Pick up whatever consumer packaged good is near you and locate the barcode. In almost every case, you’ll see it stacked on top of a 12-digit number known as a Universal Product Code (UPC). Both codes, bar and numeric, are one and the same.
With some products, in the same vicinity of the barcode, you’ll notice another code. Only this one includes both numbers and letters, and varies in length. It is known as a stock keeping unit (SKU). While it’s similar to a UPC in some ways (both allow for the tracking of items throughout a supply chain), they differ in how the broader retail industry can utilize the available data to unlock timely product and customer insights.
SKU vs. UPC: Clearing up the codes
Before getting into the value behind purchase data (and the retail stories it tells), it’s important to distinguish SKUs from UPCs, as the two are often lumped together and difficult to define. Regarding how they are presented on a product, as previously noted, the 12-digit UPC code is interchangeable with the barcode, which is simply the machine-readable version of the UPC.
While a UPC is always a 12-digit numeric code, an SKU is an alphanumeric code (numbers and letters) that can vary in length. The makeup of each code type is also unique. A UPC includes: six digits to signify the manufacturer, five digits to signify the product, and one final digit that confirms the code is valid upon scanning.
An SKU, on the other hand, is made up of components that act as identifiers, from broadest to specific. For example, an SKU on a carton of ice cream may include two letters to signify the brand, followed by different characters to distinguish the flavor, and then a set of unique numbers that represent the volume of items in the purchase order.
While UPCs are universally issued by the Global Standards Organization to brands that produce packaged goods, SKUs are typically crafted by retailers through an inventory management or POS (point-of-sale) system. As a result, they are unique to a retailer’s business objectives, whether it involves tracking inventory and managing shelf-stocking, identifying the fastest-moving items, or more proactively observing — and adjusting to — shopper behavior and preferences.
No matter if a packaged good utilizes a UPC, SKU, or both, first-party data is essential for both brands and retailers to gain valuable insights about what’s happening in the store. This is especially true in the constantly-evolving grocery ecosystem, where discerning — and increasingly price-sensitive — customers seek omnichannel experiences whether they are shopping in-store, on their computer, or from their mobile device. This changing landscape, for which the pandemic has been a major catalyst, makes a data-driven approach all the more crucial.
Assisting inventory management
When it comes to inventory, first-party, real-time data allows a grocery store, for example, to better track their stockpile.
Since SKUs are so specific in how they classify products, a grocery store can theoretically determine when they need to re-order certain items (or increase their assortment of certain categories to meet shopper demands) and which items are performing better than others (e.g., one flavor of ice cream from a specific brand over another flavor).
With this information, grocers can better determine not only future order sizes (i.e. increase or decrease) for specific products, but when to place reorders to prevent certain stocks from hitting zero or others from a dreaded surplus. These tasks have only become more difficult as the industry grapples with supply chain issues, labor shortages, the increase of BOPIS (buy online, pick-up in store), misplaced items, theft, etc. — all of which leads to inaccurate inventory assessments and lost revenue.
Driving customer engagement and satisfaction
Of course, as with anything involving retail, the customer is key (and always right). And first-party data, whether UPCs or SKUs, provides a constantly evolving picture of what consumers are buying, when, and how often. Since product identifiers support internal objectives involving inventory management and orders, grocers can use the data to promote certain high-selling items, via in-store displays, online marketing, rewards, and more. As a result, shoppers will be incentivized to buy the products they were already prioritizing and can unlock additional value through rewards and loyalty programs.
With loyalty comes lifetime value, in which the long-term value of a customer (and potential brand advocate) far outweighs the cost of promotional offers, discounts, and other rewards benefits. For example, a company can offer free shipping on orders at a certain price threshold, incentivizing the shopper to make repeat orders while providing a host of purchase data on a regular basis.
What’s more, the insights gained from shopper data can lead to cross-selling opportunities and promotions for similar items. In fact, first-party data algorithms are what power a lot of online retailers to offer “similar items” for sold-out products, to better ensure they never miss a sale when certain popular goods are out of stock.
Bottom Line
While nuances exist between UPCs and SKUs, it’s clear both codes are essential in providing first-party data to brands and retailers alike.
The key is what to do with that data. While a retailer may see the need to revamp their inventory management, both brands and retailers can glean fascinating insights into customers in real-time. Beyond just knowing what they want and making sure it’s readily available, the most forward-thinking and data-driven organizations will create truly holistic shopping experiences for their customers that meet their needs when, where, and how they desire — with added perks in the form of rewards and other loyalty programs. With that, lifetime customer value is highly attainable.
