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FMCG Consultant

Which category metrics are relevant today?

Background

Different manufacturers and supermarkets use different category metrics to review the performance of a category. Historically simple measures, such as sales and share, were utilised. Over time different measures such as UPSPW (units per store per week) and ranking reports have become widely used. More recently the measures have become more granular and focus on sales in different types of stores / with types of shoppers etc.

These measures are used to rank SKUs, brands and supermarkets vs each other. In theory this analysis is ‘best’ to determine the optimal range, price etc to meet future shopper demands. The outcome should be increased shopper satisfaction and thus loyalty but do these category metrics align with shopper satisfaction?

Historic data  

COVID has been an obvious example of how quickly shopper demands and behaviours can change. Spikes in shopper demand for products such as toilet rolls highlighted that many metrics used have a fundamental flaw. The metrics are based on historic data. Historic data is not always an accurate predictor of future shopper behaviour.

Today many manufacturers and supermarkets use real time data. Due to improvements in technology (data capture, hardware and software) many businesses claim they are able to respond to changes in demand faster using real time data. As highlighted by toilet roll OOS (out of stocks) during COVID understanding there is a spike in shopper demand is only part of the solution. The ‘solution’ requires ensuring the supply chain is able to respond to shifts in shopper demands in a reasonable timeframe.

So, are category metrics based on historic data, including real time data, useful for predicting future shopper demands?

Up-ranging

As explained in my blog RIP Range Rationalisation marketplaces, such as Amazon, and hard discounters, such as Aldi, have grown sales by increasing the number of SKUs ranged. Other full-service supermarkets, such as Woolworths, are also up-ranging. Most recently Woolworths launched their marketplace , called Everyday Market, to offer shoppers even more SKUs.

Retailers are up-ranging to meet shopper demands for depth and breadth of range. So, do metrics that rank SKUs, e.g. UPSPW, align with shopper demands for depth and breadth of range? Do top selling SKUs drive shopper satisfaction or just volume? For example, for Valentines Day is a premium chocolate like Ferrero Rocher more important to a shopper than a top selling (UPSPW) 50g Cadbury Dairy Milk bar?

Personalisation

‘With customers looking for more and more individualization in the products they buy, companies must manage demand at a much more granular level, through techniques such as microsegmentation, mass customization, and more-sophisticated scheduling practices.’

McKinsey

Supply Chain 4.0 in consumer goods, 2017

For the supermarket industry personalisation is when manufacturers and supermarkets tailor the shopping experience, including the products offered, to the shoppers’ individual requirements.

A simple example of personalisation is an in-store bakery offering to write ‘Happy Birthday’ onto a cake. It is predicted the number of customised SKUs will increase in the future due to shopper demands and improvements in technology including 3D printing.

Current measures focus on comparing similar products, e.g. Coke vs Pepsi. With the industry moving towards more personalised offers, including product customisation, how relevant are these measures? For a shopper what’s more important – the top selling (UPSPW) cake or the opportunity to have a personalised message on a cake?

The overall experience

“the future of retail lies in a single word: experience”

Source: Jarrett McCraw, Forbes

How to beat the disruption of distribution in retail, Forbes, 2018

As shopper demands have changed, including personalisation, the relationships shoppers have with manufacturers and supermarkets has also changed. Historically, the relationship focused on having ‘the best product at the best price’. Today, manufacturers and supermarkets focus on delivering ‘the best overall experience’ to shoppers. An overall enjoyable experience could include a number of services such as click and collect, home delivery and D2C (direct to consumer) plus digital tools such as apps.

Current metrics generally focus on the performance of products. With shopper demands focusing more on the overall experience now how relevant are these measures? For a shopper what’s more important – the option of click and collect or a major brand, such as Coca Cola, being on shelf in store?

Shopper loyalty / satisfaction

As outlined in my blog, Who has the power? , shoppers have increasing power today.

IMHO (in my humble opinion) the industry will start to focus more on ‘loyalty’ as an indicator of category ‘success’. Simply put, with increasing levels of competition shopper loyalty is key to driving long-term financial results. Shopper loyalty is also an indicator of shopper satisfaction.

Shopper first

A major change in category metrics will be a ‘shopper first’ mindset. Previous measures, such as UPSPW, sought to identify the top selling products. The emphasis will now be what products drive shopper loyalty? For example, parents may only buy a cake with a personalised message, e.g. Happy Birthday, once or twice a year (low UPSPW). However, this customised product is key to driving long-term shopper satisfaction.

Timeframe

Currently many category reviews focus on the latest data, normally 3 months. The goal is to identify what is ‘on trend’ etc. I suggest the focus will shift to longer timeframes (years). The focus will be on building long-term relationships with shoppers, not short-term sales or hitting a budget / KPI.

Data

There are numerous data sources for loyalty such as panels and loyalty cards. These data sources will be of increasing importance to category metrics in the future. The industry will still use scan data to identify top selling SKUs etc but the emphasis will be on building long-term shopper loyalty, not short-term sales.

Customer Centric metric

This change in analysis could be labelled Customer Centric metric. The emphasis has shifted from manufacturer / supermarket business goals, i.e. maximise turnover, volume and profit. The emphasis is now on shopper satisfaction. Shopper satisfaction is often driven by low volume, personalised offers. For example, a cake with ‘Happy Birthday’ written on it may be more important to a shopper than an end of half price Coca Cola.

Summation

As outlined in my blog, Who has the power? , shoppers have increasing power today. Logically then category metrics should focus on measuring shopper satisfaction. Unfortunately, many current metrics focus on the objectives of manufacturers and supermarkets i.e. maximise turnover, volume and profit. I suggest the industry will focus more on shopper loyalty as a key category metric. This will require a change in emphasis for the industry. The emphasis will be on what products and services drive shopper loyalty, not sales volume.

The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.