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CPG Jargon Buster Master Article

January 20, 2023August 8, 2023 by adminin ACV, Average Items Carried, Brand Manager, CPG, CPG Jargon Buster, decision-making, Explorazor, FMCG, Nielsen, Nielsen Database, sales, Sales Managers, Sales per Million, Total Distribution Points, VelocityLeave a Comment

Hello, and welcome to the knowledge hub that is the CPG Jargon Buster Master Article!

Here you will find direct links to many relevant jargon/concepts in the CPG Industry. Each term is explained in brief below, with a link to the detailed blog at the end of it.

We keep adding more jargon as we write about them, so be sure to bookmark this page and keep learning! We’re also creating a FANTASTIC CPG-specific product for optimal and super-easy data exploration – you might want to check Explorazor out!

Till now, we have covered

ACV

ACV stands for All Commodity Volume. It is used in the calculation of %ACV (obviously, but the term ‘ACV’ is often used interchangeably with %ACV, so one needs to be mindful of that).

ACV is nothing but the total monetary sales of a store. Assessing the ACV of a retailer helps suppliers know which outlet presents the best sales potential based on its business health.

Learn how to calculate ACV using Nielsen data and how ACV relates to %ACV

Read more: What is ACV in CPG?

%ACV

A more comprehensive blog than the ACV blog above, %ACV, or %ACV Distribution, helps managers understand the quality of their distribution networks. You might wonder why a product is not selling well in a region despite being apparently well-distributed there. A deep analysis of metrics such as %ACV will help you resolve that.

Read the blog to understand how to calculate %ACV, and the 5 points to consider when performing the calculations:

Read more: What is %ACV?

Velocity

Velocity is another metric to study distribution. Velocity factors the rate at which products move off the store shelves once they are placed there.

Managers can take charge of sales by utilizing velocity fully, and understanding the two major velocity measures – Sales per Point of Distribution (SPPD) and Sales per Million. Refer to the blog to learn what these measures are, with examples to help. As Sales per Million is a complex concept we’ve also explained it separately in another blog:

Average Items Carried

This is the average number of items that a retailer carries – be it of a segment, brand, category, etc. For example, suppose that Brand X has 5 products/items under its name. Average items Carried would be from a retailer’s perspective – he could be carrying 2 products, or 2.5 products, or 4 products of Brand X, on average.

AIC is one of the 2 components of Total Distribution Points (TDP), the other being %ACV Distribution. The blog explains the relationship between AIC and %ACV with respect to TDP (Total Distribution Points), using examples to simplify.

Learn why AIC and %ACV are called the width and depth in distribution, and how to calculate AIC in Excel:

Total Distribution Points – Basics

Total Distribution Points, or Total Points of Distribution, is again a distribution measure, considering both %ACV and Average items Carried to produce a TDP score that helps Brand Managers understand things like product distribution and store health, and base their future strategies accordingly.

There’s also a method for managers to know whether their brand is being represented in a fair manner on the retailer’s shelf, using TDP. Learn how to calculate TDP and the special case of TDP if %ACV is 95 or above:

Sales per Million

How do you compare two markets where one is many times larger than the other? Does a manager simply say “It’s a smaller market, thus sales are less” and be done with it? Shouldn’t s/he investigate if the products in the smaller market are moving as fast as they are in the larger market?

Sales per million helps compare across markets, while controlling for distribution. It accounts for the varying Market ACVs and stabilizes them, so managers can find how each product is doing in each market, regardless of market size.

Learn how to calculate Sales per Million with a cross-market comparison example following it:

Read More: Sales per Million

Panel Data Measures

Nielsen and IRI provide the numbers for these 4 measures, and even those who do not use Nielsen/IRI need to have an understanding of household-level analysis using these 4 measures.

Here are the one-line introductions:

Household Penetration

How many households are buying my product?

Buying Rate

How much is each household buying?

Purchase Frequency and Purchase Size are sub-components of Buying Rate.

Purchase Frequency (Trips per Buyer)

(For each household) How often do they buy my product?

Purchase Size (Sales per Trip)

(For each household) How much do they buy at one time?

These 4 measures in table format can be used by managers to understand the consumer dynamics that drive the total sales for their product.

Understand these 4 measures in detail, and how they relate to sales:

Read More: Panel Data Measures

Market Basket Analysis

Market Basket Analysis (MBA) is a powerful data mining technique used in the CPG industry to analyze customer purchase behavior and identify relationships between products.

Learn how Market Basket Analysis can help you gain valuable insights into consumer behavior in the CPG industry.

Read more on: Market Basket Analysis

Point of Sale

The consumer packaged goods (CPG) industry is a highly competitive market, and companies need to make informed decisions to stay ahead.

One tool that CPG companies use to make data-driven decisions is Point of Sale (POS) data.

Learn how CPG and Pharma companies optimize their performance using Point of Sale

Customer Segmentation

Customer segmentation, is a technique that helps you divide your audience into distinct groups based on their characteristics, behavior, or preferences.

By doing so, enterprises can tailor your strategies to each segment’s specific needs, improving your chances of success.

Read more on: Customer Segmentation

Price Elasticity of Demand

Price elasticity of demand is calculated by dividing the percentage change in the quantity demanded of a product by the percentage change in the price of that product.

The resulting number is a measure of how sensitive the quantity of the product demanded is to changes in its price.

The formula for calculation Price of Elasticity is:

Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)

Check out our blog on how CPG companies take decision on the basis of Price Elasticity.

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PRODUCT TOUR

Sales Per Million

January 16, 2023August 8, 2023 by adminin Brand Managers, CPG, Nielsen Database, Retail, sales, Sales per Million, VelocityLeave a Comment

Sales per million is the great equalizer. It is used to measure how fast your products are moving off the shelves in stores where they are in distribution, while controlling for distribution.

What this means is, suppose there are two markets where one is bigger than the other. Now how do you know if the smaller market sells at the same rate as the bigger market? Is the smaller market selling less because of market size, or is consumer demand weak in that area? Or, on the contrary, do products move faster in the smaller market?

Sales per million takes into account the varying Total ACVs of different markets and stabilizes them in the denominator in its formula. Let’s look at the formula and then an example:

HOW TO CALCULATE SALES PER MILLION

Sales per Million is calculated as:

Sales

%ACV distribution X (Market’s ACV ÷ 10,00,000)

‘Sales ÷ %ACV Distribution’ is the formula for ‘Sales per Point of Distribution (SPPD)’ which is used for checking velocity within a single market, or a single retailer.

Also, ‘Sales’ here can be expressed in terms of units as well as in terms of rupees/dollars.

Market ACV has to be taken in the denominator to account for the size difference in ACV. Market ACVs are very large numbers, so we denote them in millions.

EXAMPLE – SALES PER MILLION

With the theory cleared, let’s understand the concept in practicality through an example:

Let’s suppose that the Mumbai market is 3x larger than Pune. The numbers below point to the same:

Observe that Pune’s Market ACV is significantly lesser than that of Mumbai.

Now, let’s calculate Sales per Million using information from the above table:

For Product 1, Mumbai –

Sales = 65,000

%ACV Distribution = 80

Market ACV Size = 120 million

Sales per Million

= 65000 ÷ [(80/100) x (120 million / 1 million)

= 65000 ÷ [0.80 x (120)]

= 677

Similarly for all.

Pune’s sales velocity compared to Mumbai

For Product 1, is essentially the same
For Product 2, has some discrepancy, but not too much
For Products 3 and 4, is very low

What’s the benefit here?

With the stakes equalized, we note that Product 3 and Product 4 are actually not doing well in Pune, and that cannot be attributed to Pune being a smaller market. The actual reason may lie in a weaker consumer demand, or lack of a suitable strategy for the city, or any other reason.

It was calculation using Sales per Million that helped us identify that Pune needs more attention if products are to do well there.

Note that one can use Sales per Million instead of SPPD (Sales per Point of Distribution) for single market/retailer calculation as well. While SPPD is easier to perform, managers who prefer uniformity in calculations do opt for Sales per million as against SPPD.
Refer to the blog on velocity for more detail on SPPD and Sales per million. Also invest 10 minutes each day to learn about ACV, %ACV, Average Items Carried, and the basics of TDP.

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Product tour

ALL About Velocity / Sales Rate in CPG

January 9, 2023August 8, 2023 by adminin CPG, FMCG, Nielsen, Nielsen Database, VelocityLeave a Comment

Blog snapshot:

What is velocity, and why is it important to focus on this measure? After learning about ACV and %ACV in our CPG Jargon Buster Series, let’s have a look at what velocity is, its relation to sales and distribution, how to calculate it, and what the two major velocity measures are:

WHAT IS VELOCITY?

While distribution tells you how well your product is distributed in the market, or how widely available it is, velocity tells you well it sells once it is on the shelf. Velocity is the measure you want to look at when judging which product is the best-selling or most preferred by consumers, not distribution.

VELOCITY’S RELATION TO SALES AND DISTRIBUTION

When velocity and distribution are combined, one arrives at retail sales. Thus,

Sales = Velocity x Distribution.

CALCULATING VELOCITY

The formula to calculate velocity is derived as:

Velocity = Sales ÷ Distribution.

TAKING CHARGE OF SALES THROUGH VELOCITY

It is generally considered that distribution is in the hands of the distributor, and the manufacturer can always follow up with the distributor for better product availability across geographical areas. However, if the product is not moving off the shelf, meaning that velocity is low, then the manufacturer has greater control over being able to change that.

Let’s understand this through an example, for greater clarity. Suppose 2 products, A and B, are sold equally in a market of 100 stores. Product A has good distribution but low velocity while product B is vice versa.

The table is as follows:

Market of 100 stores	Sales =	Distribution (x)	Velocity
	(units)	(stores)	(units/store)
Product A	6000	60	100
Product B	6000	100	60

We see that although distribution for product A is not very impressive, the velocity, or the speed at which the product is selling in these stores, equalizes the sales of Product B, which, although present in all 100 stores, only manages to sell as much as Product A.

In the case of Product B, the manufacturer must have a closer look at his pricing and promotional strategies. Why are people not preferring the product even when it’s available to them in the outlet? Are my competitors outdoing me in those areas, or is their product quality better, or better suited to the audience I am trying to capture? Questions like these need to be raised and answered asap.

Tools like Explorazor and its root-cause analysis function can help a lot here.

TWO MAJOR VELOCITY MEASURES:

The example we described above was one of ‘Sales per Store’. This, however, is not and should not be used in real-world scenarios as store sizes differ, which leads to biases when estimating velocity.

When looking at sales for a single retailer or within a single market, we go with the first velocity measure – Sales Per Point of Distribution, or SPPD.

SPPD = Sales ÷ %ACV Distribution

SPPD is great for understanding where the root cause of a problem lies – is it in the distribution, or the velocity? Let’s understand this further with an example:

Mumbai Market
		Distribution	Velocity
Brand	Sales (in Rupees)	%ACV Distribution	SPPD
Product 1	65000	80	812
Product 2	95000	75	1267
Product 3	70000	15	4667
Product 4	80000	20	4000

Above is an item level report for an individual market. We see that Products 1 and 2, although impressively distributed, but have poor velocity. The opposite holds true for Products 3 and 4 – %ACV is poor, while velocity is great.

Note that SPPD works only for one market, be it at the retailer level, the channel, market, or the national level. When comparing across markets, SPPD doesn’t work. Also note that a 100% or close to 100% market distribution will mean that velocity and sales will almost be the same, so managers can overlook velocity in favour of focusing on sales only.

Sales per Million

In a cross-market comparison, certain markets are naturally bigger than others. In other words, the ACV of a Large Market, call it Market L, is bigger than the ACV of a smaller market, Market S.

This is where Sales per million comes in, because it accounts for the ACV of each individual market in the denominator.

Sales per Million is calculated as:

Sales

%ACV distribution X (Market’s ACV ÷ 10,00,000)

Note that ‘Sales ÷ %ACV Distribution’ is nothing but the formula for SPPD. Market ACV, as explained above, has to be taken in the denominator to account for the size difference in ACV.

Regarding the ‘in millions’, Market ACVs are large numbers, and we simply ease our calculations by denoting them in millions.

Let’s compare Mumbai, a bigger market, to Pune, which is 3 times smaller:

Mumbai vs Pune market comparison

Clearly, Pune’s numbers are lesser than Mumbai’s because of the size discrepancy. In comes Sales per Million to level that out.

Example of how we calculated Sales per Million (in the below table) using information from the above table: