Whether you’re just starting out as a product seller or marketer, or you’re a seasoned seller with hundreds of products, SKUs can help you improve your sales, streamline your operations, and enhance your customer experience.
In this article, we’ll dive into what SKUs are, how they can improve your product marketing, and what you can do to create a simple SKU architecture that benefits everyone involved.
What is a SKU?
A Stock Keeping Unit, or SKU, is a unique alphanumeric character set assigned to each product type to aid in managing inventory, sales, and marketing.
A “product type” represents the most detailed subset of characteristics possible of your product. For example, if you sell coffee mugs in different styles, colors, and sizes, you would have a SKU for large, red earthenware mugs; another for small earthenware mugs, and so on.
The SKU for a product type remains the same no matter whether it sells on your website’s store, Amazon, WalMart, Google, or another channel.
Where do SKUs come from?
People commonly confuse SKUs with Universal Product Codes (UPCs). The familiar barcodes you see on products in the supermarket, along with the 12 numbers at the bottom, are UPC codes meant to streamline checkout. These numbers are consistent no matter where you buy the items.
SKUs, on the other hand, are internally created and assigned - as a business owner, you will need to determine SKUs for your products on your own.
Fortunately, because there are no external requirements, you can use any “architecture” you want. “Architecture” refers to the number of letters and/or numbers, and what each character in the SKU represents.
One commonly used way to structure your SKUs is to denote the most important information at the beginning, then additional information in descending order of importance.
Another popular approach is thinking “broad to detailed” - that is, starting with the most general attributes and working toward the most specific.
Using the examples above, your coffee mug SKUs might look like this.
CM-ERL - Coffee Mug, Earthenware, Red, Large
CM-ERS - Coffee Mug, Earthenware, Red, Small
Ultimately, how you structure your SKUs is up to you and your team. Here are some tips, though, to help you create and use SKUs more efficiently in your business:
- Don’t decide on a SKU architecture by yourself. SKUs are meant to communicate important information about your products to various people along the production and selling cycle. What’s not important to one person along that cycle might be critical to another. Get feedback from all stakeholders you can choose an architecture everyone can benefit from.
- Keep your architecture consistent. Exceptions confuse people - even highly skilled, trained, and educated people. Confusion can translate to lost time, customer dissatisfaction, returned product costs, and even erosion of your employees’ trust and loyalty in your organization. Consistency across products and categories goes a long way toward setting the foundation for growth.
- Allow for future growth. Maybe you’re planning to add tea sets, shot glasses, or other types of products in the future, but you just haven’t started selling them yet. By setting up the architecture for these products now, you can help avoid future SKU architecture changes that could lead to confusion and errors down the road.
- Communicate your SKU architecture effectively. Once you have settled on a SKU architecture that makes sense from an operations and marketing standpoint, be sure to communicate this architecture to every member of your team. Even a team member who does not ordinarily handle products can use SKU information to assist customers or other employees in finding what they want.
Why SKUs are so important for product marketing
SKUs are essential for product marketing for several key reasons:
- They allow you to track available inventory accurately across marketing channels. You’ll have a consistent way to identify and track each product, no matter whether it appears on Amazon, Google, Facebook, or your own site store. Also, by setting a “reorder point” for each SKU, you can avoid running out of products that customers demand. This strategy allows you to minimize “out of stock” notifications that turn customers away and cause them to seek out your competitors.
- They give you the power to forecast sales and make predictive inventory decisions accurately. By tracking sales from SKUs, you can learn what triggers peak sales periods and boost inventory and marketing to take advantage of these times. Similarly, tracking allows you to identify “slow periods” when you might need to scale down product orders (or, alternatively, adjust pricing or offer bonuses to stimulate sales). SKUs also give you the information to identify “winning products” with high return on investment (ROI) so that you can promote them and maximize your income while these items are hot.
They enhance the customer experience. When customers shop, they want to be able to find exactly what they’re looking for quickly. When they’re shopping online, they expect that the item they receive will be exactly what they ordered. Amazon, Google, and other selling channels use SKUs to access information to put the right products in front of customers, and to help ensure that the right product reaches the customer every single time. Customers experience consistent, reliable service, which translates to trust and long-term loyalty.