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Distribution Measures This module covers the concepts of numeric distribution, all commodity volume (ACV), product category volume (PCV) and out-of-stocks. Author: Paul Farris Marketing Metrics Reference: Chapter 6 2010-14 Paul Farris and Management by the Numbers, Inc.

Measures of Distribution Measures of distribution help managers understand the dynamics in the retail channel and improve their decisions for expansion and growth strategies. This overview explores three measures of distribution coverage: Numeric Distribution All Commodity Volume (ACV) Product Category Volume (PCV), including the impact of outof-stock on net PCV. MEASURES OF DISTRIBUTION Definition Stock Keeping Unit (SKU) is a unique identifier for each distinct product or service that can be purchased. You will see SKU referenced throughout this presentation. A brand will typically include many unique SKUs. MBTN Management by the Numbers 2

Definition Numeric Distribution Numeric Distribution: a percentage measure of stores that stock a given SKU or brand compared to the universe of stores in the relevant market. = (# stores that stock a brand or SKU) / (total stores in relevant market) NUMERIC DISTRIBUTION Insight The number of physical stores involved in your supply chain has implications for delivery systems, cost of servicing, and market share. MBTN Management by the Numbers 3

Calculating Numeric Distribution Outlet All All Madre s Tortillas SKUs Padre s Tortillas SKUs Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING NUMERIC DISTRIBUTION Numeric Distribution Example: The numeric distribution of Madre s brand s is calculated as follows: Numeric distribution = (stores carrying Madre s) / (total # of stores) Numeric distribution = (3) / (4) = 75% Question 1: What is the numeric distribution of the 12 ct pack of Padre s Tortillas? MBTN Management by the Numbers 4

Calculating Numeric Distribution (Solution) Outlet All All Madre s Tortillas SKUs Padre s Tortillas SKUs Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct Answer: The numeric distribution of the 12 ct pack of Padre s brand s = (stores carrying 12 ct Padre s) / (total # of stores) Numeric distribution = (2) / (4) = 50% 2 stores CALCULATING NUMERIC DISTRIBUTION (SOLUTION) MBTN Management by the Numbers 5

Definition All Commodity Volume (ACV) All Commodity Volume (ACV): a percentage measure of the total dollar volume of retail of stores stocking an SKU or brand versus total dollar volume in all categories. ACV (%) = (total of stores carrying a brand) / (total all stores) ALL COMMODITY VOLUME (ACV) ACV is a better measure of the total traffic that goes through the stores that stock your product or brand than numeric distribution. However, it does not say anything directly about how well those stores merchandise and compete in the relevant product category. MBTN Management by the Numbers 6

Outlet All All Calculating % ACV Madre s Tortillas SKUs Padre s Tortillas SKUs Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING % ACV ACV Example The % ACV of Madre s brand s is calculated as follows: % ACV = (total of stores carrying Madre s) / (total all stores) % ACV = ($100k + $75k + $50k) / ($100k + $75k + $50k + $40k) = 84.9% Question 2: What is the % ACV of the 12 ct pack of Padre s Tortillas? MBTN Management by the Numbers 7

Calculating % ACV (Solution) Outlet All All Madre s Tortillas SKUs Padre s Tortillas SKUs Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct these stores CALCULATING % ACV (SOLUTION) Answer: The % ACV of the 12ct pack of Padre s brand s is: % ACV = (total of stores carrying 12ct Padre s) / (total all stores) % ACV = ($100k + $40k) / ($100k + $75k + $50k + $40k) = 52.8% MBTN Management by the Numbers 8

Definition Product Category Volume (PCV) Product Category Volume (PCV) represents the share of category by the stores that stock your brand. Note that the term, Product Category Volume, is not an industry standard. PCV (%) = (category of stores carrying a brand) / (total category for all stores) PRODUCT CATEGORY VOLUME (PCV) Insight When PCV is available, it is a better indicator of where consumers look to buy a particular category of product or service. Often marketers use ACV as a rough surrogate for PCV, but the risk of using ACV alone is over-emphasizing high traffic stores where a product category may be available, but not purchased at a rate indicative of the store s overall volume. MBTN Management by the Numbers 9

Outlet All All Calculating % PCV Madre s Tortillas SKUs Padre s Tortillas SKUs Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct CALCULATING % PCV PCV Example: The % PCV of Madre s brand s is: % PCV = ( of stores carrying Madre s) / ( all stores) % PCV = ($1000 + $500 + $300) / ($1000 + $500 + $300 + $400) = 81.8% Question 3: What is the % PCV of the 12 ct pack of Padre s Tortillas? MBTN Management by the Numbers 10

Calculating % PCV (Solution) Outlet All All Madre s Tortillas SKUs Padre s Tortillas SKUs Store 1 $100,000 $1000 12 ct, 24 ct 12 ct, 24 ct Store 2 $75,000 $500 12 ct 24 ct Store 3 $50,000 $300 12 ct, 24 ct none Store 4 $40,000 $400 none 12 ct, 24 ct these stores CALCULATING % PCV (SOLUTION) Answer: The % PCV of the 12ct pack of Padre s brand s would be: % PCV = ( of stores carrying Padre s 12ct) / ( all stores) % PCV = ($1000 + $400) / ($1000 + $500 + $300 + $400) = 63.6% MBTN Management by the Numbers 11

Store versus Brand or SKU Measures These metrics can also be applied to particular chains. For example, numeric distribution of a chain would equal the number of stores in a particular chain divided by the total number of stores in the market. Marketers often refer to a grocery chain s ACV. This may be either a dollar number (the chain s total of all categories in the relevant geographic market) or a percentage (their share of those dollar ). Finally, marketers sometimes refer to a chain s share of a specific category s in a market. This is equivalent to the chain s % PCV, as defined earlier. STORE VERSUS BRAND MEASURES Insight: Comparing the ratio of a specific chain s % PCV with its % ACV provides insight into whether the chain is performing above or below average in selling a particular category as compared to other stores or chains in the relevant market. If the ratio of (PCV / ACV) > 1 that means that chain is performing comparatively better in the particular product category in question than the other chains. MBTN Management by the Numbers 12

Outlet Working with Chains (Examples) # of Stores All chain All Madre s Padre s Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 12 ct, 24 ct Chain 2 12 $750,000 $5,000 12 ct 24 ct Chain 3 10 $500,000 $3,000 12 ct, 24 ct none Chain 4 20 $300,000 $4,000 none 12 ct, 24 ct Insight: WORKING WITH CHAINS (EXAMPLES) Comparing the ratio of a specific chain s % PCV with its % ACV provides insights about whether the chain is performing above or below average in selling a particular category as compared to the store or chain s overall. % PCV Chain 1 = 45.45% % ACV Chain 1= 39.2% Chain 1 ratio of PCV to ACV = (45.45%) / (39.2%) = 1.16 The ratio is greater than 1. Thus, Chain 1 is performing comparatively better in the particular product category in question than the other chains. MBTN Management by the Numbers 19

Out-of-Stocks Being listed by a chain means that the headquarters buyer has authorized distribution of the brand/sku at the store level. For various reasons, being listed does not always ensure presence on the shelf. Local managers may not approve distribution or the product may be distributed, but out-of-stock. OUT-OF-STOCKS Out-of-stocks are often expressed as a percentage. Be careful to note whether the percentage is numeric, ACV, PCV, or percentage of distributing stores for a given chain. MBTN Management by the Numbers 20

Outlet Definition Calculating PCV Net of Out-of-Stocks # of Stores All chain All Madre s PCV Net of Out-of-Stocks: the sum of the % PCV of each chain multiplied by (1-% OOS) Avg. Out-of- Stocks for Madre s SKUs Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 5% Chain 2 12 $750,000 $5,000 12 ct 10% Chain 3 10 $500,000 $3,000 12 ct, 24 ct 12% Chain 4 20 $300,000 $4,000 none none CALCULATING PCV NET OF OUT-OF-STOCKS Question 7 What is the PCV Net of Out-of-Stocks of Madre s Tortillas? MBTN Management by the Numbers 21

Outlet Calculating PCV Net of Out-of-Stocks (cont.) # of Stores All chain All Madre s Tortillas SKUs Avg. Out-of- Stocks for Madre s SKUs Chain 1 25 $1,000,000 $10,000 12 ct, 24 ct 5% Chain 2 12 $750,000 $5,000 12 ct 10% Chain 3 10 $500,000 $3,000 12 ct, 24 ct 12% Chain 4 20 $300,000 $4,000 none none Answer: Total all = ($10,000 + $5,000 + $3,000 + $4,000) = $22,000 % PCV Chain 1 = (($10,000) / ($22,000)) x (1 -.05) = 43.2% % PCV Chain 2 = (($5,000) / ($22,000)) x (1 -.10) = 20.5% % PCV Chain 3 = (($3,000) / ($22,000)) x (1 -.12) = 12.0% CALCULATING PCV NET OF OUT-OF-STOCKS (CONTINUED) PCV Net of OOS of Madre s Tortilla s = 43.2% + 20.5% + 12.0% = 75.7% MBTN Management by the Numbers 22

Further Reference Marketing Metrics by Farris, Bendle, Pfeifer and Reibstein, 2 nd edition, chapter 6. FURTHER REFERENCE MBTN Management by the Numbers 23