Are you following the money?
The basketball fans amongst you will know that it is currently the 2016-17 NBA finals.
This year’s final is between the Golden State Warriors and the Cleveland Cavaliers. It is a repeat of the 2015-16 final (Cleveland won 4-3). It is also a repeat of the 2014-15 final (Warriors won 4-2).
Coincidence? Not really. This follows a pretty consistent pattern in the NBA. Up to last year, 20% of NBA franchises (teams) have won 75% of the championships. Indeed just two franchises – Boston Celtics and the LA Lakers – have won nearly half of all the championships in NBA history.
It is similar in other sports. Real Madrid has just won their 3rd Champions League in 4 seasons. In the football World Cup, 77 different nations have competed in the World Cup finals, but just 3 countries – Brazil, Germany, Italy – have won 13 of the 20 tournaments.
These are all variations of the Pareto Principle. This derived from Vilfredo Pareto’s observation that only a “vital few” of the peapods in his garden produced the majority of peas. And it applies just as much in our world – a high % of retailer sales will come from a small % of shoppers. A high % of category sales will come from a small % of SKUs.
Why are we talking about this? Well, we find that in our industry a lot of time, energy and resource is focused on trying to sell the things that don’t sell very well instead of the things that do sell well.
The classic example of this is the amount of resource that goes into a lot of NPD – a new flavour or variant. People work on it for 6 months, sometimes longer. It launches with decent support. But it ends up selling as much as your 6th or 7th best selling SKU. It might last 12 months on shelf before it is replaced – probably by another new flavour or variant.
Yet there are SKU’s that sell 5x or 10x that amount, that are given little or no support. These are the ones that make a big difference. For instance, a 1% shift in sales of bananas is worth a lot more than a 1% shift in the sales of organic figs.
So, how can you focus attention on the stuff that sells and sell more of it?
Distribution. Go deep with the winning SKUs. It still surprises us how many distribution opportunities there are for big sellers. It could be deeper distribution within current channels and retailers, or distribution in new ones. Most importantly, it is about prioritised distribution. If you can only sell 4 SKUs in an outlet, do you know what those 4 SKUs are? And do distribution figures reflect this? Often they don’t.
This can be particularly important in channels like convenience where stock is often bought through wholesalers. Is it clear to the retailer which SKUs to prioritise in which order? What is the most important SKU to stock? What is the next most important? Don’t sell Lynx Apollo when you could be selling Lynx Africa.
NPD. Favourites rarely go out of fashion. Lead flavours are typically lead flavours for a long time. This sometimes gets forgotten when NPD is launched. New or different is often prioritised over traditional. Yet, it is often traditional that shoppers want to buy.
For instance, Lucozade initially launched ‘Zero’ last year with Pink Lemonade and Orange flavours. But they followed up earlier this year with Original flavour. Why? Apparently, it was the most requested flavour since Zero’s launch. When Robinsons Squash’d updated its range a few months ago it replaced Orange & Peach with Orange. Why? Again, it was the most requested flavour.
A big question – are you selling the things that you most want to sell or the things that shoppers most want to buy?
Repeat Purchasing. Locking in shopper loyalty to winning brands and SKU’s. It is ironic that a lot of the investment that goes to leading SKUs goes on price promotions. Many leading brands and SKUs sell an incredibly high % of volume on deal. This encourages promiscuity (shoppers buy whichever brand is on deal) not loyalty. And it is expensive – you might win this purchase but you have to compete just as hard to win the next purchase.
Could you use promotional activities to incentivise shoppers to be loyal? And perhaps spend less money doing it? For instance, if a shopper buys Yeo Valley products they can collect ‘Yeokens’. It costs much less than a price promotion and is unique to the brand. Could you offer a % discount to shoppers who buy your brand each time – a version of Subscribe & Save? Most brands could offer a 20% discount per purchase and still spend (much) less than they do currently through price promotions.
So, ask yourself, are you following the money? Have you got enough resource focused on the stuff that sells?
Like having a bet on Ronaldo to score the first goal and Real Madrid to win last week. It is not the most imaginative bet. But it is often the best bet.
On a separate note, our monthly article in The Grocer goes out in tomorrow’s edition . There is a link to it on our website…http://www.insight-traction.com/learning-from-waitrose/
Have a great weekend and speak to you next week.