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Part 2: PROCESSES 241

Chapter 8

Retail marl{et measurement

James Brooks
Tim Bowles

INTRODUCTION
The purpose of this chapter is to explain how market information based upon
retail sales is derived and used by manufacturers and retailers to make better
business decisions. Since the emergence of mass marketing, manufacturers of
fast turnover packaged goods have wanted information about the performance
of their brands, both against key competitors, and the market as a whole. For
the fifty years prior to 1980, such information came from two main sources:
consumer panels and retail audits.
In the retail audit, information on sales through a sample of shops was
collected regularly by auditors working for the research company. Consumer
panels approached the task by recruiting a sample of consumers who kept a
record of all their packaged goods purchases, usually in the form of a purchase
diary.
In both cases, the information collected, from shops or consumers, could be
analysed and statistical methods used to project from the sample to what had
been sold through all shops, or bought through all households. Estimates of
total market size, and the share of major brands, could then be provided for
product categories ranging from detergents to savoury snacks.
The principal advantage of retail audit measurement was accuracy. In a sample
of affordable size many more purchase observations could be obtained from a
sample of shops than from a sample of consumers, in the same data collection
period. This advantage was particularly important for tracking infrequently
purchased products or brands. The retail audit also avoided potential error
arising from human memory and accuracy in recording purchases, which can
affect consumer panel results.
242 Tim Bowles, James Brooks

Consumer panels, while limited in the ability to provide accurate market


measurement, are a rich source of information on the consumer; who buys as
well as what is bought. Through consumer panel data one can gain insight into
the household profile for purchases of different products, and how brand
choices are influenced by the characteristics of buyers themselves. The two
main sources of market tracking information are therefore complementary.
The process of collecting information on retail sales has undergone a
revolution in the last twenty years. This revolution was driven by the
progressive adoption by retailers of electronic cash registers equipped with
scanners which can recognise bar-codes printed on product packaging. EPOS
(Electronic Point of Sale) equipment is now widespread in the United States,
Western Europe, Japan and other developed economies, where it has largely
replaced the traditional audit as a source of information on retail sales of
packaged goods. This availability of scanner information is a by-product of
the retailers' drive for efficiency through the use of EPOS equipment, as the
basis for stock control and other administrative systems.
The impact of EPOS developments is enormous, in that information is
available at an unprecedented level of detail for products and brands, for every
shop in a retail chain, and for any time period, however short. Whereas the
challenge for the retail audit was to collect reliable data, the challenge in the
scanning era is to manage the data and reduce them to usable reports for
management.
While scanner penetration of retail outlets in developed countries is now
widespread, goods in many countries are still mainly sold through traditional,
privately-owned shops. Even in some developed markets, the traditional retail
trade is still significant. International manufacturers and retailers of consumer
goods can therefore expect to have to deal with both traditional retail audit and
scanner-based information for the foreseeable future, in order to gain an
understanding of their markets.
In the remainder of this chapter we will explain the basis of retail market
measurement as it is practised today, and how the data are analysed to support
business decisions.

A BRIEF HISTORY OF RETAIL DATA SUPPLY


The science ofretail sales tracking was invented by Arthur C. Nielsen in 1933,
when he set up his Drug Index service in the United States to measure
drugstore sales. This development was followed in 1934 by the creation of the
Food Index to measure sales in the grocery trade sector.
The first European developments occurred in 1937, when the British Market
Research Bureau set up a panel of 1,000 grocers in major towns in the United
Kingdom. Soon afterwards Nielsen's company took the first step in an
aggressive programme of European expansion when it set up the UK Food
Index in 1939.
Retail market measurement 243

Over the following fifty years ACNielsen followed the global expansion of its
multi-national clients to establish a powerful network of companies providing
retail audit services in more than 120 countries. Competition to Nielsen was
mainly local and the company became the dominant worldwide supplier
except in certain niches such as specialist markets. (The company also became
active in media audience research with the supply of radio and TV ratings).
EPOS scanning equipment, and the associated adoption of bar-codes on
products, was developed during the 1970s. The Article Numbering
Association (ANA) was formed in 1977 as an initiative by European
manufacturers and retailers. This organisation has now expanded across the
world and currently comprises seventy-nine national product numbering
associations representing eighty-six countries. This system of bar-coding,
described in a subsequent section, is now employed by 600,000 consumer
goods companies.
The appearance of EPOS data in the late 1970s created the conditions for the
emergence of a serious competitor to Nielsen in the United States: Information
Resources Inc. (IRI). IRI recognised the potential for scanner data and, in
1979, created a revolutionary test market service, based upon scanner data,
called BehaviorScan. IRI then exploited its early capability in the analysis of
scanner data to launch a national retail tracking service in the United States,
competing directly with Nielsen, called InfoScan, in 1986.
At the time of writing ACNielsen and IRI are the dominant suppliers of retail
tracking data in the United States, and IRI is challenging Nielsen's past
dominance in Europe and other parts of the world.

BASIC PRINCIPLES

The underlying principle of retail market measurement is that sales data are
taken from a number of retailers and combined to represent a larger trade
sector: individual trade sectors can then be combined in order to represent the
total market. This has meant that retailers can provide their sales data to be
pooled into a tracking service whilst maintaining the confidentiality of each
participating retailer's sales.
Figure 1

data provided data reported


244 Tim Bowles, James Brooks

For example, the top five grocery retailers in a country might be combined to
form a trade sector called key account retailers. The data released to the client
would be the 'Top five retailers' trade sector, which preserves data
confidentiality for the individual retailers participating in the service.
In developed markets, for the main trade sectors, this information is obtained
directly from retailers in the form of tapes containing EPOS records of sales
through all, or a sample of their outlets. Tapes typically contain data for sales
week-by-week although, in theory, data could be collected day-by-day or
hour-by-hour.
Where EPOS data are not available, sales information has to be derived
through a retail audit. This process involves going into stores to count the
stock within a store both on the shelf and in the stock room. Comparing this
information with the stock holding on the last visit, together with deliveries in
the time period, means that sales can be derived:
opening .. closing
sales = stoe k + dehvenes - stoe k

Because a retail audit involves shop visits by trained auditors it is quite an


expensive procedure. For this reason most retail audits have collected and
reported data on a bi-monthly basis. In comparison with more frequent
scanner data, retail audit data are therefore more limited in their ability to track
the effects of marketing actions such as advertising and promotions.

The issue of retail data confidentiality


Retailers have, in the past, been reluctant to provide details of their own
individual sales for distribution to manufacturers or competitive retailers,
concerned that they could thereby sacrifice competitive advantage. This is the
reason they have insisted that research companies should only report pooled
data, at total market and trade sector level. Manufacturers have therefore had
to rely upon consumer panels to provide estimates of the shares of category
sales held by different retailers. This is vital information when manufacturers
are negotiating with retailers to increase their share of scarce shelf space.
The agencies which analyse and supply retail data have long argued for more
open data exchange, so that they can provide 'named account' or 'key
account' data which show the individual sales performance of different retail
chains.
By the end of 1997 most retailers in the United States and in The Netherlands
and a minority of retailers in other European countries had agreed to the
release of their own, identified sales data in the marketplace. This trend is
likely to continue to a point in the future where there will be total transparency
of data exchange between retailers and manufacturers, but the process may
take some years.
Retail market measurement 245

THE BAR-CODE

The allocation of bar-codes is supervised by the Article Numbering


Association (ANA). The international standards for the EAN (European
Article Number) were developed as tools for improving business efficiency
through:
o providing a system for identification of products, services, etc.
o standard bar-codes to represent information which can easily be read by
scanners.

It is this product identifier which is the focal point for scanning-based retail
market measurement studies.
The bar-code typically consists of thirteen digits, which are constructed in the
following manner:
50 12345 12345 7
The first two digits signify the country of origin.
The next five digits are a manufacturer's identifier which is allocated by the
ANA. The next five digits are the product code, which is assigned by the
manufacturer. The final digit is a check digit, which is calculated by an
algorithm applied to the previous numbers. This check digit ensures the
correct reading of the bar-code at the point of sale. This is achieved by the
scanning device reading the bar-code and re-calculating the check digit, which
is then compared with the check digit in the bar-code; if they do not match
then the item will be rejected by the scanner. The process ensures full data
iptegrity.
Occasionally small products do not have the space for a thirteen digit bar
code. In these instances an eight digit bar-code may be used. Due to the
limited number of these codes, they are issued directly by the ANA.
Although bar-codes are numbers, they are represented by a series of black
lines on a white background which can easily be read by scanning technology,
as in Figure 2.
Figure 2

0"0'51111"12881"" 7
246 Tim Bowles, James Brooks

This convention for the allocation of bar-codes ensures that:


o bar-codes are unique
o the bar-codes are non-significant, i.e. it is the EAN which is the key to
access the database
o they are consistent across countries, i.e. international
o they are read securely.

To give an indication of the scale of the data processing exercise, in the three
years to 1997, IRI (in the United Kingdom alone) has processed in excess of
one million different bar-codes.
Bar-codes are allocated for each variant of a product. For example, a lemon
flavoured product will have a different bar-code from the same product which
is orange flavoured. Even special offer packs (e.g. 10% extra free) will have
an individual bar-code. This allocation system enables maximum product
detail to be available to data users, who can select the level of detail they
require in analysis.
Figure 3
Audit Scanning
Accuracy Audits rely on manual counting of Scanning data are a true representation
stock and stores recording deliveries. of what has actually passed through a
As such they are subject to human retailer checkout and therefore are the
error. They also measure store most accurate measurement of sales.
throughput. Shrinkage (theft, damage
etc.) is recorded as a sale.
Cost As audits rely on personnel visiting Sales data can be supplied directly by
stores to count stock, costs are the retailer thereby reducing the need
relatively high. for store visits and therefore the costs.
Timing Due to the cost being linked to the Data are usually collected weekly. Daily
frequency of store visits, data are data are now also becoming available.
typically available montWy or bi-
montWy.
Back data Due to the costs, data are usually Data are stored on tape, therefore back
collected when a client commissions a data are more easily accessible.
study, meaning that there are no back
data available for previously
unreported categories.
Client reports Syndicated trend reports. Customised reports driven by software
applications.
Delivery time Typically four weeks after period end. Ten to twenty days (may be shorter in
some cases).
Outlet coverage Cost constraints mean that sample data Census data (data for all stores) are
are collected and projected to represent available.
a total retailer's sales.
Product detail Data may be collected at 'audit code Data are collected at EAN level.
level' to reduce the number of
individual items being counted, e.g.
different scents of shampoo may be
combined.
- Retail market measurement

AUDIT AND SCANNING DATA


247

The primary purpose of retail sales tracking is to provide a reliable


measurement of sales, covering all significant types of retail outlets. Scanning
information is rarely available from smaller outlets, such as small shops,
kiosks and market traders. Sales through such outlets may nevertheless be
significant for certain product categories. Retail audits are often the only
practical way of collecting data from such outlets, which do not have scanning
equipment.
A comparison of audit and scanning data, on key criteria from the user's point
of view, is made in Figure 3.
The availability of scanning data varies considerably by country. The chart
below demonstrates the percentage of food sales which pass through scanning
checkouts, varying from the high 90s to as low as 10%.

Figure 4
PERCENTAGE SCANNING PENETRATION

100

90

80

70

60
50

40

30

20

10

i ·~~ j j
f J ~ J ~ j
<
.[~~~.~~
(/) ~ ...• ~ ~

Source: ACNielsen estimates 1996

It was expected that the introduction of scanning would reduce the costs of the
provision of retail market measurement services. This has not been the case
for a number of reasons which are identified below:
o retailers' requirement for payment to access their data either in cash or
information services (and in some cases both)
o the requirement to continue store visits to collect information on in-store
merchandising conditions (i.e. factors which influence sales)
248 Tim Bowles, James Brooks

o the requirement to continue audits in trade sectors and/or countries with low
scanning penetration
o the scanning has vastly increased the size of databases as a greater level of
product detail has become available
o the requirement for continual investment in information technology to
support the advanced analysis of scanning data
o the maintenance of a product dictionary for an ever-changing universe of
products and product variants.

With the development of consistent bar-codes and more portable technology,


it is becoming more common to replace paper-based in-store audits with hand-
held scanners. With this technology, the fieldworker scans the product and
then enters the volume of stock, together with the selling price. Historically
audits have been conducted at an item level (e.g. flavours may have been
merged to reduce the number of items for which data were being collected)
but audit data can now be collected and reported at the same level of product
detail as scanning data. Using the bar-code also ensures that audit and
scanning data can be aligned perfectly in an integrated database.

STRUCTURING THE DATABASE

Retail market measurement is unlike many other forms of market research.


The end product is not a research report but a database which is delivered to
clients usually in electronic form. The database will typically be updated with
new data each reporting period (weekly, four weekly, monthly etc.).
This database is then used by clients on a continuous basis to monitor and
investigate both their own and competitors' performances. Both Nielsen and
IRI, the principal data suppliers, also offer proprietary software which their
clients can use to select and manipulate data from the database.
The databases are constructed with two primary purposes in mind:
o to monitor the trend of sales for different products, over time and in various
trade sectors
o to investigate how various other measures of causal conditions in the store
influence sales; such measures can include distribution levels for the
product, price level and the presence or absence of certain types of
promotion.

It is sometimes helpful to think of the database as a cube in which each cell is


a combination of specific:
o trade sectors, i.e. the combination of retailers
o time periods
o measures, e.g. unit sales, volume sales, rate of sale
o products, e.g. which products are being reported.
Retail market measurement 249

Figure 5

Product

Trade Sector

Time

Structuring a database in this fashion means that it is possible to cut the data in
different ways to meet the analysis needs of the end user. Some examples of
how the data cube may be 'cut' are shown below:

Figure 6

Financial Managers Product Managers Regional Managers Ad hoc

Given that the dimensions for structuring the database are a critical part of its
utility, the next sections will concentrate on how these dimensions are
,constructed, and how sales and distribution measures are defined.

Trade sectors
In defining the trade sectors to be monitored within a retail tracking study,
there are three key considerations:
o client requirements for trade coverage and segmentation of the trade
o structure of the retail trade in the country
o willingness of the retailers to contribute their data within different levels of
trade sector aggregation.

There are likely to be several stages in defining the trade structure:


1. Client requirements
2. Defining the universe
3. Selecting the sample
4. Projecting the stores to represent the universe.
250 Tim Bowles, James Brooks

Client requirements
The requirements of clients in terms of trade coverage can vary significantly.
For manufacturing clients, coverage of the outlets which distribute their
products is likely to be the critical factor. As a result of this, clients who
manufacture goods which are distributed through a wide network are likely to
require coverage which represents the total market. On the other hand, clients
who manufacture products for distribution through a network of specialist
retailers are more likely to be satisfied with coverage of that specific trade
sector. The relative importance of different trade sectors varies considerably
by product field and by country. Table 1 shows the relative importance of
different trade channels for health and beauty products across a number of
different countries (i.e. the percentage of sales each trade sector represents). In
practice it is difficult even to develop a cornmon classification of retail outlets,
some of which are specific to a few countries.
I 2
70
2
44
5
7Greece
60
Poland
40
59
25
20
302
30
300
9
3
20
10
10
10
25 Republics
Kingdom
Turkey 22
35
31 Table Slovak
1
7
3
kiosks and
Pharmacies
Perfumeries Source: IRI
Czech and

In the above example the requirements for a health and beauty manufacturer
would be different across different countries, and this needs to be reflected in
the definition of the trade sectors used in the study.
Achieving the right segmentation within the trade structure is particularly
important as in many countries retailers have increased or are starting to
increase their presence in 'non core areas'. A good example of this is the
health and beauty market in the United Kingdom. Over the past five years, the
traditional grocery chains have invested heavily in this area and have
continually increased their market share at the expense of the traditional
Retail market measurement 251

chemists. A trade sector which combined grocery stores with chemists would
not have been able to monitor this change over time.
The requirement to define trade sectors tightly is sometimes at odds with the
needs of the retailers. A number of retailers are very protective of their data
confidentiality and prefer them to be aggregated with data from a large
number of retailers. This a situation which the research agencies need to
manage continually.
A further issue is the availability of data by trade sector; for example in the
United Kingdom the grocery stores can be monitored through the provision of
scanning data whereas the drugstores/chemists require a combination of audit
and scanning data to provide complete coverage of this trade sector.
Having identified the trade sectors of significance, the next stage is to
structure them in a manner which is logical for the client. This process
typically involves grouping like stores together and placing them in a
hierarchy. An example for the health and beauty market is shown in Figure 7.

Figure 7

TOTAL ALL OUTLETS

GROCERS & DRUG STORES

CO·OPS IND. GROCERS & DRUG

Once the broad trade sectors to be covered have been identified, the next step
is to establish the universe.

Establishing the universe


Having established the trade sectors which the client wishes to measure, the
next key task is to define what the universe will be, i.e. which store types do
we aim to cover.
Sources of information to establish the relevant universe vary significantly and
can include:
o government statistics or census on the number of stores
o information sourced directly from the retailers
o original research on the universe structure.

Obtaining universe information on the centralised retailers which participate in


retail market measurement services is relatively straightforward as they are
able to provide universe details for their own stores, i.e. number of stores,
sales per store. The difficulty arises in defining the universe for the less
sophisticated end of the retail trade. This is a particular issue in countries such
252 Tim Bowles, James Brooks

as the eastern European countries where market stalls and government


controlled pavilions are significant outlet types.
Where information is not directly available from the retailers or government
sources (even when it is, it can be less than reliable or out of date) the research
agency will need to carry out an establishment survey to determine the number
and size etc. of retail outlets which are in the universe for a given trade sector.
The establishment survey for any retail measurement service is a significant
piece of work and underpins the accuracy of the service as a whole, because it
will be used as the basis for projecting from the research sample to the total
market estimate.
The establishment survey can be carried out by taking a random sample of
postal districts in the country being measured. Researchers will then count the
number of shops of each type within that postal sector. They will also collect
information such as store size, products sold, number of checkouts and
average sales. These characteristics can then be used to aid the selection of a
representative sample.
This random sample of postal sectors can then be projected to represent the
total country.
The key output of an establishment survey is the number of stores within each
trades sector. An example is shown in Table 2.
Retailer
Universe
9,630
22,430
14,860
4,370
33,200
26,800
2,400
2,900
57,500
Survey
Survey
Survey retailer
retailer 0%
20%
10%
sizeScan 100%
l,800/ /Source 100%
9%Table 2
0%

The Table also shows how the universe information was obtained, whether
directly from the participating retailers or from the establishment survey itself.
Retail market measurement 253

Selecting and projecting the sample


The sample of stores used to represent the universe will be dependent on the
level of detail required for each trade sector. The sample needs to be
constructed for each individual trade sector for which data are to be reported.
In the trade structure shown in the previous section, this would entail
constructing individual samples within each of the trade sectors such as
multiple chemists and major multiple grocers. The individual trade sectors can
then be combined in order to give an aggregate measurement of total market
performance.
For trade sectors where there is 100% scanning and a high level of retail co-
operation, it is possible and in many cases desirable to process census data, i.e.
process data for all stores and not just for a sub-sample projected to represent
all stores. This has the advantage of being 100% accurate in terms of
monitoring sales. Whilst this route may be possible it may not be pursued, due
to cost constraints either in terms of the fees levied by the retailers for the data
or the costs incurred in processing such high volumes of data (a chain of 500
stores selling in excess of 20,000 lines represents a very large amount of data
to be processed!).
Where census data are not being used, it is necessary to select a sample of
stores to represent the universe very accurately. The aim is clearly to select a
profile of stores which matches the profile of the universe. It is then a
relatively straightforward process to project the sample stores to represent the
total universe.
The first stage in defining the sample is to establish which criteria are to be
used to balance the sample. These criteria will be factors which influence the
sales within a given store and may include:
'0 store size
o location
o sales volume
o presence of certain departments (e.g. fresh foods, pharmacy)
o age of store.

The larger the number of factors used to stratify the sample, the higher the
accuracy which can be obtained in projecting to the universe. A higher
number of stratification factors will also, however, necessitate a larger sample
SIze.

Once the sample has been identified, the sample can (using the relationship
between the sample and the universe) be projected to represent the total
universe. Where available this relationship can be established based on actual
sales. Where it is not available it can be based on the number of stores.
254 Tim Bowles, James Brooks

In its most simple form, the relationship between the total sample and universe
will be applied to each individual store. For example if the universe sales are
$1,000 million and the sales at the sample stores are $120 million, then the
sales of the total sample will be multiplied by 8.3 ($1,000/$120).
In the above scenario each individual store in the sample is given the same
weighting. It is however possible to assign different weightings to different
stores in the sample. This technique is more likely to be used in situations
where it is difficult to select the sample with a profile identical to that of the
umverse.

Time periods
The time periods reported within a study are driven by the requirements of the
client, together with the data sources which are being used.
Scanning data are typically collected and processed on a weekly basis,
therefore it is feasible (and most commonly done) to report weekly data on a
four weekly basis (i.e. every four weeks, four individual weeks of sales will be
delivered). This enables the client to align the data more closely with the
activity in the marketplace or any other conditions which may impact sales. In
addition weekly databases also allow the client to align the data to time
periods which they may use internally for reporting data. Whilst it is possible
to deliver weekly data each week, this is not yet common practice due to the
costs involved in such delivery.
Where audit data are used to represent a trade sector it is very unusual for data
to be reported weekly. Since auditing costs are a major issue, it is typical to
report audited trade sectors on a four weekly, monthly or bi-monthly basis.
Where trade sectors combine audit and scanning data to provide broader trade
sector coverage, data will usually be reported at the lowest possible
denominator, i.e. if weekly scanning data are being combined with four-
weekly audit data, the trade sector will typically be reported four-weekly. This
is illustrated in Figure 8.
In some cases where the less frequent audit data represent a small proportion
of the data which are to be combined, the audit data can be weighted and split
into weekly blocks weighted to the profile of sales shown in the weekly
scanning data. This can only be done when:
1. the audit data are a small proportion of the total
2. the audit stores are similar in profile to the scanning stores.

It should be stressed that this is not an alternative to scanning data but is a


method for integrating relatively small volumes of audit data into scanning
data.
Retail market measurement 255

Figure 8

Trade sector' A' Trade sector 'B' Combined trade sector

Week]

4 week 4 week
period period

4 week 4 week
period period

Week 8

Products
A significant element in structuring a retail market measurement database is
how the products are organised within the database. A typical database for one
product category can have in excess of 5,000 product codes. Failure to
organise the products effectively will result in a database that is not of use to
the client - imagine trying to find a single product code in a list of 5,000 items!
The structure of the product dimension of the database will be dependent on
the individual market and the client. The first stage in organising the database
is to define the attributes which will be used to segment the data. Typically
these attributes are the product characteristics that the consumer uses in a
purchasing decision (or how the client segments the market for marketing
purposes).
Examples of product attributes are:
o pack type, e.g. bottle, can or jar
o fragrance, e.g. lemon, strawberry
o size, e.g. 200 ml, 300 ml.

In addition to the product characteristics the brand and manufacturer are


usually treated as attributes to help in structuring the database. The attributes
can then be used to construct a product hierarchy that can in turn be used to
structure the order of the products in the database. An example product
hierarchy for shampoo is shown in Figure 9.
In some cases it is necessary to group different attribute values together in
order to prevent the database becoming unwieldy, and to enable the user to
emolov the attrihlltes to strncture the analysis An examnle is :lir frp."hpnpr"
256 Tim Bowles, James Brooks

with different scents such as lavender, rose and honeysuckle, all being defined
as 'floral', thereby removing unnecessary detail.

Figure 9
AN EXAMPLE PRODUCT HIERARCHY FOR SHAMPOO

Total category - shampoo


Type e.g. medicated versus non-medicated
Supplier e.g. Henkel, Procter and Gamble
Brand e.g. Timotei, Wash and Go
Hair Type e.g. permed, greasy, normal
Size e.g. 200 - 250 ml, 251 - 350 ml
Bar-Code

The products are then sorted according to the product hierarchy allowing
structured analysis of the data. For example, as well as examining
performance of specific lines or products, it is also easy to analyse the
performance of total sectors; for example how fast are 2-in-l shampoos
growing versus standard shampoos. This prevents the user having to sort
through individual lines and allocate them to different sectors. An example of
how this may be done is shown for the stir fry sauces market (Figure 10).

Figure 10
100%

90%

80%

70%
D Other Sauce
60%
III Stir Fry
50%
IIlITex·Mex
40% lIT] Traditional

30% DOriental
• Indian
• Italian
10%

0%
Retail market measurement 257

Collection of attributes
By necessity, attributes are usually collected in the stores involved in the
study. A field worker will identify the product that needs coding and then
record all the attributes for that individual product. In order to ensure
consistency, all attributes must be observable and tangible. Subjective
attributes, e.g. premium versus standard, are not typically used as this requires
judgement by the field workers and may make allocation inconsistent.
At the initial database construction, all products will need coding and this can
be a large task. Coding of products which are no longer being produced needs
some judgement to be exercised by a market expert. Recent developments
involve field workers video-recording products and coding attributes from the
video image. This helps to ensure consistent attribute coding, but also means
that databases can be re-coded if a new attribute emerges as being significant
in the future.
As new products are launched, they will also need to be incorporated into the
database. Usually the first the research agency knows about a new product is
when it appears in the data which are supplied by/collected from the retailer.
Speed is of the essence in collecting the attributes in order for the product to
be incorporated and accurately reported within the database.
Given the fact that it takes time to collect the attributes, products may not
immediately appear in the database. For this reason it is usual each period to
re-process the previous period's data, to ensure that new product sales are
fully included in the database. Clearly the objective of the agency is to
introduce the product as quickly as is possible in order to minimise these data
changes with respect to the previous period. The client can assist by providing
example products before they are launched. This ensures that the product is
placed in the database prior to it appearing in the shops.
Measures
To some extent, data measures are the most important part of a retail market
measurement study, as these are the data facts which are being reported for the
combination of a specified time period, trade sector and product.
The availability of measures varies considerably with the source of data being
used. A scanning database can potentially have in excess of 160 measures.
This coupled with weekly data for 5,000 products can generate a huge volume
of data for the client. The key to data utility is in distilling the measures which
are of value to the client to ensure that they are not swamped.
The core measures which form the basis for all other measures can be defined
in the following groups:
1. sales
2. distribution / rate of sale
3. price
4. promotional incidence and response.
258 Tim Bowles, James Brooks

Each of these measures is taken in turn in the following sections.

Sales measures
Typically, three types of sales will be used:
o unit sales: the number of packs sold
o value sales: the value (local currency) of products sold
o volume sales: expressed in volume equivalency, e.g. kilograms, litres etc.
(value sales will typically be reported net of any promotional discount).

Sales measures are the basis of calculation for many of the share measures
which are used within a study. The most commonly used share measure which
allows a manufacturer to track his relative performance within the market is
'category sales share'. This can be defined as:
Sales of product(s)
Category sales share = --------x 100%
Sales of total category

A manufacturer may choose to use this measure with an individual line, brand
or total supplier. Similarly, retailers may use this type of measure to monitor
their share of the market by dividing their sales with the sales of the total
market.

Distribution measures
Distribution is the reach a product has within a given trade sector and can be
derived in one of two ways:
o numerically
o weighted by sales.
Numerically
Numeric distribution refers directly to the percentage of stores carrying a
product. For example in a universe of 2,000 stores, if a product is listed in 620
stores its numeric distribution would be 31 %.
Given that not all stores are the same size (for example, compare a small
convenience store with a hypermarket) the client may wish to weight the
distribution according to the relative size of the different stores, i.e. reflecting
the importance of different stores in calculating the product distribution.
The stores may be weighted according to sales of all products stocked (All
Commodity Volume: ACV). Distribution is then calculated by adding the
ACV of all stores which sold the product during the period and dividing that
by the total ACV of the trade sector which is being analysed, i.e.:
Total ACV of all stores which sold the product
ACV weighted distribution = ---------------- x 100%
Total ACV of all stores in the trade sector
Retail market measurement 259

This is illustrated with the example in Table 3 (yes/no indicates if that


particular store sold that product in that week).
Table 3
Yes
£ISm 342
Store
£3Sm
£20m
No Yes
No
BOrn I
Store

30+20+1S
ACV weighted distribution = -3-0-+-2-0-+-1-S-+-3-S)<
100% = 65%

However, All Commodity Volume is not always the most appropriate way in
which to analyse weighted distribution. In cases where a trade sector contains
a mix of store types, so that the ACV s represent completely different product
mixes, e.g. where chemist chains are reported with grocery stores for
shampoo, it may be appropriate to weight the distribution according to
category sales. In this scenario, exactly the same formula and methodology is
used as above, but ACV sales are replaced with the sales of the total category,
e.g. total shampoo sales.
When using the distribution measure, care should be taken over the time
'periods and products selected. The lower the level of detail used in defining
the product and time period dimension, the more validity the distribution
measure will have. For example, using the distribution measure for a total
category is likely to result in a high distribution, in many cases 100%.
Similarly, using distribution over a long time period increases the likelihood
that a store will have sold a given product and therefore increase its level of
distribution.
Weighted rate of sale
Distribution measures are often combined with sales measures to give an
assessment of how well a product sells in a store where it is stocked. The
measure, weighted rate of sale, calculates the average sales in an average sized
store. This measure takes out the effect of a product being distributed across
different store types and calculates sales for a particular product in an average
sized store:
260 Tim Bowles, James Brooks

Sales for product


Weighted rate of sale = Distribution * x Total number of stores

*either ACV weighted or category weighted distribution depending on the data base.

To illustrate the calculation, consider the following example, which shows the
value sales for Product A in each of five stores during each week in a four-
week period:
£1£700
Store
£ISm
£40m
£ISk
Ok 5423
£2Sm
£Sk
£4S0
£2S0 £800
£400
£300 £30m
££900
10k Table 4
£200
£SOO £100
-
Store 1

Total ACV of all stores which sold the product 00


ACV weighted distribution = ------------------ x 1 %
Total ACV of all stores in the trade sector

30+1S+]S
x 100% =48%
30 + 40 + IS + ] S + 2S

This means that an average sized store selling Product A had sales of £1,000
of the product in the four-week period.
Rate of sale measures are used most commonly in understanding the relative
performance of products in stores where they are stocked. This can help the
identification of products with high potential as well as those which are
performing poorly. Using rate of sale in conjunction with distribution can
enable the client to identify high potential products, i.e. those with a high rate
of sale and low distribution, and potential products for de-listing by a retailer
(those with high distribution and low rate of sale).

Price measures (see also Chapter 20).


As sales for the stores contained within the sample are a combination of sales
from different stores, the price which is reported from a retail market
Retail market measurement 261

measurement survey will be an average price. An average price can be


reported per unit or per volume (e.g. per litre).
The price per unit is simply the value sales divided by the unit sales and
reflects the price paid by the customer. It is at its most useful when reported at
a product line level, as it can be ntisleading if reported at a higher level. For
example the introduction of a small pack size within a brand can cause the
average price per unit of the brand to fall, but it does not mean that the brand
has reduced its price.
Further pricing measures are also available as part of the promotional elements
of retail market measurement which are covered in the next section.
Promotional measures are of such significance that they will be covered in an
independent section.

PROMOTIONAL ANALYSES

The aim of the promotional element of retail market measurement is to link the
incidence of in-store causal activity (i.e. in-store promotions) with the sales
achieved. This enables two key measures to be derived:
o incidence of promotional activity (i.e. reach and depth of activity)
o response to promotional activity (i.e. the incremental sales generated).

Due to the fact that weekly store level, EAN level data are required for
promotional analysis (as will be explained later) this form of analysis is
restricted to trade sectors for which there are scanning data.

Methodology
Causal data are collected at weekly level by individual bar-code from stores
which are within the scanning universe. These causal data are then linked to
the sales data in order that the sales can be split into base and incremental
sales. Base sales are those which would have been expected without
promotional support, whilst incremental sales are those which can be
attributed to in-store promotions.
Causal data are typically collected by a fieldworker going into a sample of
stores and scanning the products which are on promotion with a hand-held
scanner. The details of the promotion are then keyed into the scanner. This
ensures that the promotion details are collected at the EAN level and can
therefore be directly matched to the sales data provided by the retailer.
Figure 11 shows the sales for an individual bar-code and the incidence of
causal data for the same bar-code.
262 Tim Bowles, James Brooks

Figure 11
600
500
400
300
200
100
o ."""" 1'1'1'" I'" I" ,"",'" 1'1'1'1"""

1- Actual sales • Promoted weeks

The next stage is to use an algorithm to calculate the 'base sales'. One method
is to take the store level data and create an exponentially smoothed curve of
sales during weeks without promotion, and then to apply this to promoted and
non-promoted store weeks to generate total base sales. Incremental sales can
then be calculated as the difference between total sales and base sales. Since
incremental sales are the sales attributed to promotional support in weeks with
no promotion, base sales are equal to actual sales. An example of base and
incremental sales is illustrated in Figure 12.

Figure 12

600
500
400
300
200

o
1001~ II II II II II II II II I'll II II " II I' IIII I' II II I' II

- Actual Sales • Promoted Weeks ••• Base Sales

The key thing to note is that for a base sales calculation to be effective it needs
to be conducted at both the bar-code and store level and then aggregated to the
total market.

Causal conditions
Experience suggests that the impact of different types of promotions varies
significantly. In order to appreciate the impact of and to quantify the volume
of promotions, different promotions are classified into different groups,
although all would trigger the base line calculation.
Retail market measurement 263

Causal conditions to be collected and monitored will be dependent on those


which are evident in the country or market which is the subject of the study.
Example conditions may be:
o price reduction
o display
o multi-offer
o loyalty card points given with product
o print advertisements.

The purpose of classifying causal conditions separately is to allow


promotional incidence and response to be monitored for individual
promotional mechanics.
As the causal data are collected in the store this ensures that what is reported is
in fact what was on offer to the customer. Whilst it is possible to base-line
using promotional programmes provided by a retailer, these are not always in
reality implemented in the store.

Reporting
As outlined, the two key measures of a promotional study are:
o depth and reach of promotion, increase in sales due to a promotion.
Depth and reach of promotions
In order to establish the reach of a promotion it is normal to look at the
percentage of non-promoted sales which were sold with the given promotion.
This is illustrated in the equation and example below:
, Base volume sales for promotion
% of base volume sales for a promotion = ------------ x 100%
Total base volume sales

Consider the volume sales for Product A that were due to print ad, no display:
Week 1 Week 2 Week 3 Week 4 Quad Wk
Total base volume 33 g 36 g 25 g 26 g 120 g

Base volume sales with display 10 g llg 8g 9g 38 g

38
% of base volume sales with display = - x 100% = 31.7%
120

The use of this measure allows the client to understand the extent to which
brands or products are promoted compared with competitor products within
the marketplace.
264 Tim Bowles, James Brooks

Increase in sales due to promotion


This measure identifies the percentage sales increase which was due to the
promotional condition being considered. A key factor in calculating the
increase is that the calculation should only be done using the promoted stores
as a base. This allows the true incremental effect of the promotion to be
identified. The calculation can be defined as:

Incremental volume + week after incremental volume


% increase in volume sales = x 100%
Base volume sales in stores promoting

Week
Consider QuadWk
18
120
4g
25
6g
36
26 342
3gg gvolume
the sales for335gg
Product A that were due to any deal:
Week 1

18
% increase in volume sales with any promotion = -x 100% = 15%
120

In the above equation, the week-after effect has been included in the
incremental sales. Where it is thought that the effect of a promotion may last
longer than the time when it was in evidence e.g. print ads, the incremental
sales of the following week of the promotion may be included.

Figure 13
VOLUME OF PROMOTION VERSUS SALES UPLIFT

% Volume increase
100 -, ----------------------l(ll-I-ta-Ii-a-n-------,
90

°Oriental
80
o Stir Fry
Indian .• 0
70
o Traditional
60

50 o Tex-Mex
40 I I
15 20 25 30 35 40 45 50

% Volume sold on promotion


Retail market measurement 265

The use of this measure allows the client to understand what is the most
effective promotional mechanic for a brand or product and which products or
brands respond best to promotions. This coupled with information on the level
of promotion helps the client to understand which products it may be most
appropriate to promote more or less in the future. This concept is illustrated in
Figure 13.
The arrows demonstrate products for which the client could either consider
increasing or decreasing the level of promotional support, i.e. stir fry products
generate good response when promoted but receive a relatively low level of
promotional support.

DISAGGREGATE USE OF SCANNING DATA

The previous sections of this chapter have focused on how retail market
measurement studies are constructed through aggregating data provided from
individual retailers, i.e. sales are combined at an EAN level across all stores
within a trade sector so that total sales are reported for an individual product
line. The use of disaggregate level data focuses on using store level data at the
EAN level to perform more sophisticated analyses.
The purpose of using disaggregate level data is to increase the number of sales
observations which can be used, thus increasing the ability to build a cause
and effect relationship between sales achieved and the factors affecting them
e.g. price, promotions and advertising.
Taking a single product with two years of weekly data, there will be 104 sales
observations (fifty-two observations per year). Using store level data can
increase the number of sales observations to the tens of thousands and
therefore means that the ability to conduct sophisticated analyses is greatly
increased.
As well as increasing the number of observations, using store level data
ensures that averages are not used. Table 5 illustrates why the use of
disaggregate analysis can be important.
41
£2.9915
£2.88
£2.82
£2.24
£2.70 493 £2.59
Price
Sales
Sales£2.99
46
112
17 £2.88
£2.82
£2.24 Table
Week two 5

Week one
266 Tim Bowles, James Brooks

U sing the total market data this table would suggest that as the price has
increased from £2.59 to £2.70, sales have gone up from 41 to 46 units - an
ideal outcome! The reality is, however, that the sales in stores charging the
highest price have increased. So although no stores changed the selling price,
the total market data would imply that there has been an increase in price. A
further key issue is that because the market price is an average, it is not a price
which was ever paid by a customer. This is why disaggregate level data are
valuable in planning and evaluating the impact of different marketing
initiatives.

Multiple regression techniques can be used to isolate the impact of sales of


different marketing conditions. Often the output of these models can be built
into software packages which allow the end user to play out 'what if'
scenarios. This provides ultimate utility for clients, allowing them to assess the
impact of changing an element of the marketing mix without incurring the cost
of doing so.
In addition to regression analyses, it is also possible to group stores according
to different characteristics to understand the impact different conditions have
on sales performance. These analyses are often referred to as store group
analyses and together with regression analyses will be discussed further in this
section.

Regression analyses
Sales of a brand are influenced by a variety of different factors - price,
promotions, TV advertising, competitor activity, etc. The impact of each factor
will differ in magnitude.
Using store level data, which enable the measurement of the within store
change in sales against the within store change in price/marketing condition, it
is possible accurately to quantify the impact of each variable on brand sales
via a custom multiple regression model.
Sales = f (base price + promotional price + in store materials + print ads +
displays + multi-buys + link saves + special packs + television advertising
+ consumer promotion + seasonality + etc.)
Store level data are not only the most accurate sales data available, they also
avoid having to use averages such as 'average price'. The issues associated
with using 'average price' were outlined in the previous section.
Most importantly, store level data have an abundant supply of sales
observations. One brand will typically have well in excess of 30,000 robust
sales observations for inclusion within any model, allowing the different
marketing variables to be very accurately isolated and their impact on sales
quantified.
Retail market measurement 267

Following construction of the model, simulations can be run to identify the


impact on sales of a change in the marketing mix - a reduction in the presence
of special pack (e.g. a pack with 10% extra free), for example.
Dedicated studies to understand the contribution of everyday price,
advertising or promotions, using the same techniques as above, are described
below:

Base price elasticity


One of the most important issues in marketing is understanding how sales
respond to changes in everyday (base) price. To understand this, an analysis of
base price elasticity can be conducted assessing:
o How sensitive are a product's base sales to a change in base price?
o How sensitive are a product's base sales to changes in the competitor's base
price?

The answers to the above questions can help manufacturers better manage
everyday price. This analysis is useful for strategic marketing decisions.
Specifically, a manufacturer can use this analysis to evaluate historical sales
response to changes in price and use this to measure what may result from
future price changes.
The base price elasticity (degree of sensitivity) of a product is determined
through a store-level custom multiple regression model. The regression model
examines within-store changes in base sales as a function of within-store
changes in base price.
The output of the regression model can be built into a software package,
which will allow the client to play out 'what if' scenarios.

Promotional price elasticity


Consumers respond differently to everyday (long-term) price changes than
they do to promotional (short-term) price changes. It is important to
understand these two elements of pricing: everyday and promotional.
The base price elasticity analysis addresses the long-term price elasticity of the
product, while promotional analysis will explicitly address the short-term
price elasticity of the product. Typically, most clients wish to have both
elasticities quantified for their products when issues regarding price need to be
addressed.

Similarly to the base price elasticity, the promotional price elasticity (degree
of sensitivity) of a product is determined through a custom multiple regression
model built using store-level sales data. The regression model examines the
increase in sales associated with a temporary reduction in price only, or a
temporary price reduction accompanied by other trade conditions (e.g. in-store
materials, display, etc.).
58 Tim Bowles, James Brooks

An example of this form of analysis is shown in Figure 14 which demonstrates


the increase in sales which are achieved through different levels of price
discount in conjunction with other promotional initiatives.

Figure 14

600
500
0
Sales 200
400
1000
300

5 10 15 20 25 30 35 40 45 50
% Reduction in price

TPR = Temporary price reduction

Effectiveness of TV advertising on sales


The premise behind reading the effects of television advertising is that sales
over time are a function of marketing stimuli over time. In order to determine
the element that television advertising contributes to sales, a store level custom
multiple regression model is utilised.
The analysis will, typically, enable the following questions to be answered:
o What contribution to sales did television advertising make?
o What would sales have been, had the television advertising never taken
place?
o Are our television advertising campaigns more effective this year than last
year?
o Are there certain regions of the country which are more responsive to our
television advertising than others?

Knowing the answers to the above will provide extremely valuable


information. By precisely understanding the impact of television advertising,
manufacturers are equipped with the knowledge to make more effective
decisions with respect to future television advertising spending.

Store group analyses


Store group analyses have many different applications. The underlying feature
Retail market measurement 269

of these analyses is the division of the sample into sub-sets, e.g.:


those stores featuring a certain condition
vs.
those stores where the condition is absent.
An example of a store group analysis is comparing the rate of sales for stores
with different price points for a given product. An example of this is grouping
the stores by the price charged for a given product. In Figure 15 the average
sales per store week are shown for each of the price points, together with the
frequency with which the price point was evidenced. This helps to identify
critical price thresholds for a given product.
In this example several price thresholds can be seen, at which sales drop
significantly when the price is increased. This helps the client in positioning
the price of a given product.

Figure 15

A verage base sales


per store week % Frequency

300 - Product A

• % Frequency I 25
250
20
200
15
150

10
100

50

o o

Base price

Optimal mix analysis


The mix of individual lines that can be found on shelf is an important element
in maximising the overall strength of the business for a brand. For example, a
manufacturer may produce eleven variants of a given brand. However, not all
retailers will carry the entire range. So understanding the mix of these items
will assist the manufacturer in answering the following questions:
o How do my sales respond to an increasing number of items carried?
o Does a common pattern exist, where the same 'core' items should always be
carried?
270 Tim Bowles, James Brooks

o What is the optimal mix of products when seven items are carried?
In-store custom audits
Observable data are collected, at bar-code level, by the fieldforce using hand-
held scanners (typically at the same time as collecting causal data outlined in
the previous section). This can be matched to sales data for the same group of
stores in order to provide insight into the impact of the in-store positioning of
a brand on sales.
The information can be used in the following ways:
o Determine the number of facings for a selection of chosen products.
o Ascertain the position on shelf of a product or range of products.
o Identify if a product is under or over-faced given the share of shelf space
allocated versus brand share.
o Assess if a product performs better when it is located above, below or
adjacent to a complementary or competitor product.
o Determine how a product performs in stores where there is one facing
versus in stores where there are a greater number of facings.

RETAIL MARKET MEASUREMENT: COMMERCIAL REALITY

The previous sections of this chapter have demonstrated that the transition of
retail market measurement from audit to scanning based technology has led to
a 'sea change' in the services available. This in turn has dramatically changed
the context in which these services are used.
The primary use of these services is at the retailer and manufacturer interface.
The retailer is the custodian of shelf space and hence the sales opportunity for
manufacturers. As competition between brands increases the battle for shelf
space becomes ever more critical. In addition these brands are also competing
with the retailer's own products. This fierce competition, together with a much
enhanced service base, has driven the concept of data-driven marketing. In an
environment in which marketing decisions are made on fact-based data it is
critical that retailers and manufacturers truly understand the factors which are
driving sales. In reality retail market measurement has changed radically from
an industry concerned with tracking and monitoring sales to one which is
concerned with understanding the factors which drive sales.
The examples of the services provided in previous sections allow the
manufacturer and retailer to manage the key areas of:
o pncmg
o rangmg
o promotional planning
o new product introductions.
Retail market measurement 271

The above have been identified as four of the key areas for focus within
category management and efficient consumer response initiatives by both
retailers and manufacturers alike.
The advent of category management over recent years has put greater focus on
using fact-based information to tackle some of the issues highlighted below:

Pricing
a What is the significance of different price points to consumers?
a What is the optimum price gap between brand X and brand Y?
a How will sales respond to a 10% increase in the base price?
a Will a drop in price of 10% generate sufficient sales to cover costs?
Ranging
a Identify items which are performing well in the market but not stocked by a
particular retailer.
a Identify high growth areas with the potential for own label development.
a Assess which categories over or under perform compared with the norm.
a Identify which categories offer the greatest potential for growth.
a Identify items with a high rate of sale with a low distribution and vice versa
to determine which items could be substituted.
a Determine optimum product mix to generate the highest rate of sale for the
total category.
Promotional planning
a Establish which products respond best to promotions.
a Identify the most effective promotional mechanic for an individual product
(e.g. is' a gondola end more effective than a 10% price reduction)?
a Assess the profitability of any given promotion.
a Forecast likely stock requirements for an up-coming promotion.
a Forecast impact of different levels of promotional price.
o Identify the impact at the category level of promoting an individual product
or line.

New product introduction


o Weekly sales data, by store, allow the impact of sales of new items to be
monitored.
o Identify high growth areas with the potential for own label development.

As can be seen, the answers to the issues raised represent a great opportunity
both for manufacturers and retailers alike, in more efficiently managing their
respective businesses. The reality is that rather than being a research
272 Tim Bowles, James Brooks

mechanism, continuous data have now become an integral part of business


management.
The analyses only really scratch the surface in the power of retail-based data.
The next stage is sure to be an even greater exploitation of store-by-store data
which allows decisions to be taken, not just at a total chain level but at an
individual store level. This will allow both retailers and manufacturers fully to
exploit the wealth of information by tailoring their marketing programmes to
the individual store environment.
There is, however, a sting in the tail. These types of services are only possible
where retailers agree to participate. They have their greatest value the more
transparent the data in the marketplace becomes. At its most transparent, a
retailer will make its own sales available to a manufacturer in order that the
manufacturer can invest in developing both its own and the retailer's business.
This is an increasing trend within the data market.
The thirst for information is not limited to retail-based data. Given the issues
which data are now being used to address, integrating retail data with other
data sources, e.g. internal data, geodemographics, profit information and
advertising spend, is critical in order for clients to be able to take informed
decisions.

ACKNOWLEDGEMENTS

The author appreciates the contributions of Mario Lesser, AC Nielsen; and from
Peter Buckley, Mike Campbell, Bruce Dove, Mark Dye, of IRI InfoScan.

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