sales and distribution
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sales and distributionTRANSCRIPT
Sales and Distribution
Sales and Distribution Use of research and analytics to take
business decisions in Sales and Distribution
Supply and Demand – the twin factors driving sales Sales and Distribution Strategies
- which Channels / Chains?- what Assortment- How to Get Listed- Opportunities and Costs
Research Measures to assess sales and distribution- Availability- Assortment- Sales / Store
Sales PUSH & Demand PULL
A mouse trap, irrespective of how good it is, won’t sell if consumers can’t find it. And irrespective of how widely it is distributed, it won’t sell if consumers don’t like it. It takes both push and pull to succeed in the marketplace.
SALES move due to two interdependent factors
Availability or the number of stores (width) the brand is distributed.Driven by sales force … the PUSH factorMeasured by Distribution Influenced by Brand Choice
Brand choice (Consumer Preference for brand)Driven by marketing … the PULL factorBrand equity is indicative of brand choice Influenced by Availability
Supply
Demand
At Coca-Cola and Pepsi roles are split between Bottlers / Brand Owner
Product availability impacts Brand Choice
Stores playing an increasingly important role in generating demand- More Singaporeans visit FairPrice in average week
than watch any particular television program- In-store activities
raise awareness, create perceptions, generate desire and influence brand choice
Terry O’Connor (CEO Courts megastore) and Moon Sung‐Hyun (MD Samsung) at launch of Samsung’s 3 D TVs in Singapore
In-store activities impacts Brand Choice
- Displays- Promotions- Sampling- In-store launch- in-store media- Mobile
… all the above raise product visibility, enhance communication and could trigger the desire to purchase
… impact on brand choiceExample: A Product Launch60+% aware of brand• 80+% aware via in-store• 50% aware via advertising
In-store media – Stopper, Cart and Floor
Digital Signage, touch screen kiosks, use of mobile devices
Interactive Sampling
Demand (brand choice) impacts Product Availability
Consumer pull generates retailer support. If (turns × earns) is improving …- more retailers want to list product- more demand … more shelf space- more demand ... higher stock turnover
Declining demand. If (turns x earns) is deteriorating …- poor stock turnover- shrink shelf space- shrink range- de-list
Components of Sales … width and depth
Sales = No of stores distributing × Sales per store
DepthSales per Store
Width (Availability) = Distribution% of Stores
The two components are interdependent. As the number of stores distributing a product expands, the stores start to cannibalize one another, adversely affecting the sales per store.
Numeric Distribution- Product presence as % of stores in universe handling product
(but does not reflect on quality of distribution) Weighted Distribution (weighted on category value sales)
- Product presence as % of where money is spent on that product category(reflects quality of distribution … except in cases where new / growing category or one with few brands)
Weighted Distribution (weighted on All Commodities sales)- Shows distribution as % of where money is spent on grocery
products. Suited for small, relatively new categories. (all commodity not a good reflection of distribution of categories like beer, cigarettes, where the importance of the channels of distribution differs greatly from the norm)
Out of Stock (in Weighted and Numeric terms) Stock Cover Days
Measures for Distribution (PUSH)
Measures for Sales / Store (PULL)
Sales Per Point of Weighted Distribution
Share in handlers
Average Sales per Store
Rate of Sale (Adjusted Average Sales per Store) … in terms of volume, value (cash) and profit
Sales Priorities (Sales Management)Use of Market Research to progress sales initiatives
Targeting Channels and Chains: Which are the right channels / chains for your products
Right assortment: Use data to determineHow many items in each channel?Which items in which channel?
Securing retailer support: Use data to get listed
Distribution Opportunities and Costs
Place: Channels and ChainsUsing Research to align distribution
Right Channels, Right Chains
Channels and chains with the high sales density for the product category or family of products- FMCG, Consumer Durables, Books, Clothing, Contact Lenses, Fast
Food, Petroleum, Computers … sold in different channels- FMCG: Cigarettes, Cheese, Bread, Coca-Cola, Shampoo- Duracell (assortment), Kotex
Outlets that attract the shopper profile the brand wants to target- range, displays, promotions and in-store communication- Dove
Where store positioning is aligned with brand positioning- Premium Designer labels – Paragon,
Mid-range – Robinson’s, Popular range – John Little
- L’Oreal: Plenitude (Department Stores) and Garnier (Personal Care Stores)
Which channels to target? Which chains?
Mass Market …
Almost every household shops at FairPrice and with regular frequency
On an average day 500,000 people visit FairPrice
Generates high viewership and extensive exposure
Ideal site for family and household products.
Low Price …
Lowest cost structure- Low overheads- Limited staff … Low
wages- Low where rentals
Low price products Shopper profile skew
- Malays- Blue collar shoppers - from middle income
households- with larger household
size
% of All HH’sGender
Male
Female
Age
15-24
25-34
35 - 39
40 - 49
50 - 65
Household Income
Low (Up to S$2000)
Middle (S$2001-S$6000)
High (Above S$6000)
Not disclosed
Personal Income
Low (Up to S$1000)
Middle (S$1001-S$4000)
High (Above S$4000)
No Income/Others
Race
Chinese
Malay
Others
Occupation
PMEB
Other white collar
Blue Collar
Housewife
Others
Marital Status
Single
Married/others
Household Size
'1-3
'4-5
6+
Personal and Feminine …
21
13
52
Female 15-29 Female 30-39 Female 40-49 Female 50+
% of primary toiletry shoppers Young women (15 to 30 yrs) tend to shop intensely at Watson’s
Most are not household decision makers … buy for self
They are drawn by promotions, reasonable prices and wide range
Destination categories include facial care, and other feminine and personal care categories
Personal and exclusive...
Draws young women like Watsons … but their profile is skewed towards higher income homes
They are drawn by wide, exclusive range and variety and not price
Right AssortmentRight AssortmentUsing Research to prioritize assortmentUsing Research to prioritize assortment
Right assortment
Brand range is determined by marketing strategy … not sales strategy
How much of the brand’s range is stocked by a retailer is a function of several size factors
Size of the store Size and importance of the category Size of the brand, importance of each item in its range Size of margins ….
Supermarkets stock over 30 items (i.e. SKUs) of Campbell’s soup … provision stores on average stock less than 5
Ensure that the right items are stocked. Adding items … Consumers have more choice within brand … could lead to share gain Brand tends to get more facings … greater visibility… But don’t push a loser. It’ll erode margins, reputation, equity. Too
much choice is not necessarily a good thing Suppliers compete for space … battle for shelf space
How many products can a retailer cope with?
Retailers have a finite amount of space on shelf They are faced with a wide selection of brands and
products to stock Consumers demand that their key brands and products
remain in-stock But they also demand choice
Need compromises!
The Battle for Shelf Space
Battle for Shelf Space: Example from Pet FoodsB expands range at A’s expense
28 28 28 28 27 26 25 24 23 23 23 23 23 24 24 23 22 23 23 23 22 23 23 23
15 15 15 15 15 16 16 16 15 15 14 1416 17
19 19 20 20 20 19 20 20 20 20Brand ABrand B
# of items (SKUs) of Cat Food, Supermarkets
Brand B’s share of SKUs is up from 35% to 47%
41.638.1
30.136.6
Y1 Y2
Brands PerformanceVolume Share (%)
Brand A
Brand B
-2.4
29.5
Brands PerformanceVolume Growth (%) - MAT 00
Brand A Brand B
Example from Pet Foods… Brand B grows 30% by expanding range
How many items to stock? Which ones?Relevant analysis
How many Items?Average Number of Lines Stocked
Average # of brands of a category in a store Average # of items of a category in a store Average # of items of a brand in a store Brand’s share of total category items Efficiency rate
Which Items?Prioritise selection of item based on
Sales Per Point of Weighted Distribution Share in handlers Average Sales per Store Rate of Sale (Adjusted Average Sales per Store) Cash Rate of Sale Rate of gross profits
Important to remember marketing’s role in determining brand range, target consumer and target chains
Average Number of Brands Stocked
Flat Screen TVs are available in 90% of stores (Numeric Distribution) carrying Consumer Durables- Panasonic is in 60%- Philips is in 40%- Sharp is in 80%- Assume no other brands are stocked
What is the average number of brands stocked?- Sum of Brands Distribution 60 + 40 + 80 = 180
Product Category Distribution = 90 Average number of brands is 2
Average Number of Brands/Items Stocked
The average number of brands (in category) stocked in a store
Sum of Brands DistributionProduct Category Distribution
Average number of Items stocked in a store?Sum of Items DistributionProduct Category Distribution
Brand’s average range stockedaverage number of Items stocked by brand
Average number of a brand’s items stocked in a store carrying brand
Sum of the Brand’s Item DistributionBrand Distribution
Brand Distribution = 80% …. WidthItem Distribution (3 of) = 80%, 50%, 70%Average # of Items stocked = 2.5 … Depth
(1) Average number of flat screen TVs stocked per store ?(2) Average number of Sharp TVs stocked where Sharp is listed?(3) Average number of Panasonic TVs stocked where Panasonic is listed?
Average number of items Stocked
Total Panasonic = 60
Panasonic model 1 = 55Panasonic model 2 = 55Panasonic model 3 = 45Panasonic model 4 = 45Panasonic model 5 = 50Panasonic model 6 = 50
Total Sharp = 80
Sharp model 1 = 30Sharp model 2 = 35Sharp model 3 = 45Sharp model 4 = 45Sharp model 5 = 55Sharp model 6 = 28Sharp model 7 = 45Sharp model 8 = 37
300320
Numeric Distribution
Total flat screen TV = 90Two brands: Panasonic, Sharp
Average Number of items Stocked
Average Number of items Stocked = (300 + 320) / 90 = 6.9.
Panasonic : 300 / 60 = 5- Efficiency Rate. : 5 / 6 = 80.3%- Share of items : 300 / 620 = 48.4%
Sharp : 320 / 8 = 4 - Efficiency Rate : 4 / 8 = 50%- Share of items : 320 / 620 = 51.6%
So which 7 should the retailer stock and why?
SharpPanasonic60% BrandDistribution 80.3%: 5 out of
6 items Stocked
80% BrandDistribution
50%: 4 out of8 items Stocked
Sharp has greater width of distribution whereas Panasonic has greater depth. It appears that Sharp has greater success in getting listed, whereas Panasonic is better at securing depth where listed
Average # of items Stocked
Width DepthWidth Depth
Portfolio Analysis: What range? Which items to stock?
Outrageous Orange, 18
Cheeky Cherryade, 14
Ice Cream Soda, 13Original Sarsi, 14
Fruitade, 11
Groovy Grape, 11
Zesty Zappel, 8
50
55
60
65
70
75
80
85
90
95
100
100 120 140 160 180 200 220 240 260
SPPD (Litres per point weighted distribution)
Wei
ghte
d D
istri
butio
n %
Which items should the retailer stock and why?
What range? Which items to stock?Measures for Sales / Store
Sales Per Point of Weighted Distribution Share in handlers Average Sales per Store Rate of Sale (Adjusted Average Sales per Store) Cash Rate of Sale Rate of gross profits
Prioritise selection of item based on:
Sales Per Point of Weighted Distribution (SPPD)
Volume SalesWtd Distribution
Sales = 10,000 kgWtd Distribution = 80%
SPPD = 10,000 / 80 = 125 kg
Sales
Example: Distribution & Rate of Sales of variants of a Soft DrinkWhich flavours should be better distributed?
Outrageous Orange, 19
Cheeky Cherryade, 14
Ice Cream Soda, 13
Original Sarsi, 14
Fruitade
Groovy Grape, 9
Zesty Zappel
50
55
60
65
70
75
80
85
90
95
100
100 120 140 160 180 200 220 240 260
Sales / Store (Litres per point weighted distribution)
Dis
trib
utio
n %
Expand distribution of Orange and Grape
F&N Rainbow: Singapore – Provision Stores
Weighted Distribution and Share in handlersHandler = Store distributing product
$ in M Television sales $100Panasonic sells $ 20Panasonic’s value market share is 20%
Television sales in stores selling Panasonic $ 80Panasonic’s handler’s share of Television sales 80%(By definition, this is Panasonic’s weighted distribution)
Panasonic’s share in handlers (% value)= Panasonic’s share in shops selling Panasonic= $20/$80 = 25%= (Panasonic’s value share)/(its weighted Distribution)
Share in handlersMarket Share (%value) in shops where product is present
Weighted Distribution (PC) … reflects handlers share (in value terms) of the PC
Market share (in value) … brand share of PC Share in handlers =
Market Share (in value)Weighted Distribution (PC)
PC = Product Category
Average Sales per Store
Volume Sales# of stores distributing the product
(=Num. Distribution * No. of Stores in Universe)
Sales = 10,000 kgNumeric Dist = 50 %
# of outlets = 800 in Country
Average Sales = 10,000 / (0.5 x 800)= 10,000 / 400= 25 kg per store
Average Sales per Store
Nescafe- Sold in 2000 outlets- Average sales per store is 200 kg per month
Maxwell House- Sold in 100 outlets- Average sales per store is 300 kg per month
Does this mean that Consumers prefer Maxwell House to Nescafe?
Average Sales per Store
Average Sales per Store does not factor in the size of the stores- Usually first stores to list a
product are biggest- As brand distribution expands
Average Sales per Store tends to drop, because of the effect of store size
BUT Nescafe may be selling as much as 1500kg per month in those stores where Maxwell House is distributed
Nescafe: 2000 outletsSales 200 kg / Store
Maxwell House
100
Sales 300 kg / Store
Nescafe Sales = 1500 kg / Storein these 100 stores
Rate of sales – Maxwell House (MH)(Adjusted Average Sales per Store)
Sales Volume = 30,000 kg/month
Numerical Distribution = 5%Weighted Distribution (PC) = 50%# Supermarkets = 2000
Rate of Sales = Sales Volume / (# of Stores x Wtd Dist)= 30,000 / (2000 x 0.50) = 30 kg/store
# of Stores x Numeric Distribution = 100 = # of stores distributing MH# of Stores x Weighted Distribution = 1000 = Equivalent # of stores distributing MH
Volume Sales Equivalent # of stores distributing the product
Volume Sales Equivalent # of stores distributing the product
Rate of Sales =
Maxwell House sells 30 kg per month per averaged sized storeselling coffee in Supermarkets
NescafeAverage sales = 200 / StoreRate of sales = 200 / Store
2,000 Store
Maxwell House
100Average sales = 300 / StoreRate of sales = 30 / Store
Nescafe Sales in these 100 stores is 1500 / Store
Rate of Sales per Store: Nescafe / Maxwell House
Average Sales / Store = 200 unitsNumerical Distribution = 100%Weighted Distribution = 100%Adjusted Average Sales / Store
= 200 kg/month
Average Sales / Store = 300 unitsNumerical Distribution = 5% (100/2000)Weighted Distribution = 50%Adjusted Average Sales / Store
= 30 kg/month
Ranking of competing Brands
Rate of Sale – Laptops in Computer Stores
30
32
33
39
41
46
49
56
64
76
82
123
153
Acer Aspire
HP Omnibook
Dell Studio
Acer Extensa
HP Compaq Notebooks
Dell Precision
MacBook
Fujutsu LifeBook
Dell Latitude
Toshiba Dynabook
Acer TravelMate
Dell Inspiron
HP Pavilion
Cash Rate of Sale
Production Factories, Purchasing, Logistics, Forecasting, Marketing ... focus on Volumes (and specifically unit volume, i.e. # of jars of coffee?
Retailers and Business Managers are more concerned with MONEY AND PROFIT(you can bank $5,000 you cannot bank 250 washes of shampoo, or a 63%share)
Product Sales - Who gets how muchManufacturers and Retailers negotiate on profits / margins not sales values
Manufacturer’s Costs @ 50%. $50
Manufacturer’s Profit @ 35%. $35
Retailer’s Gross Margin @ 10%. $10Sales Tax @ 5%. $5
Selling Price 100 $
$5
Manufacturer’sSuppliers, Wages, other Costs
Manufacturer
RetailerGovernment
Retailer margins lie between 5 and 30% (fmcg). They vary across categories, brands and retailer. Because of the sensitivities involved, margins are rarely disclosed
Rate of Gross ProfitGross Profit generated per store for an item
Sales Volume = 9,000 packs Price = $3 per pack Sales Value = 27,000 $/month Numerical Distribution = 50% PC Weighted Distribution = 75% # Supermarkets = 600 Sales per store = 9,000/300 = 30 units/store Rate of sales = 9,000/450 = 20 units/store Sales per store ($) = $27,000/300 = $90/store Cash Rate of sales = $27,000/450 = $60/store Margin = 35% Rate of Gross Profit = 0.35 x 60 = $ 21 / Store
Rate of Gross Profit = Margin × Cash Rate of Sales
Rate of Gross Profit for Dove is comparable to that for Sunsilk, despite much lower Rate of Sales
45
180
70
90
450
1200
250
325
Cash Rate Of Sale
thousands of $
Rate Of Sale
Feather
Sunsilk
Dove
Pantene
thousands of litres
Rate of sales – Volume vs Cash vs ProfitShampoos
9
36 (20%)
35 (50%)
18
Rate Of Gross Profit
thousands of $
Securing retailer supportUsing Research to gain retailer support
Retailers seek return on inventory. To gain their support suppliers must demonstrate the potential of their product to outperform competition, or work with retailers to improve performance (earns × turns).
Example: Using research to list a new brand...
A product distributed in few supermarkets, excluding FairPrice … seeking distribution at FairPrice- Current value share in supermarkets ……. 2.5%- Weighted distribution in supermarkets …... 20%- So why should FairPrice be interested??
- Share in handlers … 12.5%- FairPrice should consider stocking as its selling well in
competing stores
How to get listedHow to convince a retailer that your product deserves listing
Compare your product’sShare in handlersSales per point of distributionrate of salesrate of gross profits
with that of competing brands
If your product fares better, you have a case
What about new products or less established brands that have yet to achieve their potential?
Distribution Opportunities & Costs
Distribution opportunities / costs
What’s the potential extra sales should we expand distribution?
What’s the cost of out of stocks?
How much stock to maintain in trade? What’s optimum?
What share of shelf space (forward stock) to target?
What share of shelf space to target?Stock to sales ratio
Forward Stock % Sales % Ratio
Item 1 5.0 7.5 67Item 2 5.0 5.0 100Item 3 5.0 3.5 143
What share of shelf space to target?Stock to sales ratio
0
5
10
15
20
25
0 5 10 15 20 25
Share of MARKET
What’s the potential gain from expansion in distribution?
Current Value Sales = $2,000,000 Current Weighted Distribution = 40%
What’s the potential for gain in sales if brand achieves perfect distribution?
Weighted Distribution
Potential Additional Sales from Distribution Gains
What’s the relationship between sales and distribution?• Linear?• Logistic?• Exponential decay?
Declining marginal utility (economics)
Need to assess whether it is COST EFFECTIVE to expand distribution
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0 10 20 30 40 50 60 70 80 90 100
Linear
Logistic
Exponential
10% OOS ... What’s the cost?
Universe of stores = 500Num. Distribution = 80Number of stores handling = 400 Period sales = 100,000Average sales per store = 250
OOS. Distribution = 10 Number of stores OOS. = 50 Average sales per store = 250Total lost sales = 12,500
Assumes: 1. Probability of OOS at any store, at any point in time (during the period
under investigation) is 10%.2. OOS = lost sales ?? (Sounds conservative …assumes shopper
will not switch stores)
When a consumer cannot find the item she wants, what she does will depend on her...
Pack or variant loyalty Brand loyalty Product loyalty Store loyalty Urgency to use
Her response is determined by which of the above is of greatest importance at the time of purchase
Consumer alternatives
Buy an alternative size / variant of the same brand Buy a different brand
- supplier loses Buy from a different store
- Retailer loses Delay purchase
- Both supplier and retailer could lose Buy a different category
- supplier loses
Response to Out-of-Stock Situations
9
39 5356
67 6918
13
8 5
5 3
3
5
8 11
6 8
9
7
66
6 4
61
3724 22
16 16
Infant Milk Liquid Milk BreakfastCereal
InstantNoodles
Chocolates CarbonatedDrink
Go to another store
Delay buying
Buy other variant
Buy other packsize
Buy other brand
Brand Loyalist
91%Brand
Switcher
%
Brand LoyaltyHigh Low
Source: Nielsen. Based on a survey in Singapore in the late 1990s.
Store Switcher
Cost of Out-of-Stock to Retailers
61
37
24 22 16 16
9
7
66
6 4
Infant Milk Liquid Milk BreakfastCereal
InstantNoodles
Chocolates CarbonatedDrink
Delay buyingSwitch store
%
High Low
The true cost of poor distribution: retailer
The top 10% of shoppers can account for 30 to 50% of a store’s sales- These are the people most affected by out of
stocks
If a shopper permanently switches to another store the cost may be their total spend … from that time onwards
The true cost of poor distribution: supplier
If a consumer is compelled to try a competitive brand her brand loyalty may change
An out of stock may lead to the loss of all future sales to that consumer...