Introduction

The importance of physical availability and mental availability in brand growth has been established through various research conducted at the Ehrenberg-Bass Institute. Physical availability is more than just mere presence for the consumers. Although wide brand distribution is associated with high market share, there are also other important decisions to consider. As discussed in our Physical Availability report, we define physical availability as being easy to buy, and observe it through a framework of presence, prominence, and portfolio. This report covers the portfolio element of physical availability.

The quest to find the optimal portfolio of the brand is common across different markets. Companies need to decide on what products they are offering and how many options are in their product portfolio. There are many reasons why a company would choose to offer a wide range of product variants for their brands. Some of these include:

• catering for differing consumer tastes and preferences;
• fulfilling retailers’ requests to have something new for the shoppers; and
• guarding shelf-space.

Ultimately these reasons are aimed to grow the brand’s value and/or volume share. Currently, there is very limited understanding on what should be the breadth of a brand’s product portfolio given its size, what product features to focus on, and how to make decisions about adding or deleting products from a portfolio.

There are opposing views whether portfolio size should be small or large. Those supporting large portfolio sizes claim that more options will meet the needs of variety-seeking consumers, and maximise profits by protecting the brand’s market position. However, there are those who claim having a smaller portfolio allows the company to reallocate resources more efficiently. Some authors also claim that big selections confuse consumers and cause them to experience ‘choice paralysis’. These views are predominantly based on a few experimental studies. The mantra that ‘simple is always better’ has been popularised by many authors such as Barry Schwartz and Sheena Iyengar.  However, after other researchers failed to replicate Iyengar’s widely cited “jam study”, Schwartz revised his view in 2013, acknowledging that such a slogan was too simplistic.

To see the relationship between portfolio size and brand growth, we took an empirical approach by looking at many sets of data. We also looked at how each of the products in a portfolio contributed to the total brand buyers and revenue.

Our Brand and SKU Audit

The analysis began with an audit across 12 product categories in the UK over three years (2009-2011). The data covered more than 4,500 national and private label brands with a total of over 47,500 SKUs. The audit was performed to document the relationship between the portfolio size in relations to brand penetration and market share metrics.

We also examined around 21,000 brands with a total of nearly 152,800 SKUs SKUs across 20 product categories in both of the UK (2010-2012) and the US (2004-2006; 2010-2012). We investigated the relationships between portfolio characteristics (e.g. the number of pack sizes, flavours/scents), brand penetration, and market share. We also documented the patterns of buyer and revenue contribution from each SKU to the overall brand.

Portfolio Size and Composition are Category and Brand Specific

Our first observation is that there is no universal optimal portfolio size across different product categories. What is large and appropriate for one category cannot be translated to a different category, and nor can it be compared between national brands and private labels.

From our audit, we observe that the average product portfolio size for national brands varies across product categories, from 18 SKUs in Fabric care and 10 SKUs in Dental care to 6 SKUs in Instant coffee and 3 SKUs in Yellow fats (Table 1).  Private label brands typically have larger numbers of SKUs compared to national brands within each product category. Retailers have the advantage of adjusting their product offerings to incorporate elements of best-selling SKUs of a number of competing national brands, and can roll out these products across the retailer networks, while guaranteeing shelf space physical availability for the whole range.

The numbers cover various pack sizes, formats, as well as product category-specific features, such as flavours, scents and formulations. What may be considered a large portfolio size for one product category may be considered common in another product category. Similarly, the importance of a given product feature (whether that be pack size, format, scent/flavour, or formulation) also varies across categories.

Table 1 –  Average Product Portfolio Size for National Brand and Private Label

The Larger the Brand, the Larger its Portfolio

We also observe that the larger the brand, the larger its portfolio. There is a positive, yet, not necessarily causal relationship between the size of the brands, in terms of market share, and the number of SKUs in their portfolio – with a correlation of 0.53. Larger brands have larger portfolios with the relative size being category specific. Some examples are shown in Figure 1.

Figure 1 –  Positive Relationship between Portfolio Size and Brand Size

Adding more SKUs to the portfolio is not necessarily a direct route to growth—as seen in the charts above, there are a number of brands with high numbers of SKUs though lower market share.  In general, larger brands can support larger portfolios, although this is not necessarily what made them a larger brand. One of the reasons that larger brands are able to have larger portfolios is that physical availability is vital for the sustainability of a new SKU and large brands have more room to both negotiate and to trade-off shelf-space allocations for their introductions.

Top Half of the Portfolio is Crucial for Buyer and Sales Contribution

Finally, we discovered that regardless of portfolio size or category type, the top 50% of SKUs deliver around three quarters of buyers and 70% of sales and revenue (Figure 2).

Figure 2 – Examples: SKU contribution towards Brand Penetration and Market Share

The role of the top-selling SKU is also extremely important, with the top-selling SKU contributes half of brand buyers and accounts for an average of 44% of the brand’s overall sales (Table 2). Those numbers highlight the need to prioritise the investment and reinvestment in mental and physical availability of the top SKUs, over any decisions to add (or delete) other SKUs.

Table 2 –  Best-Selling SKU’s Penetration and Market Share Contribution

Summary & Implications

In summary, we find (unsurprisingly) that the norm is for larger brands to have larger portfolios. Portfolio enlargement alone cannot be relied on as a route for brand growth. Large brands cover the market across important buying occasions, across locations and time and their power allows them to obtain the wide-scale distribution ensuring physical availability for their larger range and any new additions. The latter is extremely difficult for small brands to achieve.

However, small brands are not hindered dramatically by their smaller portfolios, as competition for share in any category is largely about the top SKUs of each brand. Our findings demonstrate empirically the importance of the top half of the portfolio, especially the top-selling SKU. The fact that (on average) the single top-selling SKU delivers almost half of a brand’s overall sales and that half of a brand’s SKUs delivers 75% of its revenue makes it critical that these SKUs be the focus of investments in mental availability, and ensuring their presence and prominence in the market.

The incremental penetration analysis we show in this research, allows managers to see how much each SKU contributes towards the product portfolio sales.  This approach allows closer scrutiny regarding whether the product introduces incremental buyers and sales. Our report stresses that regardless of new product innovations and development, brand owners need to protect the hero products and ensure that they are present, prominent, and widely known.  Products that provide marginal contribution in terms of buyers and sales may end up forming a long (potentially unprofitable) tail in the portfolio. However, decisions to rationalise or cut the tail need to also consider the retailers’ requirements, as these products may be crucial for securing the brand’s shelf-space and secondary placement in stores; securing the brand’s own physical availability and crowding out competitors.

So, rather than aiming at a specific number in terms of their product portfolio size — brand owners need to think about having a relevant portfolio for their category in terms of covering buying occasions across location and time and removing barriers to brand penetration.

Our next stage of research in the area is to look at the characteristics of the big heads and long tails in product portfolios to measure brand health, and how to manage fledgling products or minor variants for brand growth.