What is Weighted Distribution in FMCG
Sales: management and control. Distribution - what is this indicator? Quantitative and qualitative distribution definition
The weighted distribution gives a qualitative / weighted estimate of the level of product distribution in retail stores. Not only is this numerical, but the percentage of stores that sell (have in stock *) a given product based on the total number of stores, but only taking into account the weight of the stores.
Usually the weight corresponds to the sales volume of the category. ACV-weighted distribution (if ACV (all goods values or sales of all product categories) is used as weight) or product group-weighted distribution (if sales of a product group / product segment are used as weighting parameter)
When calculating the simple or standard weighted distribution (when using category sales as weight), the formula for calculating the weighted distribution can also be represented as follows:
Weighted distribution \ u003d sales of a category in stores where the product is sold (warehouse *). ÷ Total sales of a category in all stores
*) The use of inventory information is only relevant for markets in which manual audits are carried out
An example of the difference between numeric and weighted distribution:
|universe||Product presentation X.||Category Y sales.|
|Business No. 1||1||10|
|Shop No. 2||1||20|
|Shop # 3||0||10|
|Shop No. 4||0||50|
|Shop No. 5||1||20|
Weighted distribution (1 * 10 + 1 * 20 + 0 * 10 + 0 * 50 + 1 * 20) ÷ 110 \ u003d 50 ÷ 110 \ u003d 45.5%
Distribution Efficiency Ratio \ u003d Weighted Distribution ÷ Numerical Distribution
In this example 45.5% ÷ 60% \ u003d 0.758
A very rare situation is simulated here when the numerical distribution of a brand is higher than the weighted one and the efficiency coefficient is accordingly less than 1. This indicates the inefficiency of the distribution in terms of category sales.
Usually, in an absolutely overwhelming number of cases, everything is exactly the opposite (the weighted distribution is more numerical). And then the value of this coefficient in comparison of indicators of several brands or changes in the Vin of dynamics. An important note: The comparison of these coefficients with each other only really makes sense if the distribution values of brands are relatively close to each other, while the distribution efficiency coefficient for two brands is compared with a numerical distribution of 10% and 90%, for example, are practically meaningless.
For a more correct comparison of the effectiveness of weighted distributions for products with removed values, or in general for a finer adjustment of the comparison, it is necessary to use the ratio of weighted distributions to the corresponding parameter of the concentration (cumulative, increasing) sales curve of the category. This is described in detail in the section “Concentration Curve (Cumulative Curve)”.
Different indicators for the weighted distribution:
As with the numerical distribution, the weighted distribution can differ in the method used to collect information. There are Weighted Selling Distribution, Weighted Net Distribution, Weighted Purchasing Distribution and Weighted Handling. At the moment, in analogy to numerical distribution, agencies only provide information about the distribution of weighted sales due to the spread of electronic collection of information compared to manual information.
As mentioned above, there is also a difference between the weighted distribution of the category (it is also the standard weighted distribution or simply the weighted distribution), the ACV weighted distribution, and the weighted distribution of the product group. With only information about the standard weighted distribution, you cannot calculate the ACV-weighted distribution and the group-weighted distribution without the help of the agency.
Qualitative and quantitative distribution
Quality and quantity distribution are two terms that are used very often by both the sales team in communication and in the company's commercial departments. If you look at the literature, it is not difficult to convince that the interpretation of these sentences is different in different sources because they have no clear explanation and concept. Many interpret them in their own way. In most cases, however, the meaning remains the same, you just change the places of the names.
The quality distribution indicates the number of types of goods at a point of sale (shop). You need to understand that focusing on high quality sales does not result in large sales because the relationship between the stores and the agent is strained. The reason for this is the refusal to invest money in a product that is difficult to buy or sell or there is no information about the consumer characteristics and properties of that product. The latter usually happens when the item is new. In this case, the store check is used to analyze the presence of goods in retail stores, divide them into groups, and determine the required range of goods in each group. The representative should put this range on the shelves.
The quantitative distribution also determines, as you can guess by the name, the number of retail stores that work with a trading company in a given area. The calculation can be carried out using the following formula: number of employees at TRT (retail and retail business) / number of all TRTs in a certain area * 100%. It is necessary to conduct a census of all retail stores and retail stores in the area and count the TRT generated. It must be noted that the counting should be done at the actual addresses as stores sometimes work for more than one legal entity at the same address and the sales program can count them for different TRTs.
In practice it is clear that in most cases manufacturing companies aim to improve the quality distribution, while distribution companies, on the contrary, aim to increase the quantitative distribution. To promote a brand, it is imperative that manufacturers and distributors work together to build quantitative and qualitative distribution for the growth and prosperity of both.
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At the beginning it may be the case that manufacturers and retailers understand the quantitative and qualitative distribution differently. And that's not surprising. Let's take a closer look at how and how the metrics are calculated for both companies.
Quantitative (numerical) shows how many sales outlets work with the manufacturer's product. However, the supplier estimates the number of points of sale the product is on the shelf and the dealer estimates the number of points of sale to which he ships the manufacturer's goods per month.
If we talk about the calculation of the quantitativedistribution, the formula for the manufacturer looks like this:
Numerical distribution \ u003d The number of points of sale the product was in at the time of the audit (storecheck) / The total number of points of sale that were checked.
For example, a product availability audit was conducted in 100 retail stores, of which 75 contained the manufacturer's product. This means that the quantitative distribution is 75%. This indicator is average and has a high margin of error because the test was carried out on a small number of outlets in the dealer's territory.
Quantitative calculation formuladistribution for the distributor looks like this:
Numerical Distribution \ u003d The number of points of sale where the goods have been shipped for a period of one month. / The total number of outlets in the area.
This indicator is more real than the previous measurement, but has a further disadvantage that the goods could only be shipped at the beginning of the month and two days later were already sold or were lying around in the warehouse of the point of sale. The second thing is that it doesn't know how many OKBs (total customer base) here. Where did you get this number from, from what sources? It is best if this has been done during the period of the sensus (inventory) of the area, which the trader regularly issues every 6-12 months. Of course, this process is very time consuming and it is then difficult to process the information about which items have been checked and which have not. And often the Sensus stays with the supervisor in Excel, and it is not known whether he has taken these trading points into work or not.
The best solution for doing a sensus of an area with data entry into an accounting program (not Excel) is to include a point of sale audit unit that works as follows. On the mobile device of a sales representative, reference works for the implementation of a Sensus are filled out: the tab "Territory" (by geography or consumer behavior), the tab "Segments" (by type of structure or by specialization) and the tab "States" (PACB , problematic, misappropriated). A counterparty assigned to a specific point of sale is also entered. In addition, the type of point is entered - base or direction, depending on the amount of profit made. The data entered on the dealer's mobile device is automatically synchronized with 1C on the PC. And the supervisor checks the data in the accounting program, including the location of the point of sale and even the condition of the showcases and shelves.
In understanding the high quality construction of the distribution (efficiency) from the position of the manufacturer, about really quality Distribution can be said if and only if the following three indicators are taken into account:
- 100% availability of the TOP assortment matrix on the shelf
- 100% product dominance over competitors
- 100% availability of POS standards - materials
To calculate the indicators, two parameters are introduced: degree of coverage (KP) and degree of distribution (KD).
KP: shows the proportion of sales outlets in which the audit was carried out; the complete standard is available (assortment matrix, proportion of shelves, POS materials).
CD:shows the proportion of the presence of standard attributes in retail stores.
The quantitative distribution, despite the fact that it characterizes the size of the business, has the disadvantage that the analysis of business checks is carried out on paper and is not automated at all. In addition, as already mentioned, with this evaluation method it is possible to check only a small number of sales outlets, which does not provide a comprehensive picture of the region. The best solution for analyzing the delivery structure is the IT-KPI with the included merchandising unit. With this you can see the full coverage of the situation in the following indicators:
- information on the location of the goods (zone A, B or C);
- availability of POS materials;
- the number of items on the shelf at the time of the audit.
From the point of view of the distributor, the main indicator for the built high-quality distribution is the indicator for system outputs (STT). Of the total active customer base, only those with a consistency of 75% are considered to be really working. For example, if 4 visits to a point of sale are planned per month and only one is applied, the systematic level will be 25%. Of course, you need to make an effort to ensure that at least 3 out of 4 visits are made. This indicator is also recorded in
Distribution and control - types, methods and main indicators.
The distribution of goods is a system for selling a company's products through distribution channels that ensures the delivery of goods to the end consumer.
Sales control is an administrative function that is based on monitoring and influencing the existing sales system in order to achieve specific or targeted sales results.
From a marketing process perspective, there are two types of distribution: direct and indirect.
Direct selling or zero-level selling is when a company sells its products directly to the consumer, bypassing all intermediaries. An example of such a distribution can be a manufacturer's online shop, your own branch or your own retail store.
Indirect distribution can have as many levels as there are intermediaries involved in the chain of product delivery to the end user. For example, the chain producer - retail store (network or non-chain) - consumer is a first level distribution. The chain producer - dealer - retail store - end user is a two tier distribution and so on.
The choice of the number of levels of distribution of goods depends on the consumer characteristics of the products and the company's own capabilities. For example, the shorter a product, the shorter the path to the consumer. The direct or one-step distribution corresponds to such a product. For technically complex and expensive products such as machining centers in mechanical engineering, raw material processing lines, etc., distribution at zero level is also more suitable. For FMCG goods with a long shelf life and mass consumption, especially if the manufacturer only has limited storage space, a multi-level distribution is well suited. In addition to these factors, the size of the area in which the company's expansion is planned, the capacity and solvency of the market, the presence and strength of competition, as well as the presence and market position of representatives of various sales channels in this area (wholesalers, dealers, number and Quality of retail stores etc) etc).
- Crisis-oriented sales management
- Examination of the company's sales system
- Improving sales efficiency
- Development of a regional sales network
- Declaration on corporate distribution (trade policy)
The multi-level distribution of goods for a manufacturer has one major disadvantage: the longer the distribution chain, the worse it is managed. The shorter and longer the company receives feedback from consumers on its products, the less control it has over the market.
In such a situation, the systemic control of sales plays a particularly important role not only by the company, but also in every sales chain from the first link - the sales link. The control of a merchant's sales by its customers - branch and non-chain stores, direct corporate customers, catering establishments (restaurants, cafes, bars, etc.), and other customers - is known as control of secondary sales.
For properly organized sales control, it is important to monitor and manage at least two indicators: quantitative and qualitative distribution. The quantitative distribution indicates the percentage of retail stores in the analyzed area in which at least one product of your company is represented. That is, if there are 1000 outlets in the field that may be suitable for selling your product, and there are only 300 products, the quantitative distribution is 30% (Dq \ u003d 300/1000 x 100%).
A high-quality distribution shows what proportion your products make in the sales of a certain product group in the sales point examined. For example, in the sausage product group, products worth 100,000 rubles were sold. From this, your products were sold for 15,000 rubles, then the high-quality distribution of your goods is 15% (Dw \ u003d 15,000 / 100,000 * 100%). It is not always possible to find out how much a store has sold for the type of product you want and even for its own product, for example if your product is supplied by a dealer. Hence, it is possible to use an easier method due to the number of SKUs on the shelf. For example, there are 100 items of sausage on the shelf, 30 items of your branded products, which means that the high quality distribution in this point of sale is 30%. This indicator is only calculated for points of sale with your products.
These calculations show the resulting portion of the distribution development work.For example, if the quality distribution decreases, it means that the products are sold in fewer points of sale. If the quality distribution is decreasing, it means that the number of SKUs on the shelf is decreasing (or the number of competitor product names has increased). Both one and the other of the parameters indicate a fact that has already taken place and, as indicated above, the result of all the work of the company's commercial and marketing teams.
In order for these indicators to be easily predictable and not to represent unpleasant surprises, the operational sales data must be systematically monitored as:
- secondary sales from dealers;
- the presence of residues in dealers' warehouses;
- the number of outlets supplied by the general dealer base;
- the average number of SKUs shipped per customer per channel;
- average shipping amount per customer, natural and monetary;
- the share of the products in the total sales of a product group at a dealer or point of sale;
- percentage of order completion;
- the number of new customers;
- the number of customers lost;
- the number of customers who consistently shop.
In most cases, control is done by reporting the dealer's sales to the supplier - in the forms and conditions established by the supplier. Properly organized distribution and control are therefore fundamental factors for a successful sale.
Let us examine one such method of promoting goods and services as sales. Let's outline the pros and cons, new distributor mistakes, advantages, and possible costs. Let's also compare different types of distribution and choose the best one.
What is distribution?
It is the activity of selling and delivering products and services from the manufacturer to the customer. With the increasing globalization of companies, the priority of sales increases. Creating a product or service is half the battle and the other half is delivering the product to the customer.
There is confusion about who a distributor is and how they differ from a wholesaler. Typically, a retailer works closely with a manufacturer to sell more items. Usually dealers find wholesalers who sell their products. The wholesaler works more closely with retailers to meet their needs by buying discount products in bulk. Therefore, distribution is an important part of the sales channel as it acts as an intermediary between the manufacturer and its customers.
How distribution works
The manufacturer has two options for delivering products to end users - direct sales or distribution. The advantage of distribution is that the manufacturer can concentrate on his core activities in product manufacturing and leaves the sale to the dealer. Knowing how a distributor works can help determine if they are right for your business.
A retailer's value lies in its branch network. The manufacturer develops contract prices for bulk purchases with the retailer, and the retailer sells the product to its retail customers. This allows the manufacturer to deliver its products to a wide network of retail stores without incurring the cost of maintaining that network.
The sales organization includes customer service and support. A distributor is a sales organization that must have a skilled and efficient customer service department that handles the accounting of retail customers, shipping issues, and products.
The dealer is also responsible for replacing or repairing items that are still under warranty. The manufacturer only has to offer the dealer a customer service, which significantly reduces the administrative costs for the manufacturer.
Customization and additional options
Manufacturers often use distributors to create POS and end-user configurations. The manufacturer asks the retailer to send personnel for certification and then the retailer can bill the retailers for custom-made items.
The manufacturer delivers the parts to the dealer and the dealer does the integration work. For example, if a particular retail customer has a corporate customer who wants to install updated memory on all of their computers, the retail customer orders custom computers from the manufacturer.
Product dealers are responsible for delivering goods to retail stores, including shipping international customs documents. Manufacturers can ship the product to the dealer's location. The trader then takes the necessary steps to bring the product to the overseas market. In this way, the manufacturer can expand its customer base without having to open international shipping or sales outlets.
Main tasks and sales goals
Sales monitors and improves the relationships between manufacturers and customers and can provide improved service. When the process fails, supplies are lost, customers, retailers and suppliers cancel contracts, trust is lost. For product sales to be truly successful, continuous feedback needs to be established so that everyone is happy with the process.
First, let's look at the basic rules and standards to understand the types of distribution. Distribution components:
- Packaging. Provide adequate packaging for the product so that it can be transported safely.
- Inventory management. Maintaining a high and stable inventory level is extremely important to distribution and one of the primary tasks in managing distribution.
- Order processing. As soon as an order comes from a customer, sales management has to plan the delivery. This includes picking up, loading and punctual delivery of the item. For this step to be valid, you must send a confirmation and an invoice.
- Logistics. With all orders, it is important to consider the mode of transport for delivery. When overseas delivery is required, arrangements must be made to obtain approvals quickly. Loading and unloading should be done in such a way that all necessary equipment is available on site.
- Communication. Clear communication is essential both inside and outside the distribution centers. This is to ensure that the right products are being delivered so customers know when they will receive their products. If shipment is delayed, sales management should notify all interested parties immediately.
Quality distribution (numerical)
This is a category that is not expressed in numbers, but in the form of a description in an understandable language. In statistics it is often used in conjunction with “categorical” data. If there is no natural category system, nominal categories are used.
When the categories are ordered, they are called ordering variables. Categorical variables that determine size (small, medium, large, etc.) are order variables. In other words, it's about quality and profit, not the amount of products sold. This option is suitable for expensive products that produce a lot of profit even when selling a unit.
Quantitative (weighted) distribution
The numerical distribution refers to the number of storage units or stores that contain a particular brand of product. The numerical distribution helps to calculate the percentage of brand coverage in the relevant market. Digital distribution is not related to the sales volume of a product brand. Thus, the numerical distribution determines how many locations a particular brand is available to buyers.
The numerical distribution is calculated as follows:
Numeric distribution \ u003d (number of stores with a given brand) ÷ (total number of stores)
Consider an example of Colgate toothpaste sales in the store and the volume of sales in a given store.
|the shops||Business 1||Business 2||Business 3||Business 4|
Number distribution \ u003d ¾ \ u003d 75%
This shows that Colgate toothpaste is available in 3 out of 4 stores, giving a numerical distribution of 75%. If a certain decision is made in favor of this number it can be misleading for business owners as it can be seen that stores 1 through 3 only generate 30% of sales while store # 4 generates 70% of sales.
This anomaly can be eliminated by a weighted distribution that takes into account the quality of the distribution, resulting in a weighted distribution of up to 30% for transactions 1-3. Therefore, when making decisions based on product distribution, both numeric and weighted distributions should be considered.
Passive and active distribution
There are the concepts of active distribution and passive distribution. These terms have no marketing meaning, but only express the subjective attitude of the supplier towards the dealer who is involved in the distribution of goods, either only from the position of sales (passive sales) or from considerable marketing efforts to promote the goods through the marketing channel (active sales).
Effective distribution is the ultimate achievement of the specified quality distribution and quantitative distribution indicators with minimal cost (effort, time, and money) to get the job done.
It is an agreement between a supplier and a retailer that gives the retailer exclusive rights to market the supplier's product in a specific geographic area. Often times, a supplier severely limits the number of items he can deliver to a retailer.
There are many factors involved in deciding whether to employ an exclusive distribution strategy and whether exclusive distribution is appropriate for a supplier's product. The supplier must understand:
- what kind of product are they going to sell;
- What products will your products compete with?
- who is the consumer and why will they buy the product?
- what retail options are available?
Digital or content distribution
Electronic content distribution is a win-win option that requires a minimum of investment. The electronic version can be copied infinitely many times for free. These items include video games, computer software, movies, music, and e-books. This industry is easy to buy and instant to buy. It is booming and profitable.
Unlike physical distribution, electronic distribution must be quick to be successful. Customers who do not receive a download link within minutes of purchase will contact other providers.
The disadvantage of this form of distribution is that a constant internet connection is required to receive the goods and the file formats can cause damage or downloads, which can lead to frustration for the customer.
Advantages of working with dealers
There are such advantages:
- rapid business growth;
- make profit in passive mode;
- advertising in partner networks;
- Guaranteed profit and insurance against unforeseen situations.
How do I become a distributor?
Wholesalers can sell any type of product, including groceries, electronics, and furniture. As a wholesaler, you run an independent and managed business that buys and sells products for which it is licensed. Typically, such a business operates off-warehouse, where goods are received and then sent to buyers at a profit. Let's take a closer look at how to become a wholesaler.
- Decide what to implement. You can sell almost anything, but it is worth knowing about the product you are selling.
- Find out if the business can be profitable. Contact the product manufacturers for the exact cost of each product. Determine the exact shipping costs from the manufacturer to your warehouse and from your warehouse to your customer. Be sure to include the cost of the warehouse plus any ancillary costs. Finally, add profit for yourself. When you have all of this information and have determined the final cost of the item, see if the market is going to pay the price you want.
- Open a business account, enter a tax identification number and receive all the necessary licenses.
- Arrange financing when you think the business can be profitable. Calculate how much money you will have to deposit in at least three months.
- Equip a warehouse, place your first order and start working with it.
This is an official document between the supplier and the dealer. The following data are specified in the contract:
- responsibility of the parties;
- the terms of contract termination;
- fines and penalties;
- Contract duration;
- reporting obligations and deadlines;
- profit and distribution of funds.
Each company has its own agreement, the number of clauses may be different, but regardless of the charter, the agreement must be clear, clearly describing the terms and characteristics of cooperation.
Distribution channels and how a distribution network is set up
Algorithm: building a distribution network
The classic strategic planning algorithm comprises four stages.
- Data acquisition and analysis under assumption. With the help of analytics, you can instantly steer the business in the right direction and increase profits and sales growth.
- Modeling the distribution network. In this phase, different variants of the sales network model are developed based on the data collected in the first phase and the assumptions made.
- Selection of the optimal model and its implementation. Depending on the type of product, you will need to choose one of the methods described above.
- Dynamic network upgrade. Regardless of the type of product, you can change and / or add to the advertising methods in new ways. For example, CDs that were previously only sold through physical media are now sold through online stores. This also includes training and coaching, which are now sold as advice via Skype.
The distribution network helps to develop the business faster and more efficiently, expands the field to increase sales and allows you to use all available advertising methods.
Largest distributors in Russia
For the sake of simplicity, all data is collected in the table. You can tell right away that they are all in Moscow.
Typical sales channels
The marketing distribution can be divided into locations. Examples of sales channels are:
- A manufacturer can hire a distributor to contact suppliers or retailers to purchase their product.
- A supplier can list his shares in the market for sellers to find and sell.
- A retailer can stock a wide variety of items strategically placed in their store to encourage shoppers to buy.
- A wholesaler can set up a website where customers can order products directly from them.
Common distribution errors
How wrong they are in the beginning.
- Missing analysis. If the market is not analyzed and validated, it will result in a loss of funds and bankruptcy of the company in a matter of months.
- Sales in two companies at the same time. Most contracts do not allow this, but even if the contract does not contain such a clause, distributing it "in all directions" is more cost than profit.
- Multi-level distribution. Selling a product of the "product within the product" type is a losing strategy. This method discourages the trader and reduces the percentage of sales. The introduction of additional services and goods also reduces the conversion of occasional customers into regular customers.
It is worth noting that there is no single and best way of distribution, otherwise all the others would not exist. Consider the main postulates of the article:
- Before you start building a network, you need to familiarize yourself with market research and come up with a plan.
- it's never too late to add another implementation channel or eliminate an unprofitable path.
- everyone makes mistakes, but not everyone eliminates them.
- it is better to start with electronic distribution as it does not require much investment and practical skills.
Both distribution and wholesale have the right to live in today's market conditions, but the best choice would be their variety and skillful combination.
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