As a product line expands, one question becomes increasingly difficult to answer: Do all of these SKUs still truly add value?
As new products are launched, the market evolves, and business decisions are made, the product lineup can gradually lose its coherence. Products may address the same needs, price points may converge, new products may cannibalize a portion of existing sales, and some products may remain in the catalog even though their contribution has become marginal.
The risk, then, is that the number of SKUs will increase without generating any real additional growth, while at the same time increasing inventory levels, costs, and operational complexity.
The challenge, therefore, is not necessarily to expand the product line, but to determine the role and actual contribution of each product to the overall performance.
Structuring a product line therefore involves balancing several objectives: meeting customer needs, establishing a consistent pricing structure, ensuring the product lineup remains clear and understandable, differentiating the company from the competition, and generating revenue and profit margins—all while managing inventory and supply constraints.
Because adding a reference is relatively simple. Determining whether it creates enough added value to justify its inclusion is much less so.
A high-performing product line is therefore not defined by the number of items it contains, but by how well they complement each other, their contribution to profitability, and their ability to meet sufficiently distinct needs.
What does it mean to structure a product line?
The structure of a product line refers to the way a company organizes its offerings based on the needs they address, the products’ characteristics, their positioning, and their price points.
Two concepts are generally used to describe a product lineup. Product breadth refers to the different families or categories offered. Product depth refers to the number of SKUs or variants available within each of these categories.
Width and depth must be analyzed together. A product line can cover several product lines with relatively few SKUs in each, or it can focus on a significant depth of product offerings within a limited number of categories. The challenge, therefore, is not to reach a specific total number of products, but to build a product portfolio that is consistent with the target market and consumer needs.
But simply counting the number of products isn’t enough to understand the quality of a product line.
The product lineup must also have a clear hierarchy. Entry-level, mid-range, premium, specific uses, formats, brands, or technical specifications can all be used to differentiate products. The criteria selected must, above all, align with the trade-offs consumers make.
When two products have similar prices, serve the same purpose, and have few noticeable differences, they do not necessarily broaden the range of choices. Above all, they risk creating redundancy.
A well-structured product line, therefore, aims to effectively meet demand without unnecessarily increasing the number of SKUs.
Why Should You Organize Your Product Line?
Product lines are rarely developed according to a fixed plan.
They evolve in response to new product launches, supplier negotiations, changes in consumer behavior, promotions, the arrival of new competitors, or business decisions. Over time, the actual product assortment may deviate significantly from the originally planned structure.
Some segments end up with a large number of products that are nearly interchangeable. Others remain underrepresented. Poor-performing products are kept in the lineup, while new items are regularly added to the catalog.
Complexity then increases faster than the value created.
Each additional SKU must be listed, purchased, stored, replenished, analyzed, and valued. This complexity comes at a cost that far exceeds the cost of simply listing the product. An additional SKU can tie up more inventory and working capital, fragment sales volumes, increase logistics costs, and raise the risk of obsolescence or markdowns. It also adds to the management burden: demand forecasting, replenishment, pricing, promotions, and performance tracking.
The question, therefore, is not simply whether a reference generates revenue, but whether its added commercial value offsets the economic and operational complexity it introduces.
This perspective changes the way we approach product depth. Two SKUs may be profitable when considered individually but may perform less well when analyzed together, especially if they compete for a similar customer base and tie up more inventory.
So more choices do not automatically mean better performance.
The key question is how to measure the actual value added by each additional level of choice.
How do you structure a product line?
1. Define the purpose of the product line before selecting products
Before evaluating each product individually, we must determine the role of the product line within the overall offering.
Not all categories serve the same purposes. Some drive traffic. Others contribute more to profit margins. Some play an important role in price perception, differentiation, or customer loyalty.
Naturally, several functions can coexist.
A product with a low margin can still be of significant value if it contributes to the product’s price appeal or meets an essential need. Conversely, a product with a high unit margin may offer little value if sales remain low and another product already meets the same need.
The analysis must therefore begin with the expected role of each segment and then gradually work its way down to the reference level.
A product line architecture becomes more coherent when each product contributes to a specific goal.
2. Segment the product line based on customers’ actual needs
Segmenting a product line is not simply a matter of classifying existing products into different categories.
A useful segmentation reflects how consumers actually weigh their options when choosing among different offerings. Price, usage, brand, format, quality, technical specifications, purchase frequency, or consumption profile can all serve as criteria. Their relevance varies depending on the market and the nature of the products.
Each segment must meet sufficiently discriminating selection criteria. If several different products meet the same need with similar positioning and price points, their simultaneous presence may increase product line depth without actually improving market coverage.
The analysis then reveals the imbalances.
It is also helpful to compare the product lineup with the market. A segment that is underrepresented in the product lineup is not necessarily a weakness—provided that it corresponds to actual demand and plays a role in the brand’s positioning.
Comparing a company’s product assortment to that of its competitors thus makes it possible to identify areas of overrepresentation, gaps in coverage, and attributes where the offering can truly stand out. The goal is not to replicate the depth of a competitor’s product range, but to understand where the brand needs to be present, where it can stand out, and where an additional listing would add little value.
For example, a product line may focus a large portion of its SKUs on the core market, even though several products essentially meet the same need. Expanding the product line’s depth any further would therefore add little additional value.
Conversely, some needs may not be adequately met. A price point may be missing, a use case may be gaining traction, or a customer expectation may not be sufficiently addressed by the current product lineup.
Segmentation thus becomes a tool for making trade-offs. It helps identify areas that need strengthening, product lines that need repositioning, and parts of the product portfolio where product density exceeds the value actually created.
A well-segmented product line does not seek to cover every possible niche. Instead, it focuses on the ones that truly matter to the customer and to the performance of the offering.
3. Develop a Consistent Pricing Structure
It is impossible to effectively structure a product line without examining its pricing architecture.
A product assortment can adequately meet customer needs while still being difficult to understand if the price differences between items lack consistency.
Let’s consider a typical product lineup consisting of entry-level, mid-range, and premium segments. The transition from one level to the next must reflect a difference in value that is noticeable enough to justify the price difference.
Why would a customer agree to pay more?
The answer may lie in quality, features, format, brand, service, or a specific benefit. If the difference remains difficult to identify, the pricing hierarchy becomes less clear.
A gap that is too wide creates the opposite problem. It can leave a price range insufficiently covered and create a break in the decision-making process.
The analysis also helps identify underpriced or overpriced products, price overlaps, and excessive concentrations of SKUs clustered around the same price.
This consistency must be analyzed on two levels. Internally, price differences must reflect sufficiently noticeable differences in value between products. Externally, each product tier must also be compared with the offerings and prices prevailing in the market.
A pricing structure may indeed appear perfectly consistent within the product lineup while still being poorly positioned relative to the competition. Conversely, attempting to align prices on a product-by-product basis without taking into account the role of each product can undermine the overall consistency of the lineup.
Price monitoring and product matching then make it possible to compare truly equivalent offers and identify the segments where a price difference represents a strategic positioning decision or, conversely, an anomaly that needs to be corrected.
Product line strategy and pricing strategy must evolve together. The product line organizes the choices offered to the customer, while the price reflects the differences in value among the products.
4. Measure the actual contribution of each reference
Sales figures remain essential for analyzing a product line. However, when used on their own, they can lead to poor decisions.
When evaluating a product, it is important to also consider its margin, volume, turnover, inventory level, price positioning, and ability to meet a specific need.
Substitutability deserves special attention.
Let’s imagine two products that each sell well but serve virtually the same purpose. If one of them is discontinued, some of the demand may shift to the other.
The historical revenue for the deleted line item therefore does not necessarily correspond to the revenue actually lost.
The opposite reasoning applies to a product that sells less but meets a need that no other product adequately fulfills. An assessment based solely on sales could lead to its discontinuation, even though it adds genuine diversity to the product lineup.
To understand a product’s contribution, we must therefore look beyond the question, “How much does it sell for?”
Another question is often more revealing.
How would the product line’s performance be affected if this product were to disappear?
The answer helps distinguish between individual performance and incremental value.
Combining contribution and substitutability to make better decisions.
Two factors are particularly useful when making a decision: a product’s economic contribution and its degree of substitutability within the product line.
A best-selling item that is difficult to substitute generally plays a strategic role. A high-performing item that is highly substitutable warrants a different analysis: while its sales are significant, some of the demand could potentially be captured by other products in the assortment.
Conversely, a low-volume SKU does not necessarily need to be eliminated if it meets a specific need that other products do not adequately address. The most obvious case for streamlining involves SKUs that combine low contribution with high substitutability.
This approach allows us to move beyond a ranking system based solely on sales:
-High contribution + low substitutability: a strategic asset to be protected;
– High contribution + high substitutability: performance should be viewed in comparison with other benchmarks;
-low contribution + low substitutability: hedging role to be evaluated;
-low contribution + high substitutability: potential for rationalization to be explored.
The goal, therefore, is no longer simply to identify the best and worst products, but to determine which ones create truly incremental value for the product line.
5. Managing Product Cannibalization
A new product can generate excellent sales without driving growth in the category.
Part of its revenue may come from customers who would have purchased a product already in the lineup. In that case, the new product shifts demand rather than creating it.
This is known as product cannibalization.
This phenomenon is not necessarily negative. A product shift can be appropriate when it supports a move upmarket, improves margins, or allows for the gradual replacement of an aging product.
The problem arises when the new SKU primarily adds to inventory, costs, and complexity without generating enough additional sales or profit.
Before expanding a product line, it is therefore important to understand what the new product actually adds to the existing lineup.
Does it address an unmet need? Does it offer a noticeable difference? Does it generate new demand? Does it improve profitability?
The value of a new product isn’t measured solely by its sales. Its ability to create additional value for the entire product line is more important.
6. Streamline the product line without limiting the selection
Streamlining a product line is often interpreted as reducing the number of SKUs.
The logic is more subtle.
Mechanically removing the slowest-selling products can undermine our ability to meet customer needs. Some low-volume items serve a useful purpose. They can offer a premium alternative, fill a profitable niche, address a specific use case, or strengthen the credibility of our product lineup in a particular segment.
Conversely, several products that are selling well may be highly substitutable.
Streamlining, therefore, means reducing redundancy without eliminating the diversity that truly creates value.
The analysis should seek to identify products for which demand could be met by other products without significantly impairing sales performance.
A well-executed streamlining effort can consolidate volumes into a more appropriate number of SKUs, improve inventory turnover, and make the product offering easier to understand.
Reducing complexity thus becomes a driver of performance rather than simply a goal of streamlining the product portfolio.
7. Tailor the product range to different markets
An identical product line structure is not necessarily optimal in every case.
Purchasing behavior varies depending on geographic region, type of retail outlet, customer base, available floor space, or distribution channel.
A small urban store does not face the same constraints as a large retail location on the outskirts of town. E-commerce, for its part, can offer a wider selection without being subject to the same limitations as physical storefronts.
Replicating the exact same product assortment simplifies management but may reduce local relevance.
Customizing each product line individually creates the opposite problem by increasing the number of rules, SKUs, and management requirements.
A middle ground involves maintaining a common core of strategic products and then tailoring part of the product lineup to specific groups of stores, regions, or customers with similar purchasing behaviors.
Clustering thus makes it possible to balance local relevance with the management of complexity.
8. Link product lines, inventory, and product availability
A perfectly positioned product loses much of its commercial value if it is not available when the customer wants to buy it.
Product line management cannot, therefore, be separated from inventory and procurement.
Excessive product depth spreads demand across more SKUs. Volumes per SKU decrease, forecasting can become more difficult, and the risk of dead stock increases.
This fragmentation can also degrade the quality of the demand signal. When a single demand is spread across several similar SKUs, each SKU has lower volumes and, at times, a more irregular sales history. Forecasting at the SKU level then becomes more complex, even though overall demand for the segment may remain relatively stable.
This situation can lead to an increase in safety stock levels for several interchangeable SKUs and tie up more inventory to achieve the same availability target. The assortment decision therefore directly affects the predictability of demand and the efficiency of inventory.
A product line that is too concentrated also carries risks. A significant portion of sales then depends on a small number of products, and the impact of a stockout can be much greater.
The process of determining the right product mix must take into account demand forecasting, inventory turnover, product availability, and replenishment constraints.
The goal goes beyond simply selecting the most attractive options.
A high-performing product line must be able to be supplied under favorable conditions, with inventory levels consistent with business and financial objectives.
The link between product assortment and the supply chain thus becomes a key driver of profitability.
9. Continuously optimize the product line using data
A product line that performs well today may become less relevant just a few months later.
Purchasing behaviors are changing. Competitors are adjusting their offerings and prices. Costs are changing. New trends are emerging. Some products are gaining momentum, while others are losing steam.
An annual review is no longer always enough to keep up with these changes.
Regular monitoring of the product line makes it possible to identify pricing anomalies, redundant SKUs, growing segments, and new market opportunities more quickly.
Data provides a more objective view of trade-offs.
Comparing performance, assessing segment coverage, analyzing positioning relative to the competition, and measuring differences between products enables you to make more informed decisions.
The goal is not to replace domain expertise with an algorithm. Rather, it is to reduce the role of intuition when the volume of references and data makes manual analysis too limited.
Moving from Historical Analysis to Scenario Simulation
Analyzing past performance helps us understand what happened. To optimize a product line, we must also be able to anticipate the consequences of a decision.
What happens to potential revenue after a product is discontinued? Which products might the demand shift to? Is the segment still sufficiently covered? What impact can we expect on the margin? Is there a price range that has yet to be fully tapped? Does a new product truly offer something different?
Scenario simulation provides a more strategic perspective on the product line.
In particular, it helps avoid three common decisions made with too little information: keeping a product because it has always been carried, launching a new product because its potential seems promising, or automatically discontinuing items at the bottom of the sales rankings.
The performance of a product line depends as much on the interactions between the products as on their individual results.
Analyzing these relationships makes it possible to better anticipate the effects of a change before it is implemented.
Which KPIs should you track to optimize a product line?
No single indicator is sufficient on its own to assess the quality of a product line.
Revenue and margin remain essential. However, they are best analyzed in conjunction with volume, turnover, inventory, availability, price positioning, demand coverage, and the degree of substitutability among SKUs.
The value lies primarily in cross-referencing the indicators. Four dimensions can be analyzed together:
-Economic performance: revenue, margin, contribution to profitability;
-Sales performance: volumes, turnover, contribution to sales, and meeting demand;
-the effectiveness of the product assortment: substitutability, cannibalization, incremental value, and the degree of differentiation among SKUs;
-Supply Chain Efficiency: availability, out-of-stock rate, inventory coverage, idle inventory, and obsolescence risk.
Low turnover combined with a low margin and high substitutability may, for example, indicate that a product’s continued inclusion warrants reevaluation. Conversely, a product with lower volume but low substitutability may still play a strategic role in meeting demand.
No SKU should therefore be evaluated based on a single metric. Metrics become truly useful when they help us understand not only how a product is performing, but also why it deserves a place in the product line.
How do you determine the right size for a product line?
There is no ideal number of references that applies to all categories.
A narrow product line is not automatically more profitable. A broad product line is not necessarily more attractive. The choice between a narrow and a broad product line therefore depends less on the number of products offered than on each product’s ability to meet a truly distinct need and contribute to the overall profitability of the line.
Proper sizing depends on customer needs, the degree of product differentiation, purchasing behavior, competitive pressure, and operational constraints.
Nevertheless, there is one principle that can guide decision-making.
Each additional reference must provide enough value to offset the complexity it introduces.
Value can come from additional sales, higher margins, meeting a need, strengthening differentiation, or improving price perception.
When multiple products meet the same demand without generating sufficient added value, expanding the product line becomes difficult to justify.
The right scale, therefore, lies in the balance between meeting needs, useful diversity, profitability, and operational efficiency.
Structuring a product line involves determining the value of each product.
A high-performing product line is neither the broadest nor the narrowest. It offers the level of diversity needed to meet consumer needs and serve strategic segments without multiplying the number of SKUs, whose contribution becomes marginal.
The right structure, therefore, results from a trade-off between positioning, differentiation, profitability, meeting demand, and operational complexity. Data makes it possible to objectively assess this trade-off by measuring the contribution of products, their substitutability, their price positioning, and their impact on inventory levels.
Each SKU requires capital, logistical resources, and management capacity. The strategic question, therefore, is not how many products to offer, but what value each product actually adds to the overall product lineup.
