Jim Hertel, Senior Vice President
Seismic shifts are undoubtedly taking place in the consumer packaged goods industry. New initiatives such as click-and-mortar retailing, digital promotions, zero-based budgeting, localization, and personalization, are on every strategist’s short list. Industry veterans have learned to keep an even keel as they navigate the ebb and flow of the industry. In the past, many companies embraced a “wait-and-see” mentality as a means of protecting their hard-earned profits. Executives, faced with massive waves of change, understood they could not be on the bleeding edge of every new movement. They would let the early adopters lead the way. Once the waves of change became more manageable, these laggards would catch up – and they would do so more efficiently than the early adopters. We think that mind-set is becoming outmoded and is dangerous thinking.
The Three P’s of Advanced Analytics
Predictive and prescriptive analytics have the potential to widen the gap between leaders and laggards. However, the third P: perspective, is likely to sink companies opting to wait-and-see. Companies that successfully extract actionable insights using predictive and prescriptive analytics, then combine these insights with new perspectives, will capture market share at disproportionate rates. Consequently, the distance between leader and laggard will become unsurmountable.
A Case in Point: The Beverage Aisle
|Purpose:||Expand the Bottled Water category within the Beverage Aisle|
|Categories:||Alternative Beverages (ready-to-drink teas and coffees)
Bottled Water (flat, mineral, and sparkling)
Functional Beverages (sports, energy, and hybrid drinks)
Juice (shelf-stable juice, juice drinks)
|Primary Data Source:||SuperStudy™|
|Strategy/Perspective:||Use the retailer’s True Profitability as the basis for category expansion|
Bottled Water generates 30% of the beverage aisle’s true profits in just 17% of its space.
Categories like Carbonated Beverages, Juice, and Alternative Beverages take up a higher share of space than the profits they generate, making them likely candidates for space optimization.
As illustrated below, Bottle Water also generates the highest true profit for every unit sold. Each time a Bottled Water SKU is purchased, it delivers more profits to the retailer than any other SKU in the Beverage category. At the opposite end of the spectrum is the Carbonated Beverages category, which creates a negative True Profit (True Profit accounts for the retailer’s operating costs.) An average SKU in the Carbonated Beverages category generates a negative return, and it’s the highest volume category in terms of weekly movement.
This is a solid example of how new perspectives (retailer’s True Profit) can drive incremental growth. However, using the same SuperStudy™ data, sales personnel can expand their perspectives.
Traditionally, sales analysts, and category managers have focused on their respective categories. Now, decision-makers can include True Profit from a total store perspective as they assemble their growth strategies.
For example, comparing the SuperStudy™ data from the Beverage aisle with other categories, aisles, or even departments, might reveal additional financial gains for the manufacturer, as well as the retailer. In the example above, one perspective is to reallocate space by decreasing Carbonated Beverages and increasing Bottled Water. While that is certainly a victory for the Bottled Water manufacturer, it still may not be optimal. Perhaps Beverages are outperforming the Salty Snacks category. This would create a financially sound recommendation to redistribute space, bringing even more growth potential to the Bottled Water manufacturer.
Advanced analytics bring significant insights into the decision-making process. However, combining these insights with new perspectives can deliver game changing results. In other words, business intelligence properly applied becomes business wisdom.
Click here to learn more about incorporating retailer and total-store profitability into your sell-in strategies.