How Do Diminishing Returns and Dynamic Effects Influence Assortment Size-Sales Elasticity?

Elvira Sáez-González (), Juan Carlos Gázquez-Abad () and José Luis Ruiz-Real ()
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Elvira Sáez-González: University of Almería
Juan Carlos Gázquez-Abad: University of Almería
José Luis Ruiz-Real: University of Almería

A chapter in Advances in National Brand and Private Label Marketing, 2025, pp 59-69 from Springer

Abstract: Abstract This study examines the relationship between retail assortment size and category sales in FMCG settings using weekly panel data from Spanish hypermarkets and supermarkets over a 24‐month period, specifically focusing on the beer product category. Employing both static and dynamic econometric models—specifically, fixed-effects and Arellano–Bond approaches—the analysis uncovers an inverted U-shaped relationship between assortment size and sales, indicating diminishing returns beyond an optimal threshold. The results further demonstrate significant dynamic effects, with past period sales exerting a strong influence on current demand. Notably, the sensitivity of sales to assortment size is more pronounced in supermarkets compared to hypermarkets, reflecting differences in consumer behavior and store format constraints. These findings contribute to our understanding of assortment elasticity and offer actionable insights for retail category management. Retailers can benefit by tailoring assortment strategies to store format and product characteristics, thereby optimizing SKU mix and mitigating potential negative effects such as consumer overload and internal cannibalization.

Keywords: Retailer; Assortment Size; Sales; Elasticity; Diminishing Returns; Dynamic Models (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-97133-4_8

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DOI: 10.1007/978-3-031-97133-4_8

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