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Distribution Measures This module covers the concepts of numeric distribution, all commodity volume (ACV), product category volume (PCV) and out-of-stocks. Author: Paul Farris Marketing Metrics Reference: Chapter 6 © 2010-14 Paul Farris and Management by the Numbers, Inc. Measures of distribution help managers understand the sales dynamics in the retail channel and improve their decisions for expansion and growth strategies. This overview explores three measures of distribution coverage: • Numeric Distribution • All Commodity Volume (ACV) • Product Category Volume (PCV), including the impact of outof-stock on net PCV. MEASURES OF DISTRIBUTION Measures of Distribution Definition Stock Keeping Unit (SKU) is a unique identifier for each distinct product or service that can be purchased. You will see SKU referenced throughout this presentation. A brand will typically include many unique SKUs. MBTN | Management by the Numbers 2 Definition Numeric Distribution: a percentage measure of stores that stock a given SKU or brand compared to the universe of stores in the relevant market. = (# stores that stock a brand or SKU) / (total stores in relevant market) NUMERIC DISTRIBUTION Numeric Distribution Insight The number of physical stores involved in your supply chain has implications for delivery systems, cost of servicing, and market share. MBTN | Management by the Numbers 3 Outlet All sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING NUMERIC DISTRIBUTION Calculating Numeric Distribution Numeric Distribution Example: The numeric distribution of Madre’s brand tortillas is calculated as follows: Numeric distribution = (stores carrying Madre’s) / (total # of stores) Numeric distribution = (3) / (4) = 75% Question 1: What is the numeric distribution of the 12 ct pack of Padre’s Tortillas? MBTN | Management by the Numbers 4 Outlet All sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked 12 ct, 24 ct 12 ct, 24 ct Store 1 $100,000 $1000 Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct 2 stores Answer: CALCULATING NUMERIC DISTRIBUTION (SOLUTION) Calculating Numeric Distribution (Solution) The numeric distribution of the 12 ct pack of Padre’s brand tortillas = (stores carrying 12 ct Padre’s) / (total # of stores) Numeric distribution = (2) / (4) = 50% MBTN | Management by the Numbers 5 Definition All Commodity Volume (ACV): a percentage measure of the total dollar volume of retail sales of stores stocking an SKU or brand versus total dollar volume sales in all categories. ACV (%) = (total sales of stores carrying a brand) / (total sales all stores) ALL COMMODITY VOLUME (ACV) All Commodity Volume (ACV) ACV is a better measure of the total traffic that goes through the stores that stock your product or brand than numeric distribution. However, it does not say anything directly about how well those stores merchandise and compete in the relevant product category. MBTN | Management by the Numbers 6 Outlet All sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING % ACV Calculating % ACV ACV Example The % ACV of Madre’s brand tortillas is calculated as follows: % ACV = (total sales of stores carrying Madre’s) / (total sales all stores) % ACV = ($100k + $75k + $50k) / ($100k + $75k + $50k + $40k) = 84.9% Question 2: What is the % ACV of the 12 ct pack of Padre’s Tortillas? MBTN | Management by the Numbers 7 Outlet All sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct these stores CALCULATING % ACV (SOLUTION) Calculating % ACV (Solution) Answer: The % ACV of the 12ct pack of Padre’s brand tortillas is: % ACV = (total sales of stores carrying 12ct Padre’s) / (total sales all stores) % ACV = ($100k + $40k) / ($100k + $75k + $50k + $40k) = 52.8% MBTN | Management by the Numbers 8 Definition Product Category Volume (PCV) represents the share of category sales by the stores that stock your brand. Note that the term, Product Category Volume, is not an industry standard. PCV (%) = (category sales of stores carrying a brand) / (total category sales for all stores) PRODUCT CATEGORY VOLUME (PCV) Product Category Volume (PCV) Insight When PCV is available, it is a better indicator of where consumers look to buy a particular category of product or service. Often marketers use ACV as a rough surrogate for PCV, but the risk of using ACV alone is over-emphasizing high traffic stores where a product category may be available, but not purchased at a rate indicative of the store’s overall volume. MBTN | Management by the Numbers 9 Outlet All sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING % PCV Calculating % PCV PCV Example: The % PCV of Madre’s brand tortillas is: % PCV = (tortilla sales of stores carrying Madre’s) / (tortilla sales all stores) % PCV = ($1000 + $500 + $300) / ($1000 + $500 + $300 + $400) = 81.8% Question 3: What is the % PCV of the 12 ct pack of Padre’s Tortillas? MBTN | Management by the Numbers 10 Outlet All sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct these stores Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING % PCV (SOLUTION) Calculating % PCV (Solution) Answer: The % PCV of the 12ct pack of Padre’s brand tortillas would be: % PCV = (tortilla sales of stores carrying Padre’s 12ct) / (tortilla sales all stores) % PCV = ($1000 + $400) / ($1000 + $500 + $300 + $400) = 63.6% MBTN | Management by the Numbers 11 These metrics can also be applied to particular chains. For example, numeric distribution of a chain would equal the number of stores in a particular chain divided by the total number of stores in the market. Marketers often refer to a grocery chain’s ACV. This may be either a dollar number (the chain’s total sales of all categories in the relevant geographic market) or a percentage (their share of those dollar sales). Finally, marketers sometimes refer to a chain’s share of a specific category’s sales in a market. This is equivalent to the chain’s % PCV, as defined earlier. STORE VERSUS BRAND MEASURES Store versus Brand or SKU Measures Insight: Comparing the ratio of a specific chain’s % PCV with its % ACV provides insight into whether the chain is performing above or below average in selling a particular category as compared to other stores or chains in the relevant market. If the ratio of (PCV / ACV) > 1 that means that chain is performing comparatively better in the particular product category in question than the other chains. MBTN | Management by the Numbers 12 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) Question 4 What is the numeric distribution for Chain 1 of stores carrying tortillas? MBTN | Management by the Numbers 13 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) 25 stores Answer: The numeric distribution for chain 1 is calculated as follows: Numeric distribution = (chain 1 # of stores) / (total # of stores carrying tortillas) Numeric distribution = (25) / (25 + 12 + 10 + 20) = 37.3% MBTN | Management by the Numbers 14 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) Question 5 What is the % ACV for Chain 1? MBTN | Management by the Numbers 15 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) Answer: The % ACV of Chain 1 is calculated as: % ACV = (Chain 1 total sales) / (total sales all chains) % ACV = ($1,000,000) / ($1,000,000 + $750,000 + $500,000 + $300,000) % ACV = 39.2% MBTN | Management by the Numbers 16 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) Question 6 What is the % PCV of Chain 1? MBTN | Management by the Numbers 17 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) Answer: The % PCV of Chain 1 is calculated as: % PCV = (Chain 1 tortilla sales) / (total tortilla sales all chains) % PCV = ($10,000) / ($10,000 + $5,000 + $3,000 + $4,000) = 45.45% MBTN | Management by the Numbers 18 # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Outlet WORKING WITH CHAINS (EXAMPLES) Working with Chains (Examples) Insight: Comparing the ratio of a specific chain’s % PCV with its % ACV provides insights about whether the chain is performing above or below average in selling a particular category as compared to the store or chain’s overall sales. % PCV Chain 1 = 45.45% % ACV Chain 1= 39.2% Chain 1 ratio of PCV to ACV = (45.45%) / (39.2%) = 1.16 The ratio is greater than 1. Thus, Chain 1 is performing comparatively better in the particular product category in question than the other chains. MBTN | Management by the Numbers 19 Being “listed” by a chain means that the headquarters buyer has “authorized” distribution of the brand/SKU at the store level. OUT-OF-STOCKS Out-of-Stocks For various reasons, being listed does not always ensure presence on the shelf. Local managers may not approve distribution or the product may be distributed, but “out-of-stock.” Out-of-stocks are often expressed as a percentage. Be careful to note whether the percentage is numeric, ACV, PCV, or percentage of distributing stores for a given chain. MBTN | Management by the Numbers 20 Outlet Madre’s Tortillas SKUs stocked Avg. Out-ofStocks for Madre’s SKUs $10,000 12 ct, 24 ct 5% $750,000 $5,000 12 ct 10% 10 $500,000 $3,000 12 ct, 24 ct 12% 20 $300,000 $4,000 none none # of Stores All chain sales Chain 1 25 $1,000,000 Chain 2 12 Chain 3 Chain 4 All tortilla sales Definition CALCULATING PCV NET OF OUT-OF-STOCKS Calculating PCV Net of Out-of-Stocks PCV Net of Out-of-Stocks: the sum of the % PCV of each chain multiplied by (1-% OOS) Question 7 What is the PCV Net of Out-of-Stocks of Madre’s Tortillas? MBTN | Management by the Numbers 21 Madre’s Tortillas SKUs stocked Avg. Out-ofStocks for Madre’s SKUs $10,000 12 ct, 24 ct 5% $750,000 $5,000 12 ct 10% 10 $500,000 $3,000 12 ct, 24 ct 12% 20 $300,000 $4,000 none none # of Stores All chain sales All tortilla sales Chain 1 25 $1,000,000 Chain 2 12 Chain 3 Chain 4 Outlet Answer: Total all tortilla sales = ($10,000 + $5,000 + $3,000 + $4,000) = $22,000 % PCV Chain 1 = (($10,000) / ($22,000)) x (1 - .05) = 43.2% % PCV Chain 2 = (($5,000) / ($22,000)) x (1 - .10) = 20.5% % PCV Chain 3 = (($3,000) / ($22,000)) x (1 - .12) = 12.0% CALCULATING PCV NET OF OUT-OF-STOCKS (CONTINUED) Calculating PCV Net of Out-of-Stocks (cont.) PCV Net of OOS of Madre’s Tortilla’s = 43.2% + 20.5% + 12.0% = 75.7% MBTN | Management by the Numbers 22 Marketing Metrics by Farris, Bendle, Pfeifer and Reibstein, 2nd edition, chapter 6. MBTN | Management by the Numbers FURTHER REFERENCE Further Reference 23