Current situation:
Permanent innovation for new products is seen today by Manufacturers and Retailers as a frequent marketing strategy to satisfy new or existing customers, new shopping trends, or to respond to new competition launchings.
The innovation process take a long time since preliminary ideas and is very costly, because include many areas in the Company. It is also a very uncertain process, because is very difficult to predict the future sales.
Considering that uncertainty, any information can reduce it to improve our knowledge to assess the market for new launchings, will be critical.
Counters are very crowded today and there is too much pressure. That pressure comes from the high amount of skus in the market to get a place at the shelves and the short period granted to the new skus to obtain good results (usually 1 year, but sometimes could be till 3 to 6 months). Having 1 facing in the counters for most of the skus is very common in a competitive category. Shorter periods are a consequence of a high Manufacturers competition generated by the category management process. This process makes high interaction with Retailers and a more transparent process to enhance counter performance. The new skus suffer the most, because are “thrown” into the market to compete sometimes with well established skus, and have to be successful very fast.
This pressure in the counter have risen also listing fees to levels are no sustainable for Manufacturer business (sometimes more than 1 year turnover). As a result the counter pressure is going against innovation process, one of the pillars in many categories.
Manufacturers and Retailers should measure counter pressure to reduce the uncertainty they come across at lunching times. In addition make a focus to the category, segment and format with a good chance of success. Counter pressure measurement will permit to make comparisons with a reference number and across different accounts or even different times for the same account.
Proposal:
Counter pressure number should be based in 2 factors, first related to market pressure and second to space pressure.
Market pressure:
Market pressure has to consider the sku performances in the account. However account performance is not enough to determine how well or bad is doing some sku at certain Retailer. We need a comparison with the market, with a reference number which include other account performances to consider where the sku is at comparative level. Let me give a couple of examples to better understand that. We can have a sku growing at 7%, but we will come out with different conclusions if the market grows either at 5% or 10%. The same analysis will surge in a negative environment at -5% for some sku, but including market growth at -2% or -8% result in different deduction.
Other important point at Market pressure is which variable is considered to determine the account performance. The most usual variables are sales and growths. However depends on the account situation and even the buyer point of view: what variable is more appropriate? We “fall” usually in a dichotomy to select the criteria or ranking, either sales or growth for the correct decision. We have created for overcoming the dichotomy, the Standardized Ranking to analyze the counter and determine the best performer (please see Planograms, new methodology for skus listing/delisting recommendations article).
Having Standardized Ranking, we calculate the Standardized Ranking Median or SRM for the Account and for the Region or Country (reference number). We need to determine high, flat or low Market pressure related to a reference number. The calculation of Market pressure is Account SRM/ Region SRM.
The basic assumption we consider is: the higher are the sales and growths, the more pressure or difficulties Manufacturers will have to get listed a new product.
For Retailers determine counter pressure will give an objective measurement to identify weak or strong categories, and focus efficiently all efforts and investments.
Space pressure:
We mentioned that having 1 facing in the counters for most of the skus is very common in a competitive category. Space pressure is a hard measure. The counter space is the space or “reality” Manufacturers and Retailers have to spread skus.
The amount of skus we have in the counter and the facings they have got are determinants for the new products to get in. As a rule of thumb, it will be much easier to list new products, if most of the skus in the counter have 2 facings. The chances are much bigger. Let’s give some extreme example but useful for this explanation: if we get 234 facings and 234 skus, it will be really difficult to get new skus in, unless we can demonstrate some bad performers (there is not facing or place whose we can take from)
Keep tracking a measure determines how crowded are the counters, is also very important to assess the chances to get listed a new product. The calculation of Space pressure is Skus/Facings.
Total pressure:
Before going into this concept, it is important to mention we should analyze Market pressure and Space pressure separated. Understanding what kind of pressure get the counter (Market and Space), will allow us to determine what kind of nature is our “barriers” to list a new product.
Total pressure is a measure to capture the effect of Market and Counter pressure in a single number.
The way to calculate Total pressure is Market pressure by Space pressure (TP= MP x SP). The higher the TP, the more pressure we get.
Total pressure is useful to make comparisons across different counters or the same counter at different times, and observe what counter are the highest or lowest in the TP ranking.
Having the TP, MP and SP number for different accounts before launching new products, will let us to understand chances of future success and keep innovation as a great marketing strategy for profitable categories
Thursday, December 25, 2008
Planograms, new methodology for skus listing/delisting recommendations
Current situation:
Counters and skus performances analysis to plan the best assortment and to understand consumer trends are one of the most strategic decisions to improve Retail and Manufacturer businesses.
The best way to measure the counter is based on sales or sales growth. However the difference between sales ranking and sales growth ranking could be important and lead to quite distinct conclusions. That because there are lines in the market were just launched as example (posting big growth), or the ones are already establish in the market for a long time (posting big sales).
Manufacturers and Retailers always come to the point to make decisions about skus, as increase or decrease facings or list or de-list products. It is difficult to select the most appropriate ranking (sales or sales growth), to make the correct decision.
Based on the experience, some decisions are made following sales and some sales growth. There are times, it is important volume and some other times growth comes first.
Let's get the example we try to list some new skus, and we look for bad performers in counter. It is really clear to target skus are low in sales and sales growth at a time. We won’t get any objection on those. Nevertheless everybody is at a “tricky” decision when the ranking shows high sales for sku “living” in the market for a long time, and in the other hand is losing “speed”.
Manufacturers and Retailers get also difficult time to decide some de-listings, when they are in the market for enough time, and post small sales and fast growth.
The Retailers have the final responsibility and decision, to break the set down in the most efficiency way in Manufacturers, Segments and skus to make their business profitable. The Manufacturers have to make also objective recommendations, to assure a good performances and profits for Retailers and themselves.
It is fundamental, to have a method to combine both facts (sales and growth) to comprehend the real importance of every sku in the counter.
Proposal:
If Manufacturers and Retailers can have a methodology to combine sales and growth in one number for listing-delistings will solve the way to do objective recommendations.
What we can do is to standardize sales and growth. We calculate z-scores, that means every single sales and growth is subtracted by average and then divided by standard deviation. At this point sales and growth are in the same scale.
Then adding skus zsales and zgrowth scores and then re-rank generate the new ranking. With the new ranking, Manufacturers and Retailers can analyze again the counter and make more solid and objective decisions. New ranking has also the advantage that is understandable and easy to communicate between Manufacturers and Retailers.
Counters and skus performances analysis to plan the best assortment and to understand consumer trends are one of the most strategic decisions to improve Retail and Manufacturer businesses.
The best way to measure the counter is based on sales or sales growth. However the difference between sales ranking and sales growth ranking could be important and lead to quite distinct conclusions. That because there are lines in the market were just launched as example (posting big growth), or the ones are already establish in the market for a long time (posting big sales).
Manufacturers and Retailers always come to the point to make decisions about skus, as increase or decrease facings or list or de-list products. It is difficult to select the most appropriate ranking (sales or sales growth), to make the correct decision.
Based on the experience, some decisions are made following sales and some sales growth. There are times, it is important volume and some other times growth comes first.
Let's get the example we try to list some new skus, and we look for bad performers in counter. It is really clear to target skus are low in sales and sales growth at a time. We won’t get any objection on those. Nevertheless everybody is at a “tricky” decision when the ranking shows high sales for sku “living” in the market for a long time, and in the other hand is losing “speed”.
Manufacturers and Retailers get also difficult time to decide some de-listings, when they are in the market for enough time, and post small sales and fast growth.
The Retailers have the final responsibility and decision, to break the set down in the most efficiency way in Manufacturers, Segments and skus to make their business profitable. The Manufacturers have to make also objective recommendations, to assure a good performances and profits for Retailers and themselves.
It is fundamental, to have a method to combine both facts (sales and growth) to comprehend the real importance of every sku in the counter.
Proposal:
If Manufacturers and Retailers can have a methodology to combine sales and growth in one number for listing-delistings will solve the way to do objective recommendations.
What we can do is to standardize sales and growth. We calculate z-scores, that means every single sales and growth is subtracted by average and then divided by standard deviation. At this point sales and growth are in the same scale.
Then adding skus zsales and zgrowth scores and then re-rank generate the new ranking. With the new ranking, Manufacturers and Retailers can analyze again the counter and make more solid and objective decisions. New ranking has also the advantage that is understandable and easy to communicate between Manufacturers and Retailers.
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