Is having a bunch of product SKUs really that bad?
There’s this common belief that having a wide variety of products it’s beneficial to you as it means a competitive advantage.
And sometimes, that’s true.
For example, when you sign up for Weedmaps, your dispensary icon is as big as the number of products you can offer compared to your competition. So, if Weedmaps is giving more visibility to dispensaries with a wider variety, why is having too many SKUs bad for your dispensary?
Well, the thing is you can get into situations where having too many SKUs means you have an excess of one particular product. Not only that but your budtenders and customers can feel overwhelmed by this mixture.
In this article, you’ll learn the five top reasons it’s better to slow down in your product acquisition and how to ensure you have the correct amount of products.
#1. Expiration of Inventory Products
In an industry of consumption such as cannabis, it’s clear that items have a fixed shelf life.
Having too many products can lead to more items expiring before your customers buy them. This leaves you in a tough spot because now you have to figure out how to handle these products.
Often your best options are to:
- Destroy the product because the expiration date has already passed
- Sell the product at a discount when the date of expiration is near
- Or ask for a refund from the vendor which can have consequences for your relationship
Whichever option you choose, one thing is certain.
You’re going to lose revenue and spend more time solving your product expiration problem.
More SKUs only mean managing more products with different life cycles and buying rates. And it’s up to you to manage your product’s obsolescence and know what products to buy for your dispensary.
#2. Further Employee Training
Every time you have a new product at your dispensary is vital to educate your employees about it. Otherwise, how can they answer questions from customers and sell the benefits of your product?
Your budtenders are in charge of facing your customers to let them know what’s new, discounts, and any recommendations. If they know nothing about a product in your dispensary is the same as if it wasn’t there.
This education level can be as:
- Product knowledge: SKUs aren’t there just because of your POS system's sake and sales analysis. The SKU code helps your employees know more about the product, like the vendor, category, brand, types, and even potency. If you bring 25 new SKUs, your staff needs to know about each one, so they can, in return, educate your customers. But having too many SKUs can make it difficult. Imagine if there were multiple brands selling the same product category at your dispensary.
- Product offerings: If you have several products expiring, it’s likely you have a ton of line item discounts, bundle deals, or other specials. Your staff needs to be aware and educated about how you’re dealing with each of these products. This way they can offer the best customer service while urging the promotion of these deals. If you have too many SKUs, your team might feel overwhelmed with the multiple deals you’re offering. And this becomes a challenge for your employees when communicating with customers.
#3. Reduction of the Average Ticket Size
In the cannabis industry, you have a limited amount of products you can sell to each individual customer—the average ticket size. If you run into issues where you need to discount, those discounted products will fill the average ticket size.
This means that if a customer can buy only an ounce of product a day, they would rather spend their money on a discounted item than on one with the full price. And if that discounted item doesn’t generate any revenue for you, it can affect your average ticket size and sales from potential customers.
#4. Increases Managerial Tasks
When you have too many SKUs, the increased inventory that comes with it leads to additional steps within your managerial tasks.
More SKUs means:
- More data to collect and analyze: Part of managing your cannabis dispensary comes with collecting data about your products to make important decisions based on facts, not hunches. Data helps you determine if a product is helpful or if you need to make changes. And as your SKUs increase, so does the influx of data points in your dispensary. This makes collecting data a complex task if you don’t have the correct tools or team.
- Additional inventory space: With increased inventory, there’s more pressure on your retail team to manage the space they have available. If you have too many SKUs is likely, you have products that aren’t selling but are occupying space in your inventory. Space where you could store your most popular items and achieve more sales.
- More suppliers to manage: Having too many SKUs can be a problem when you realize you have many vendors that supply the same or similar items. Retail vendors, like you, have a finite amount of space to display and store inventory. And sometimes your suppliers will give you an incentive to make their products stand out at your dispensary or in events. This makes finding the right number of SKUs important to better relationships with your suppliers without overwhelming your team or incurring in more managerial tasks.
#5. Decreases Customer Curiosity
As brands increase their popularity with certain customer segments—what you would call brand audiences. You might think it’s a good idea to have a variety of products from every brand.
But an increase in product categories can overwhelm your customers. They won’t understand the subtle differences between brands. And this can lead them to stop asking for help from your staff and just go straight to what they already know.
There’s still room to try new products at your dispensary. But first, you want to know what the most popular brands are and the data behind this brand gaining traction.
How To Ensure You Have the Correct Amount of Product SKUs?
There are many ways you can navigate this with your team.
One rule of thumb is to make it easy for your staff. So get three or fewer options per product category.
The cannabis industry makes it easy to get two to three options per category. You just have to follow the general effects of cannabis: Sativa, Hybrid, and Indica. Since you know these three generalized effects, you can purchase each product category with them in mind.
Of course, this array will vary depending on the product, and what sells best at your dispensary. But by keeping options simple, you allow your team to quickly and effectively identify the customer's needs and make a recommendation.
Overall, you want the cannabis experience to be fun, exciting, and simple. By ensuring you have the correct amount of products on the shelf and the correct amount of each item, you allow your teams to be free to offer what they think is best and not have to push products based on inventory or deadline variables.
This article is by Andrew Zaferis a former Retail Director for Cresco and General Manager of Native Roots with additional writing from Jessica Jansasoy. Follow him on LinkedIn.
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