SKUs, Market Share and Distribution

An interesting question in marketing is what is the distribution that any particular SKU (Stock Keeping unit) will receive. Generally more distribution is better — it simply allows more people the opportunity to buy your product. As such managers will fight for distribution.

Distribution is largely expected to follow market share. The logic being that share means a lot of people will buy it and if a lot will buy a lot of retailers have an incentive to stock it. Clearly the casual link isn’t perfectly one way, a lot of retailers stocking a SKU will generally generate greater sales and so share.

Kenneth Wilbur and Paul Farris (my professor at Darden) analyzed the relationship between market share and distribution. They found that “the relationship between market share and retail distribution is increasing and convex at the SKU level”. (Wilbur and Farris, 2014, page 154). In essence as expected share tends to be associated with high distribution and this works at a SKU level. (Not just at a brand or a company level). The convexity is that having a high share increasingly helps. More share gives a disproportionate increase to distribution.

One of the most fascinating discussions revolves around the role of distributional assumptions in planning. The authors use distributional assumptions to help understand why SKU launches fail so often. They suggest it might be managers making overly ambitious distributional assumptions in order to get the SKUs they are personally invested in launched. “The easiest way to ensure a new SKU will be introduced is to overestimate the number of stores that will sell it.” (Wilbur and Farris, 2014, page 161).

Distribution is an important topic to marketers and it is great to have an improved understand of its associations.

Read: Kenneth C. Wilbur and Paul W. Farris (2014) Distribution and Market Share, Journal of Retailing 90 (2) pages 154-167