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Chapter 8
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
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
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
THE BAR-CODE
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
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
Figure 4
PERCENTAGE SCANNING PENETRATION
100
90
80
70
60
50
40
30
20
10
i ·~~ j j
f J ~ J ~ j
<
.[~~~.~~
(/) ~ ...• ~ ~
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.
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
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.
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
Once the broad trade sectors to be covered have been identified, the next step
is to establish the universe.
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
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.
Figure 8
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.
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
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
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
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
*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
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).
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"""
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
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
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
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
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
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.
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.
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
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.
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
Figure 14
600
500
0
Sales 200
400
1000
300
5 10 15 20 25 30 35 40 45 50
% Reduction in price
Figure 15
300 - Product A
• % Frequency I 25
250
20
200
15
150
10
100
50
o o
Base price
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.
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.
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
ACKNOWLEDGEMENTS
The author appreciates the contributions of Mario Lesser, AC Nielsen; and from
Peter Buckley, Mike Campbell, Bruce Dove, Mark Dye, of IRI InfoScan.