As a Category Manager, you live and die by the sales report. Every period, every week, every day – the results are staring at you in black and white. Every week that Monday morning sales meeting rolls around, and you will be answering one of two questions. If sales were poor: “How are you going to fix it?” If sales were strong: “How are you going to repeat it?”
These questions demand answers. Yet too often Category Managers do not have the tools they need to answer them well. Many retailers have invested in sophisticated insights and reporting tools that include not only sales performance but also customer data that can be sliced and diced a hundred ways. But the number of reports and sheer volume of information can be overwhelming. And the last time we heard a Category Manager say she had some extra time on her hands to wade through a new reporting tool was…well…never.
With that in mind, we present to you our guide to the three customer reports every Category Manager should be reviewing regularly. Add just these three to your regular review of your sales reports and you will be ready to answer any question that comes your way in that next Monday meeting.
1. Sales Drivers Report
If your purpose is to understand your sales numbers, then the Sales Drivers report is the place to start. Let’s say you manage the yogurt category and sales are down for the period. There are ultimately only three things that can be driving it: (1) You are losing shoppers, (2) Shoppers are visiting less frequently, or (3) Shoppers are spending less when they do visit.
If sales are down, one of these three (or, more realistically, some combination of all three) is to blame. (Note that to track these three properly requires the use of customer-level data. I cannot count the number of times I have heard people refer to “customer count” when what they mean is “transaction count.” If you are still counting transactions without tying them to a unique customer ID, it is impossible to tell if what you are seeing is the same number of people shopping less often, or a smaller number of people shopping at their usual frequency.)
Understanding what is driving your sales decline is the key to reversing it. If basket size is flat but customer count is declining, a basket-building coupon to active customers will not get at the root of the problem. On the other hand, if your customer count is actually growing, but visits and basket size have dropped, a cross-sell campaign to acquire more customers won’t help you.
2. Category Development Report
The next report we suggest you check on a regular basis is the Category Development report. The reason this report is so powerful is it shows you not just what customers are doing but what they could be doing, given the right incentives.
Our category development report calculates two key metrics. First, what is the category’s stretch potential – the sales you could gain by getting existing customers to buy more. And second, what is the category’s cross-sell potential – the sales you could gain by getting customers who aren’t currently buying in a category to start shopping the category.
These insights can be extremely helpful in driving your strategy for both mass and personalized promotions. Does the report tell you that a large number of customers are buying household paper with you, but a significant portion are under-indexed vs similar customers? This suggests they are sometimes buying with a competitor. You may want to try a promotion designed to get them to stock up or consolidate their shopping with you.
Does the report indicated a high cross-sell potential for organic breakfast cereals? This means a large number of customers who shop your store have similar interests as existing customers in the category. Given the right incentive they may be willing to try a new product – and hopefully they will come back for more.
3. Product Ranking Report
Finally, we recommend category managers take a look at the Product Ranking report. The key metric here is the Highly Loyal Index. This tells you how likely a person who buys this product is to be a loyal and valuable customer for the retailer as a whole.
This allows you to introduce the essential customer dimension into a number of processes regularly conducted by category managers. Say, for example, you are planning to list an important new item from a key supplier, and need to delist something to free up shelf space.
The typical approach is to rank the current listing base by sales and remove the item with the lowest sales volume. But that could be a big mistake. What if that item has low sales overall, but turns out to be important to your best customers? You will not just lose the sales on that item – you might lose all the sales that comes with a high frequency customer.
Including the customer dimension into assortment decisions can help you avoid a costly mistake.
If you find this content useful, I suggest you take a look at our e-book on best practices to achieve successful private label strategies, where you can get some data-driven tips and learn about which reports the teams we work with regularly use to stay one step ahead of their markets.