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What is a 'Stock Keeping Unit - SKU'

A stock keeping unit (SKU) is a product and service identification code for a store or product, often portrayed as a machine-readable bar code that helps track the item for inventory. A stock keeping unit (SKU) does not need to be assigned to physical products in inventory. Often, SKUs are applied to intangible but billable products, such as units of repair time or warranties.

BREAKING DOWN 'Stock Keeping Unit - SKU'

SKUs are often used in catalogs, physical and online retail stores, warehouses and product fulfillment centers. Each business creates a different SKU for its goods and services. For example, businesses selling running shorts create different internal SKUs for the shorts. Stores use SKUs for determining which items are in stock and which need reordering, as a method of growing profits.

Although SKUs are different from model numbers, businesses may include model numbers in SKUs. An SKU’s letter-and-number code reveals a product’s details, such as color, size, style, price, manufacturer and brand. For example, the SKU for purple Ugg boots in the Bailey Bow style, size 6, may read UGG-BB-PUR-06.

SKUs are commonly categorized by products for easier analysis. For example, 25-10xxx is part of a SKU designated for electric ovens. The rest of the number designates the color or another product element.

Importance of Stock Keeping Units

Businesses attach SKUs to different products in one category so that shoppers may compare characteristics of varying items in that group. For example, Amazon.com suggests products related to items in shoppers’ electronic carts based on SKUs of the products being purchased. When a shopper buys a specific DVD, Amazon displays similar movies purchased by other customers, based on SKU information. This method encourages purchasing additional items to increase the company’s revenue.

Differences Between Stock Keeping Units and Universal Product Codes

Because companies create SKUs internally for keeping track of their inventory, SKUs vary among businesses. This is beneficial in advertising when retailers show their SKU in relation to items being displayed. For example, Sears provides its SKU when advertising a refrigerator on sale. Shoppers cannot determine whether they may view the same refrigerator at other stores based on the SKU alone. This stops competitors from matching advertised prices and decreasing sales for Sears, which is the company paying for the advertising.

In contrast, universal product codes (UPCs) are identical regardless of which business sells the items. UPCs track only basic information about a product. Retailers must add UPCs to their databases of inventory and assign SKUs to the products.

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