The Effect of Product Assortment Changes on Customer Retention

Abstract

This research investigates the impact of a large-scale assortment reduction on customer retention, utilizing a model we develop to explore the effect on sales at both the store level and the category level simultaneously. We apply our model to a data set provided by an online grocer. The data contain detailed household purchase records for every category in the store. Our results indicate that the reduction in assortment reduces overall store sales, a result that contrasts with that of all of the recent studies on assortment reductions (Food Marketing Institute. 1993. Variety or duplication: A process to know where you stand. Prepared by Willard Bishop Consulting and Information resources, Inc., in cooperation with Frito Lay; Drèze, Xavier, Stephen J. Hoch, Mary E. Purk. 1994. Shelf management and space elasticity. J. Retailing 70(4) 301–326; Broniarczyk, Susan M., Wayne D. Hoyer, Leigh McAlister. 1998. Consumers' perceptions of the assortment offered in a grocery category: The impact of item reduction. J. Marketing Res. 35(May) 166–176; Boatwright, Peter, Joseph C. Nunes. 2001. Reducing assortment: An attribute-based approach. J. Marketing 65(July) 50–63; Boatwright, Peter, Joseph C. Nunes. 2004. Correction note for “Reducing assortment: An attribute-based approach.” J. Marketing. Forthcoming). We find the reduction had a negative effect on both shopping frequency and purchase quantity, and we find that the decline in shopping frequency resulted in a greater loss than did the reduction in purchase quantities. We also find that the impact of the assortment cut varies widely by category, with less-frequently purchased categories more adversely affected. The variation in the assortment reduction's impact across categories suggests that managers compare select categories in order to moderate the overall loss in sales.