Too much of a good thing: The impact of product variety on operations and sales performance
| Author | Philip T. Evers,Martin E. Dresner,Xiang Wan |
| Date | 01 May 2012 |
| DOI | http://doi.org/10.1016/j.jom.2011.12.002 |
| Published date | 01 May 2012 |
Journal
of
Operations
Management
30
(2012)
316–324
Contents
lists
available
at
SciVerse
ScienceDirect
Journal
of
Operations
Management
jo
ur
n
al
homep
a
ge:
www.elsevier.com/locate/jom
Too
much
of
a
good
thing:
The
impact
of
product
variety
on
operations
and
sales
performance
Xiang
Wana,∗,
Philip
T.
Eversb,1,
Martin
E.
Dresnerc,2
aMarquette
University,
College
of
Business
Administration,
208
David
Straz
Hall,
Milwaukee,
WI
53201,
United
States
bUniversity
of
Maryland,
Robert
H.
Smith
School
of
Business,
3435
Van
Munching
Hall,
College
Park,
MD
20742,
United
States
cUniversity
of
Maryland,
Robert
H.
Smith
School
of
Business,
3433
Van
Munching
Hall,
College
Park,
MD
20742,
United
States
a
r
t
i
c
l
e
i
n
f
o
Article
history:
Received
19
January
2011
Received
in
revised
form
7
December
2011
Accepted
24
December
2011
Available
online
11
January
2012
Key
words:
Product
variety
Fill
rate
Sales
Distributors
a
b
s
t
r
a
c
t
We
examine
the
impact
of
product
variety
decisions
on
an
operational
measure
–
unit
fill
rate
–
and
on
sales
performance.
Results
are
estimated
using
weekly
data
over
three
years
from
108
distribution
centers
of
a
major
soft
drink
bottler.
Our
results
show
that
fill
rates
are
negatively
associated
with
product
variety
at
a
diminishing
rate.
In
addition,
we
examine
the
total
effect
of
product
variety
on
sales
including
both
the
direct
effect
and
the
indirect
effect
through
operations
performance.
The
total
impact
of
product
variety
on
sales
initially
is
positive,
although
at
a
diminishing
rate.
However,
beyond
a
certain
level,
increased
product
variety
actually
results
in
lower
sales;
that
is,
“too
much
of
a
good
thing”.
Thus,
the
findings
provide
a
comprehensive
understanding
of
the
impact
of
product
variety
on
operations
and
sales
performance.
©
2012
Elsevier
B.V.
All
rights
reserved.
1.
Introduction
Product
variety
has
long
been
used
to
increase
firm
perfor-
mance.
It
is
generally
assumed
that
a
firm
can
raise
its
overall
market
share
by
increasing
its
product
selection
and,
thereby,
appeal
to
a
larger,
more
diverse
set
of
customers
(Ho
and
Tang,
1998).
Coca-Cola
Co.,
for
example,
has
long
followed
this
strategy,
introducing
new
brands,
flavors,
and
packages
on
a
regular
basis.
The
company
introduced
ten
new
flavors
to
the
market
between
2008
and
2009
and
an
additional
18
flavors
in
2010
(Coca-Cola
Co.
press
center,
2011).
However,
greater
product
variety
is
not
nec-
essarily
associated
with
higher
sales.
For
example,
when
Procter
&
Gamble
Co.
reduced
the
number
of
versions
of
its
Head
and
Shoul-
ders
shampoo
from
26
to
15,
sales
actually
increased
ten
percent
(Schwartz,
2000;
Osnos,
1997).
An
extensive
body
of
literature
has
examined
the
influence
of
product
variety
on
sales.
The
literature
can
be
divided
into
two
main
streams:
marketing
and
operations
management.
In
the
mar-
keting
literature,
high
product
variety
has
been
found
to
enable
a
firm
to
satisfy
the
wants
and
needs
of
heterogeneous
consumers
and,
thus,
to
increase
the
probability
of
completing
a
sale.
Hence,
∗Corresponding
author.
Tel.:
+1
414
288
3095.
E-mail
addresses:
xiang.wan@marquette.edu
(X.
Wan),
pevers@rhsmith.umd.edu
(P.T.
Evers),
mdresner@rhsmith.umd.edu
(M.E.
Dresner).
1Tel.:
+1
301
405
7164.
2Tel.:
+1
301
405
2204.
high
product
variety
is
said
to
stimulate
sales
by
segmenting
cus-
tomers
and
attracting
variety-seeking
shoppers
(Bayus
and
Putsis,
1999;
Xia
and
Rajagopalan,
2009).
On
the
other
hand,
marketing
research
has
also
suggested
that
“excess”
product
variety
may
lead
to
selection
confusion
for
customers,
thus
reducing
the
marginal
benefits
from
variety
(Thompson
et
al.,
2005).
In
the
operations
management
literature,
researchers
argue
that
increasing
variety
raises
the
difficulty
of
managing
inventory,
reduces
operational
performance
(e.g.,
the
unit
fill
rate,
as
measured
by
the
percentage
of
units
filled
to
the
total
units
ordered),
and
ultimately
under-
mines
sales
(Alfaro
and
Corbett,
2003;
Fisher
and
Ittner,
1999;
Ton
and
Raman,
2010).
Higher
product
variety
makes
it
harder
to
pre-
cisely
forecast
demand
and
maintain
continuous
supply,
resulting
in
mismatches
between
product
supply
and
demand
and
leading
to
product
stockouts.
In
industries
where
product
substitutes
are
imperfect,
such
as
the
automobile
and
weapons
industries,
cus-
tomers
might
backorder
in
the
case
of
a
stockout.
However,
in
other
industries,
such
as
soft
drinks
and
breakfast
cereal,
product
can
be
easily
substituted.
Although,
sales
may
not
be
lost
if
substitution
occurs
within
a
supplier’s
product
offering
(Zahorik,
1994),
lost
sales
will
transpire
when
product
substitution
takes
place
across
suppliers
(Wagner
and
Friedl,
2007).
Thus,
stockouts
that
result
from
a
high
product
variety
strategy
may
ultimately
hurt
sales
performance.
Given
the
counteracting
operational
and
marketing
impacts
of
product
variety
on
sales,
it
is
unclear
as
to
the
overall
effect.
The
out-
come
depends
on
the
trade-off
between
these
positive
and
negative
forces.
Since
this
overall
impact
plays
a
critical
role
in
assessing
0272-6963/$
–
see
front
matter
©
2012
Elsevier
B.V.
All
rights
reserved.
doi:10.1016/j.jom.2011.12.002
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