Research Insights: Variety’s not always the spice of life

More product variety allows firms to increase sales by either selling to a larger customer base or by encouraging current customers to purchase more frequently and in greater quantities. But greater variety is also associated with lower operational performance, negatively impacting inventory levels and stockout rates.

Kevin Sweeney, Associate Professor in the Saunders College Department of Management, recently completed a study of this phenomenon in the retail setting. He co-authored (as first author) an article, “Trade-offs between operational performance and sales in a retail environment: The simultaneous impact of product variety on inventory levels, product availability, and sales,” published in the Journal of Business Logistics. 

Sweeney and his collaborators focused their research on the retail setting. Using data gathered from a large supermarket chain in China over a 32-week period for 12 product categories, they developed a multiple stage regression model to test their hypotheses concerning the effects of product variety on inventory levels, stockout rates and sales.

The researchers found that the effects of product variety differ across more hedonic - the ones used for fun and experience - and more utilitarian product categories. For more hedonic product categories, product variety has a larger positive influence on sales but also a larger negative impact on operational performance because consumers are less likely to switch to another product in that category in the case of a stockout of their intended product.

The managerial implications for retailers are clear. They should have larger inventories of hedonic products. On the other hand, with more utilitarian products, retailers can be more aggressive in cutting inventories as, in the event of a stockout, customers are likely to switch to another product in that category.

View paper in the Journal of Business Logistics (2023), Trade-offs between operational performance and sales in a retail environment: The simultaneous impact of product variety on inventory levels, product availability, and sales.