same degree, while also looking at the trends that come from those who buy it.

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