A comment on another site coupled with the upcoming holiday buying season led to this “explainer.”
SKU is the abbreviation for Stocking Keeping Units, a shorthand for the number of physically different boxes you might find at a retailer for a brand, or more importantly, a product line. The was a time when the camera makers were overly prolific with producing SKUs. You’d find Camera X body, Camera X + Y lens, Camera X + Z lens, Camera X + Y + Z lens, and more. These days, many camera makers have backed off from that kind of box proliferation. However, Nikon just extended their product line with the Z5IIC and Sony with the FX5. In Nikon’s case they added four SKUs for one camera launch. That's more SKUs a camera dealer has to deal with.
MBA programs—I went through one at the IU Kelley School of Business—teach the nuances of SKUs, and it’s important to understand them, as they do have some consequence to the eventual customer (that would be you).
First, dealers have a love/hate relationship with SKUs. A camera dealer, like most retail businesses, survives and perhaps thrives on what are called turns. A turn is basically how many times a particular SKU comes in and goes out (gets sold), typically measured monthly, quarterly, or annually. So if a dealer only sold one SKU, they’d need a huge number of turns to be profitable. On the other hand, if a dealer stocks hundreds of SKUs, as long as they manage their inventory well, a product that has two turns a year is still probably viable. But that’s only true if they can manage to keep from piling up inventory of various SKUs.
Which gets us to the love/hate relationship: camera makers constantly try to push more inventory into the retailers; Tokyo is relentless about that. But camera makers these days also don’t tend to generate near as much “pull” (consumer demand) for a product, so a camera dealer who is turning 2 SKUs of a product a month who is forced by the maker to take 3 units a month, is quickly in trouble. It used to be that there were very active “pull” programs at each of the camera makers. You probably remember newspapers and local camera dealer ads. Those were cooperative programs partly paid for by camera makers to generate pull. Every camera dealer I have known was using those ads to get people in their door, and they all lament the level of support they get on that today.
But let’s get to the complaint that’s come up multiple times about the Nikon Z5IIC (“it’s not for me, why did they make that and not X?”). Nikon added an SKU (technically, four). Why would they do that?
MBA programs would say:
- A dense (more complete) product line takes up more physical shelf space in stores, potentially reducing space for competition.
- More variations allow you to capture customers that have different preferences.
- A bigger product line offers more cross-selling and upselling opportunities.
- More variations provide more granular sales data, allowing you to understand better what things most drive revenue.
- Customers can enter a product line at or near the bottom and know they can move upwards in the lineup later should their needs increase or change.
In the case of the Nikon Z5IIC, #2, #3, and #5 are highly relevant. The Z5IIC is another variation. You can upsell a Z5IIC customer to a Z5II or ZR. The Z5IIC is the lowest performance product in the lineup, but there are six other “better” ones you could upgrade to later.
#1 is no longer much of a factor, as camera dealers have to lock up inventory in caged, safe back rooms these days. #4 might be of use to the bean counters in Tokyo, particularly the black versus silver decision, but that wouldn’t have been the primary or even secondary driver of creating a whole new set of SKUs.
To be complete, I should note the following: in terms of actual boxes shipped to dealers, Nikon created four SKUs for the Z5IIC (silver and black, plus body only and kit lens). They also created four more virtual SKUs (silver/black body with either 26mm f/2.8 prime or 24-105mm f/4-7.1 zoom). Dealers serve the virtual SKUs by stocking body-only boxes as well as additional lens boxes. So technically, a dealer has six SKUs that involve the Z5IIC. I’ll be curious to see how that all plays out. Some of those SKUs will have higher turns than the others (I’d bet on silver body over black, for instance, though how many of each Nikon actually delivers to dealers will influence that; I’d also bet that Nikon gets the balance wrong, as silver will be preferred over black more than they think).
Customers (you) don’t think in terms of SKUs, which is one reason why you see so many comments in the fora that don’t take product line extension and its implications into account. With perhaps the exceptions of Ricoh and Sigma, all the camera makers are using MBA-type logic in trying to figure out how and where to upgrade products versus extend product lines. Too many SKUs can be a problem, but not enough SKUs can be a worse problem.
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Bonus: For those that watch the camera industry and try to understand trends and patterns, SKUs are a key element to pay attention to, particularly in times when we know that there are parts and supply chain limitations of significance. SKUs are a bit of a canary in the coalmine, in that when a company is reducing them, that’s typically a sign of overextension and lack of confidence of their position in the market. When a company increases their SKUs significantly, they’re either trying to improve their overall position, broaden their customer base, or are using #4 to try to figure out what they should be producing.
Fun task: Ask your local camera dealer how many SKUs they have ;~).