For those involved in the supply or retail of Consumer Goods, there is an abundance of Primary and Secondary data sources. An often made point from our clients is, surely these sources are good enough to make judgement calls on how to prioritise customers and to focus marketing?
However, although these sources are reasonable indicators, they are only a measure of current performance and consequently, a question remains of whether the current performance is in line with potential.
Many retailers and consumer goods suppliers can produce a report using value, volume and growth which can be used as a means of ranking their SKU’s/segments/categories or customer. From this, it is possible to develop a plan that prioritises the higher ranking customers or products, based on what their customers or consumers are currently buying from them.
However, our ranking logic is saying, customer or product one sells more than customer or product ten because it sells more. There is an underlying assumption that each item or customer is equally pre-dispositioned and what determines their position in rank is the presence of greater or fewer market conditions that cause sales. But, what is not being accounted for is, what are the market factors that determine why Customer/Product 1 is higher in sales than Customer/Product 10. I’ll explain this by use of the following simplistic example.
Let’s imagine that I am a seller of widgets to retailers. Let’s say, in a shopping centre there are two retailers and one retailer decides not to sell widgets. For consumers of widgets, the solution for purchasing widgets is to buy them from the remaining widget selling retailer.
However, from a Sales Manager's perspective, if I were to run a retailer ranking report for widget sales, the remaining retailer will now appear higher in the report relative to others, not because the market potential has changed but, due to a reduction in competition between retailers. If I was the Sales Manager, I’m probably not aware of a retailer's ranging decision and so I’m looking at a ranking report without context. But, if I were able to compare the sales rank against a market expectation, it would provide a context that would show the retailer selling widgets is over-indexed relative to its potential, while the lower ranked retailer is under-indexed. Our market model is adjusting our thinking from, “it is, what it is” to “what should I expect”.
There are many factors that can go into the development of a market model. In the example used, we identified competition between retailers as a factor. Another, often unstated factor is the number of consumers in an area. There are complex interactions between the number of consumers and competition between suppliers and or retailers but, once stated, mechanisms exist to calculate how many and where items could be sold.
For those that we have worked with, the value of a Market Model is not in the production of a ranked list but the comparison of the market potential rank and an actual trading rank and identifying the differences between the two. Usually, there is a eureka moment where an anomaly is detected and the obvious questions of why and, how to fix are asked.
Market Grunt has a sophisticated Market Model system which can be adapted for sellers or retailers of consumer goods. Contact Market Grunt to see how your actual performance stands up against potential performance.