Amati and Associates

Decoding Market Measurement

Home » Insights » Strategy » Decoding Market Measurement
Decoding Market Measurement

Decoding Market Measurement: A Comprehensive Guide for Marketers

Market measurement is the process of assessing the size and value of a market, understanding consumer behavior, and tracking the performance of products and brands over time. It provides a comprehensive competitive landscape view, offering insights into sales trends, market shares, distribution channels, and consumer preferences. For businesses, mastering market measurement is crucial. It enables them to identify growth opportunities, develop targeted marketing strategies, and make informed decisions that align with consumer demands and market trends. By leveraging accurate market data, companies can navigate market dynamics more effectively, optimizing their operations and strategies to stay ahead in competitive environments.

Understanding Consumer Sales

Consumer sales refer to the purchase of goods and services by end-users, a critical metric in market analysis as it reflects the target market’s actual consumption patterns and preferences. These sales data offer insights into the effectiveness of marketing strategies, product appeal, and competitive positioning. Consumer sales data can be represented and utilized in various ways, including:

  • Volume and Value Trends: Tracking the quantity sold and the revenue generated over time to identify growth or decline trends.
  • Market Share Analysis: Comparing a company’s sales to the total market sales to gauge its competitive position.
  • Segmentation Studies: Analyzing sales data across demographics, geographic regions, or product categories to tailor marketing strategies.
  • Pricing Strategies: Assessing how price changes affect sales volume and market share.

Businesses can use these representations to fine-tune their strategies, optimize product offerings, and better understand consumer demand dynamics.

C-Suites, Advisors and Founders from 50 countries follow our Substack Newsletter

Will you? Join today for free.

Visit our Substack

The Essence of Market Size and Share

Market size represents the total volume or value of a specific market that businesses aim to capture, indicating the potential for sales and growth within a market segment. It’s calculated based on the overall sales of all competitors in a given market, often segmented by region, product category, or customer segment. On the other hand, market share is the proportion of total market sales captured by a single company, calculated by dividing the company’s sales in the market by the total market sales. This metric is crucial for assessing a company’s strength and competitive position. A higher market share often implies greater dominance and influence in the market, guiding strategic decisions such as resource allocation, marketing approaches, and product development priorities. However, Market Share is not an undisputable beacon. Based on market shares, KPIs permanently damage organic growth and the bottom line. The easiest way of growing market share is by subsidizing sales through aggressive promotional plans, which, in return, only recruit for a short time.

Market measurement: Distribution Metrics Unveiled

Numeric Distribution measures the percentage of stores selling a product out of the total number of stores surveyed, indicating product availability. On the other hand, Weighted Distribution considers the sales volume or value that these stores represent, offering insight into how well the product is distributed in high-sales potential outlets. For example, a product with high numeric Distribution but low weighted Distribution might be widely available but not in critical stores that generate most sales, suggesting a need to improve market penetration strategies in high-volume retail environments.
For instance, if we consider the category of toothpaste and the brand X, the numeric Distribution could be presented as follows:

  • If 100 stores sell toothpaste and X is available in 55, X’s numeric Distribution in supermarkets is 55%.
  • In groceries, out of 500 stores selling toothpaste, X is present in 120, making its numeric distribution 24%.
  • With 600 stores selling toothpaste and X available in 177, its numeric Distribution across all store types is calculated as 30%.

Weighted Distribution, on the other hand, measures the percentage of the sales value of the category in stores where the brand is present relative to the total sales value of the category across all stores. Using the same scenario:

  • In supermarkets, if the total sales of toothpaste are $5,000 and sales in stores where X is present amount to $4,000, X’s weighted Distribution in supermarkets is 80%.
  • In groceries, with total category sales of $1,000 and sales where X is present being $100, its weighted Distribution is 10%.
  • Combining both store types, with total category sales of $6,000 and sales in stores carrying X being $4,100, the overall weighted Distribution of X is 68%.

The Numeric vs Weighted Distribution Dilemma

Numeric Distribution offers insights into product availability and market penetration. It helps marketers understand the breadth of a product’s retail presence and identify potential areas for expansion.
Weighted Distribution goes deeper by linking the product’s presence to its performance in terms of sales value. This measure is crucial for understanding the product’s strength in generating revenue within its available market and identifying high-value retail opportunities.
Together, these metrics provide a comprehensive picture of a brand’s market presence and performance, guiding strategic decisions in Distribution and marketing.

Market measurement: the Role of Store Audits and Scanner Data

Store audits involve a manual process where auditors visit stores to gather data on stocks and retailer purchases and calculate sales based on the formula:

Sales = Initial Stocks + Retailer Purchases – Final Stocks.

This method is continuous, with visits occurring once per period, varying from one to two months. The methodology’s limitation is its reliance on a sample of retail stores, making it heavily dependent on the cooperation of retailer management​.

Scanner data, conversely, is obtained automatically through scanning checkouts and registering all sales transactions. This method promises extreme precision, faster reporting, and more detailed market analysis. However, it relies on the disciplined use of bar codes and the reliability of retailers’ data systems. Countries without widespread scanners use to supplement this data with store audits.​
​Scanner data provides a comprehensive and automated method of collecting sales transactions directly from retail checkouts. This data collection method is highly accurate, contingent on the disciplined use of bar codes and the reliability of retail computer systems. It’s beneficial for real-time sales tracking, offering significant advantages for market analysis.

Examples and Their Meaning

  • Real-time Sales Tracking: Scanner data allows for the monitoring of sales transactions as they happen, enabling businesses to quickly adapt to sales trends, stock needs, and customer preferences.
  • Detailed Market Analysis: With the detailed data collected, companies can conduct more complex analyses, such as understanding the effectiveness of promotions, pricing strategies, and customer buying patterns.
  • Census Data: Scanner data enables retailers to track total sales, minimizing the errors commonly associated with sampling methods and providing a complete view of sales performance.

Advantages of Scanner Data

  • Speed and Frequency: Data is delivered faster, sometimes within days, allowing for timely decision-making.
  • Detail and Quality: Offers more detailed and higher quality data, particularly regarding pricing and promotions.
  • Analytical Opportunities: The extensive datasets facilitate complex market analyses, providing deeper insights into consumer behavior and market trends.
    Cautions with Scanner Data
  • Bar-code Information: The system’s success depends on accurate information from manufacturers, retailers, and data suppliers.
  • Promotion Handling: Retail systems might handle promotions differently, affecting data consistency.
  • Data Continuity: Switching from an audit to a scanner system may introduce discontinuities due to changes in sample and data collection methods​

In summary, scanner data offers a powerful tool for market measurement, capable of delivering precise and timely sales information. However, its effectiveness relies on the accurate and consistent use of technology and collaboration between all parties involved in the supply chain.

Market Measurement through scanner data

  • Price Per Unit: This can vary based on promotional activities or display presence, providing insights into how pricing strategies affect sales.
  • Baseline Price Per Unit: The standard price without any promotions, serving as a comparison point for promotional effectiveness.
  • Minimum and Maximum Price: These metrics offer a view of the price range within which a product is sold, indicating the flexibility or consistency of pricing strategies.
  • Price Per Unit When Displays, Leaflets, Promotions, Price Reduction: These measures show the impact of various promotional tactics on the cost and, by extension, on consumer purchase behavior.
  • Promotion Volume Share: Reflects the proportion of sales volume attributed to promotional activities, highlighting the effectiveness of marketing strategies and how much of the volumes are organics or acquired.
  • Share of Shelf (Length, Capacity, Surface): These metrics provide insights into the product’s visibility and accessibility in stores, which can influence buying decisions.
  • Share of Stocks and Forward Stocks: Indicate how much of the inventory a product holds compared to the total category, offering a view of supply chain effectiveness.
  • Volume Share and Account Volume Share: Show the product’s sales volume as a percentage of total category sales, indicating market penetration and competitiveness.
  • Value Share and Account Value Share: Reflect the product’s sales value contribution to the category, highlighting its financial impact on the market.
  • Average Monthly Sales Per Store: This metric is calculated by dividing the total sales per month in Units by the number of stores handling or selling the item. An adjusted average monthly sales figure is also possible, which accounts for sales per month in units per “average” store, reflecting the turnover of stockists. This adjusted figure offers a more nuanced view by considering the performance of an average store rather than just aggregating total sales across all stores.

These scanner data measures offer businesses critical insights into pricing strategies, promotional effectiveness, distribution adequacy, and market share dynamics. By analyzing these metrics, companies can fine-tune their marketing, sales, and distribution strategies to optimize product performance in the competitive retail landscape.

Leveraging Household Panels for Deeper Insights

Household panels reflect the average characteristics based on the latest census. These panels allow for analyzing individual households’ purchase behaviors in ways retail audits cannot, offering insights into brand penetration, switching, buying rates, loyalty, and repeat purchases. Although consequential, the sample size may limit the analysis capabilities, generally requiring caution for analyses based on fewer than 40 buyers​​.
Imagine a household panel of 1,000 families from across the country designed to represent a wide range of demographics, incomes, and lifestyles. Over a year, these households report their purchases of grocery products, including specifics like brand names, quantities bought, prices paid, and the stores from where they were purchased.
From this data, marketers could learn that a new brand of organic pasta has steadily grown in penetration, particularly in urban areas among families with young children. They could also discover that while brand loyalty for this product is high among first-time buyers, the repurchase rate dips in the following quarter, indicating a problem with the product or opportunities for competitor brands to target this demographic with promotions or new product features.
Household panel data are the cornerstone for measuring:

  • Penetration/ Reach
  • Frequency of Purchase
  • Source of Volume
  • Switching Analysis
  • Competitive Basket

Navigating Coverage and Market Size Calculation

Coverage is defined as the relationship between the market measurements supplier’s estimate of a brand or company’s sales and the manufacturer’s shipments. It’s a crucial data quality indicator that assists in understanding trade dynamics. The coverage calculation must account for inventory change and pipeline delay. These factors significantly impact the relationship between retailer purchases and manufacturer’s shipments​.

Common Pitfalls and Errors in Market Measurement

Errors in market measurement can occur during data gathering, conversion to statistical units (SUs), and sample projection. Data-gathering errors include non-standard packs, missing delivery records, and stock. Processing errors may involve incorrect expansion or conversion factors and identifying or classifying new pack variants. Additionally, sampling error is a consideration, as market measurement relies on samples, making it subject to potential inaccuracies. Regular data quality assessment through comparison with other sources is recommended to ensure reliability​.

In Conclusion

Understanding the intricacies of market measurement, from store audits and scanner data to leveraging household panels, is crucial for capturing accurate market dynamics. The methodologies employed, including coverage adjustments and the keen awareness of common pitfalls, are essential for developing strategic insights. Marketers are encouraged to delve deep into these aspects, utilizing this knowledge to drive informed decisions and strategic planning in the ever-evolving market landscape.

No Comments yet!

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Download our Business Cases

Building a Communication Ecosystem

Building Brand and Markting for an AI Startup.

Download PDF
Building a new brand from scratch

Advisory Project for a Pharma StartUp.

Download PDF
Internationalizing a local Gem

Advisory for a Beverage Company.

Download PDF

Cases compilated and reviewed by Clutch