Effect of Product Assortment Changes on Customer Retention

• Activity Number: 229
• Type: Invited
• Date/Time: Tuesday, August 5, 2003 : 10:30 AM to 12:20 PM
• Sponsor: Section on Statistics and Marketing
• Author(s): Peter Boatwright*+ and Sharad Borle and Joseph B. Kadane and Joseph Nunes and Galit Shmueli
• Companies: Carnegie Mellon University and Carnegie Mellon University and Carnegie Mellon University and University of Southern California and Carnegie Mellon University
• Keywords: Customer Retention ; Product Assortment ; Hierarchical Bayes ; Nu-Poisson

Abstract

To date, research on the effects of assortment reductions in both the academic and practitioner literature suggests grocery retailers can substantially reduce the number of products they offer with little or no loss in sales. Despite the growing empirical evidence, grocers fear assortment reductions erode customer retention. This research reveals that these fears are not unfounded. We investigate the impact of a large-scale assortment reduction on customer retention utilizing a model we developed to explore the effect on sales at both the category level and the store level simultaneously. We apply our model to a dataset provided by an online grocer, one that contains detailed household purchase records for every category in the store. In contrast to recent studies, all done at the category level, our results indicate that the loss in assortment reduced overall store sales. We find the assortment reduction had a negative effect on both shopping frequency and purchase quantity, but that the decline in shopping frequency resulted in a greater loss in overall sales than did the reduced purchase quantities.