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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, wont sell if consumers cant find
it. And irrespective of how widely it is distributed, it wont sell if consumers
dont 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 factor
Supply
Measured by Distribution
Influenced by Brand Choice

Brand choice (Consumer Preference for brand)


Driven by marketing the PULL factor
Brand equity is indicative of brand choice
Influenced by Availability

At Coca-Cola and Pepsi roles are split between Bottlers / Brand Owner

Demand

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

TerryOConnor(CEO Courtsmegastore)andMoonSungHyun
(MDSamsung)atlaunchofSamsungs3DTVsinSingapore

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 choice
Example: A Product Launch
60+% 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


Width(Availability)=Distribution
% ofStores
Thetwocomponentsare
interdependent.Asthe
numberofstoresdistributing
aproductexpands,thestores
starttocannibalizeone
another,adverselyaffecting
thesalesperstore.

Depth
SalesperStore
Sales = No of stores distributing Sales per store

Measures for Distribution (PUSH)

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 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 determine


How 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 Chains


Using Research to align distribution

Right Channels, Right Chains


Which channels to target? Which 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 Robinsons,
Popular range John Little
- LOreal: Plenitude (Department Stores)
and Garnier (Personal Care Stores)

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
% of All HHs

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

Gender
Male

Race
Chinese

Female

Malay

Age

Others

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

Occupation
PMEB
Other white collar
Blue Collar
Housewife
Others
Marital Status
Single
Married/others
Household Size
'1-3
'4-5
6+

Personal and Feminine

% of primary toiletry shoppers


21

13

Young women (15 to 30 yrs) tend to


shop intensely at Watsons

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
5
2

Female 15-29

Female 30-39

Female 40-49

Female 50+

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 Assortment
Using Research to prioritize assortment

Right assortment

Brand range is determined by marketing strategy not sales


strategy

How much of the brands 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 Campbells 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 dont push a loser. Itll 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 Foods

B expands range at As expense


# of items (SKUs) of Cat Food, Supermarkets
28 28 28 28

27

26

25

24

Brand A

23 23 23 23 23

24 24

23 23 23
23 23 23
22
22
20 20 20
20 20 20 20
19 19
19

Brand B
15 15 15 15 15

16 16 16

15 15

16

23

17

14 14

Brand Bs share of SKUs is up from 35% to 47%

Example from Pet Foods

Brand B grows 30% by expanding range


Brands Performance
Volume Share (%)

Brands Performance
Volume Growth (%) - MAT 00
29.5

41.6
38.1
36.6
30.1

Y1

Brand A
Brand B

Y2

-2.4

Brand A

Brand B

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
Brands 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 marketings 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 Distribution
Product Category Distribution
Average number of Items stocked in a store?
Sum of Items Distribution
Product Category Distribution

Brands average range stocked


average number of Items stocked by brand

Average number of a brands items stocked in a store


carrying brand
Sum of the Brands Item Distribution
Brand Distribution

Brand Distribution
Item Distribution (3 of)
Average # of Items stocked

= 80% . Width
= 80%, 50%, 70%
= 2.5 Depth

Average number of items Stocked


(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?
Numeric Distribution
Total flat screen TV = 90
Two brands: Panasonic, Sharp
Total Panasonic = 60

Total Sharp = 80

Panasonic model 1 = 55
Panasonic model 2 = 55
Panasonic model 3 = 45
Panasonic model 4 = 45
Panasonic model 5 = 50
Panasonic model 6 = 50

Sharp model 1
Sharp model 2
Sharp model 3
Sharp model 4
Sharp model 5
Sharp model 6
Sharp model 7
Sharp model 8

300

= 30
= 35
= 45
= 45
= 55
= 28
= 45
= 37

320

Average Number of items Stocked

Average Number of items Stocked =


(300 + 320) / 90 = 6.9.

Panasonic
- Efficiency Rate.
- Share of items

: 300 / 60
:5/6
: 300 / 620

=5
= 80.3%
= 48.4%

Sharp
- Efficiency Rate
- Share of items

: 320 / 8
:4/8
: 320 / 620

= 4
= 50%
= 51.6%

So which 7
should the
retailer stock
and why?

Average # of items Stocked

Panasonic
60% Brand
Distribution

80% Brand
Distribution

Sharp

80.3%: 5 out of
6 items Stocked
50%: 4 out of
8 items Stocked

Width

Depth

Width

Depth

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

Portfolio Analysis: What range? Which items to stock?


Which items
should the
retailer stock
and why?

100
Cheeky Cherryade, 14

Weighted Distribution %

95
90
85

Original Sarsi, 14

Outrageous Orange,
18

Ice Cream Soda, 13


80
75
Fruitade, 11
70

Groovy Grape, 11

65
60
Zesty Zappel, 8

55
50
100

120

140

160

180

200

220

SPPD (Litres per point weighted distribution)

240

260

What range? Which items to stock?


Measures for Sales / Store
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

Sales Per Point of Weighted Distribution (SPPD)

Volume Sales
Wtd Distribution
Sales = 10,000 kg
Wtd Distribution = 80%

SPPD = 10,000 / 80 = 125 kg

Example: Distribution & Rate of Sales of variants of a Soft Drink

Which flavours should be better distributed?

Sales

F&N Rainbow: Singapore Provision Stores


Expand distribution of
Orange and Grape

100

Cheeky
Cherryade, 14

95

Distribution %

90
85

Ice Cream Soda,


13

80

Original Sarsi, 14

Outrageous
Orange, 19

Fruitade

75
70

Zesty Zappel
65

Groovy Grape, 9

60

Sales / Store (Litres per point weighted distribution)

55
50

100

120

140

160

180

200

220

240

260

Weighted Distribution and Share in handlers


Handler = Store distributing product
$ in M
Television sales

$100

Panasonic sells
Panasonics value market share is

$ 20
20%

Television sales in stores selling Panasonic


Panasonics handlers share of Television sales

$ 80
80%

(By definition, this is Panasonics weighted distribution)


Panasonics share in handlers (% value)
= Panasonics share in shops selling Panasonic
= $20/$80
= 25%
= (Panasonics value share)/(its weighted Distribution)

Share in handlers
Market 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 kg
Numeric 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


BUT Nescafe may be selling as much as 1500kg per month in those
stores where Maxwell House is distributed

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

Maxwell House

Sales 300 kg / Store

100
Nescafe Sales = 1500 kg / Store
in these 100 stores

Nescafe: 2000 outlets


Sales 200 kg / Store

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

# of Stores x Numeric Distribution = 100 = # of stores distributing MH


# of Stores x Weighted Distribution = 1000 = Equivalent # of stores distributing MH

Rate of Sales =

Volume Sales
Equivalent # of stores distributing the product

Rate of Sales = Sales Volume / (# of Stores x Wtd Dist)


= 30,000 / (2000 x 0.50) = 30 kg/store

Maxwell House sells 30 kg per month per averaged sized store


selling coffee in Supermarkets

Rate of Sales per Store: Nescafe / Maxwell House

Average Sales / Store = 300 units


Numerical Distribution = 5% (100/2000)
Weighted Distribution = 50%

Maxwell House

Adjusted Average Sales / Store


= 30 kg/month

2,000
Store

Average Sales / Store = 200 units


Numerical Distribution = 100%
Weighted Distribution = 100%

Adjusted Average Sales / Store


= 200 kg/month

100
Nescafe Sales in these
100 stores is 1500 / Store

Nescafe
Average sales = 200 / Store
Rate of sales = 200 / Store

Average sales = 300 / Store


Rate of sales = 30 / Store

Rate of Sale Laptops in Computer Stores


HP Pavilion

153

Dell Inspiron

123

Acer TravelMate

82

Toshiba Dynabook

76

Dell Latitude

64

Fujutsu LifeBook

56

MacBook

49

Dell Precision

46

HP Compaq Notebooks

41

Acer Extensa

39

Dell Studio

33

HP Omnibook

32

Acer Aspire

30

Ranking of competing Brands

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 much


Manufacturers and Retailers negotiate on profits / margins not sales values
Selling Price 100 $

Manufacturers Costs @ 50%.

$50

Manufacturers Profit @ 35%.

$35

Retailers Gross Margin @ 10%.

$10

Retailer

Sales Tax @ 5%.

$5
$5

Government

Manufacturers
Suppliers, Wages,
other Costs
Manufacturer

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 Profit


Gross Profit generated per store for an item
Rate of Gross Profit = Margin Cash Rate of Sales

Sales Volume
Price
Sales Value
Numerical Distribution
PC Weighted Distribution
# Supermarkets
Sales per store
Rate of sales
Sales per store ($)
Cash Rate of sales
Margin
Rate of Gross Profit

= 9,000 packs
= $3 per pack
= 27,000 $/month
= 50%
= 75%
= 600
= 9,000/300 = 30 units/store
= 9,000/450 = 20 units/store
= $27,000/300 = $90/store
= $27,000/450 = $60/store
= 35%
= 0.35 x 60 = $ 21 / Store

Rate of sales Volume vs Cash vs Profit


Shampoos
Rate Of Sale

Feather

Cash Rate Of Sale

Sunsilk

45

450

1200

36
(20%)

180

Dove

250

70

Pantene

325

90

thousands of litres

Rate Of Gross Profit

thousands of $

35
(50%
)
18

thousands of $

Rate of Gross Profit for Dove is comparable to that for Sunsilk, despite
much lower Rate of Sales

Securing retailer support


Using 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 listed


How to convince a retailer that your product deserves listing

Compare your products

Share in handlers
Sales per point of distribution
rate of sales
rate 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

Whats the potential extra sales should we expand


distribution?

Whats the cost of out of stocks?

How much stock to maintain in trade? Whats


optimum?

What share of shelf space (forward stock) to target?

What share of shelf space to target?


Stock to sales ratio

Item 1
Item 2
Item 3

Forward
Stock %
5.0
5.0
5.0

Sales %
7.5
5.0
3.5

Ratio
67
100
143

What share of shelf space to target?


Stock to sales ratio
25

20

15

10

Share of MARKET

0
0

10

15

20

25

Whats the potential gain from expansion in


distribution?

Current Value Sales


= $2,000,000
Current Weighted Distribution = 40%

Whats the potential for gain in sales if brand achieves


perfect distribution?

Potential Additional Sales from Distribution Gains


Need to assess whether it is COST EFFECTIVE to expand distribution

5000
4500
4000

Whatsthe
relationship
betweensalesand
distribution?
Linear?

3500
3000
2500
2000

Logistic?
Exponentialdecay?

Linear

1500

Logistic

1000

Exponential

500
0

10

20

30

40

50

60

70

80

90

100

Weighted Distribution

Declining marginal utility (economics)

10% OOS ... Whats the cost?


Universe of stores
Num. Distribution
Number of stores handling
Period sales
Average sales per store

=
500
=
80
=
400
= 100,000
=
250

OOS. Distribution
Number of stores OOS.
Average sales per store
Total lost sales

=
10
=
50
=
250
= 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


Brand Loyalty
High

Low

24

37
6

61
7

Brand
5
Loyalist
13
91%

22
6

11

6
5

16
4
8
3

Delay buying
Buy other variant
Buy other packsize

Brand
Switcher

3
56

39

53

Liquid Milk

Breakfast
Cereal

67

69

9
Infant Milk

Go to another store

Buy other brand

18

Store
16
Switcher

Instant
Noodles

Chocolates

Carbonated
Drink

Source: Nielsen.
Based on a survey
in Singapore in the
late 1990s.

Cost of Out-of-Stock to Retailers

High

Low

%
Delay buying
Switch store
7
61
6

37

Infant Milk

Liquid Milk

24

22

Breakfast
Cereal

Instant
Noodles

16

16

Chocolates

Carbonated
Drink

The true cost of poor distribution: retailer

The top 10% of shoppers can account for 30 to


50% of a stores 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...

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