The impact of new product entry on brand sales volatility at the retailer: A Detailed Look into volatility drivers

Volatile sales patterns with large and uncertain peaks and drops significantly increase operational complexity and complicate inventory activities tremendously. This study examines whether and to what extent the addition of a new product into the assortment of a grocery retailer is responsible for an increase in sales volatility for incumbent offerings and which brand and retailer factors underlie this change. Using time-series models of eight years of sales data from brands in nine categories at six German grocery retailers, a significant and persistent rise in volatility is observed in sales after a new product enters the store for the majority of these brands. National brands are affected the most by the addition of an entirely new brand, whereas sub-brands introduced under an existing national brand name have a more limited impact on sales volatility. Interestingly, the opposite is found for retailers’ private labels, where volatility increases more after the entry of a new sub-brand (rather than a new brand). Several other brand and assortment characteristics can be linked to changes in the sales volatility of incumbent brands at the retailer. Based on this, two prediction tools are developed to anticipate before product entry if—and by how much—brand sales volatility will change. These insights can assist retailers and brand suppliers in managing their inventories and brand operations and provide relevant input for planning marketing support when new products arrive.