My coworker Mark is obsessed with analyzing everything. He is like the Sherlock Holmes of data analysis; he observes the world in different ways and encounters analyzable information wherever he goes. Last week, we went to the neighborhood’s supermarket because we ran out of water for the office’s dispenser. The 5-gallon bottle we usually buy was sold out, so I commented that our favorite brand will experiment a significant growth this year.
As always, Mark replied: “it depends”.
There are multiple reasons why a product might not be available on the retailer’s shelf; and, also, there are several indicators we must analyze before assuming that a brand is going to obtain more or less revenue.
The only way to reach an accurate conclusion, Mark explains, is by analyzing the Sales Data available from three different sources: Manufacturers, Retailers, and Intermediaries.
“It’s like a mystery film”, Mark says. Each of these three types of Sales Data tells the story of a product’s journey. We need to investigate what happened to our product from beginning to end: when and how it left the manufacturer’s facility; how it was transported; where it went; for how long it was stored; in how many places; whether it got stuck or delivered on time; how it arrived at its final destination; how consumers received it at the point of sale.
The Three Sources of Sales Data
Knowing what these three Sales Data sources reveal is critical if we want to communicate our findings truthfully.
For example, Manufacturers Sales Data may be the most accurate and complete because the same producer originates it; however, it can be misleading if it sends the product to a wholesaler, distributor, or retailer, and it can’t reflect consumer trends.
On its side, Retail Sales Data does not represent a considerable portion of the market, but it does represent the actual purchase by a consumer, so it’s the best data we can consult if we need to determine what factors are driving the consumption decisions.
When consumer point-of-sale data is not available, Intermediary Sales Data is a good indicator of consumer trends. This type of data helps in calculating inventory for intermediary business partners, although, it may not accurately represent consumer trends because price and inventory corrections can affect it.
Now I understood that a product’s journey through Manufacturers, Retail, and Intermediary Sales Data contains reasons and evidence that I should investigate before posing the proposition: “My favorite 5-gallon- bottle water is not available; therefore, sales are growing”.
The next step, Mark keeps explaining, is to clarify what sales data does not mean.
What Sales Data Does Not Mean
Let’s say the bottled water company shipments increased by 19% this year vs. last year. Based on Mark’s recommendations, I shouldn’t state: “Consumer trends of consuming bottled water are definitely up 19%.”
I should say, instead: “the water company is billing 19% more this year than the same time last year, due to any of these possibilities:
- Consumer trends are up
- Distributors could be carrying more inventory of the product
- Wholesalers might have purchased extra inventory in anticipation of a price increase
- We recognize income from 19% more products than last year
In other words, Sales Data can be misleading if we don’t put together all the pieces of information needed to interpret it in the right way. According to cpgdatainsights.com, before reporting business results, we should look at various measures of sales.
Incomplete data will lead us to arrive at the wrong conclusions. For instance, Dollar Sales measure what consumers spend, but not what they buy; thus, dollar sales data doesn’t convey accurate values from a consumer standpoint.
In the following chart, we see how data might present partial information.
The above chart shows that Brand “A” grew faster, at +6% compared to last year. Brand “D grew only +1% compared to last year.
Robin Simon, Analytics Consultant and founder of SimonSez Consulting, explains that something is missing in this chart. She affirms that we should, additionally, find data on Equivalized (EQ volume) and Unit Sales, “especially when package sizes have changed”.
Conversely, the chart below shows complete and accurate information. The EQ sales trends aid in identifying the reasons why dollars are up or down. It tells if people are buying more product or if prices are just going up.
Robin Simon shows, through the above example, that when we obtain data on three different measures of sales –Dollar, Unit, and Equivalized Sales-, we can understand and explain the reasons behind product and consumers’ behavior. After analyzing the above chart, she concluded:
- In Brand A, “the average price per unit is higher, but each unit is, on average, a smaller size. In an attempt to maintain profit margins in the face of rising transportation and raw materials costs, in the last few years, some manufacturers raised their package price while also making the packages smaller.”
- In Brand B, “there are growing dollar sales, fewer units sold and higher EQ volume. This can happen when larger size “value packs” are introduced.”
- In Brand C, “we see growing dollar and unit sales, but declining EQ volume. This happens when there is no real change in average unit price but each unit is smaller. This situation has been quite common in the last few years as manufacturers have downsized their packages while maintaining the same unit price.”
- In Brand D, Simon observes “slightly higher dollar sales but declining unit and EQ volume sales. This can happen when the average package size stays the same, but average price per package increases – another way for manufacturers to maintain profit margins when their own costs are going up.”
I learned my lesson. I understood that multiple factors like consumer trends, inventory and distribution level, may contribute to the absence of the 5-gallon bottle of our favorite water brand. After reading Simon’s explanation on the three measures of sales, I also realized that the same brand of water was still available in smaller sizes like 8oz and 16oz. Maybe the producers were shipping larger quantities of smaller sizes. Mark insists that the more we know about a product’s data, the more accurate of a story we can tell about it.
If you think my story will help a friend, please share this article. Let me know about your story and goals. I’m here to listen.
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