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What are the best opportunity markets for expanding my brand?
Business question: The VP of Sales wants to expand his brand which currently has regional distribution, and has asked you to look into the best developed / opportunity markets to expand the products foot print.
Simplistic methods may include:
1. Sales Trends. How is the category trending by market? Are sales up or down?
2. Category $ share. Is category share vs. Total US gaining?
3. CDI Index. How is the category indexing?
Let’s use all methods, but you start with CDI. The Category Development Index (CDI) is a standard measure typically available in IRI or Nielsen platforms and can be applied for each market to see how well the category is developing. By definition, CDI measures sales volume in a market vs. Total US relative to the population and helps you compare sales across markets of varying population sizes.
Category sales in market / Market population
------------------------------------------------------------- X 100
Category sales in Total US / US Population
The result is an index. Your benchmark is always 100. The higher the number, the better developed a category is relative to Total US. An index greater than 120 is highly developed and 80 or below is low development (80-120 is average).
So you pulled your data and you select certain markets in your pull and see the following below:
Market A = 105 Market B = 190 Market C = 56
Ok, a good start. We now know the categories index development for each of the three Markets, but what now? Let’s look at what we know for now. Market A has average development while Market B is highly developed and Market C is under developed.
Let’s pull in the rest of the measures we mentioned above under methods and compare vs. Total US.
Ok, now we have a bigger picture here. Assuming we want to look at opportunity markets let’s interpret what we might be seeing here. But first, I also included TDP in the analysis. TDP is Total Points of ACV Distribution which is summing up the ACV for all items in the category. It is consider the “Depth of Distribution” and assuming we do not have # items as a measure we will for simplicity sake divide the TDP by 100 to derive the # of items in the category for each market. So Market A has 9 items (rounded) carried in the category on average (940/100) = 9.4.
TDP was not one of the methods originally, but it is good to look at as a means of assortment levels carried for the category in each market. Maybe some markets are over / under spaced vs. Total US. This can be a factor when viewing our strategy.
Now back to what we might be seeing on the surface. One good method to use is to always try to compare data to a benchmark, in the case Total US.
Market A: Has average category development comparable to Total US but sales have declined. It’s depth of assortment shrinks and carries fewer items on average vs. Total US. Category performance in this Market is unstable at the moment. You can perceive the lack of TDP contributed by other brand(s) may indicate some sort of sku change or correction that presents an opportunity for your brand to fill this void, but it is a high risk and the rewards might be low.
Market B: Highly developed with a 190 index. Compared to Total US, Market B’s dollar share is better developed, and its depth of assortment is par with Total US. Now two things to point out here are the trends and TDP chg. Compared to Total US, Market B’s trend and TDP grows at a slower pace. One possible aspect could be an over saturated market for this category. Few items are entering the category for Market B as depicted by low TDP gains. There is a potentially high barrier for entry into this Market if there is saturation. We might need to invest heavily into trade & media support while sacrificing a portion of our margins.
Market C: This is obviously the least developed market. We see the category is under developed based on a 56 index, lower category dollar share, and fewer items (TDP) vs. Total US. However, its trend out-paces all the other comparable markets as well as Total US. Though its category share is much lower on average, there was a high increase in TPD. This may show the category is gaining momentum in a “Growing” stage of the business cycle where many items are entering the category for this market. The barrier to entry for our brand might be less dramatic in this market.
So Market A has a declining category with possible item discontinuations, making it unstable at the moment. Market B is highly developed but possibly over saturated and may require a heavy marketing / trade investment as barrier to entry is likely high. Furthermore, it is very likely that strong national brands are present, while our brand is a regional player with lower equity by comparison on a national basis. Market C may be a good opportunity for our brand. Yes, it is the least developed, but it has a fast growing trend and category assortment continues to expand where barrier to entry might be lower.
All markets are opportunity markets, but it depends on what you deem to be the true opportunity based on your brands strengths and the company’s strategy. I purposely choose Market C because our brand is just regional with limited marketing / trade funds. Our outlook may have changed if our brand was a category leader with strong national equity. Please be aware though that the intent of this exercise is just to show a top level analysis. If this were a real exercise, much more analysis would be needed. In reality, you do not define opportunity markets by a few factors alone. This exercise might be the groundwork for forming a hypothesis to follow. Since I choose Market C, I would look into some other analysis that may include:
- Use Panel to see if my brand and that market have a good demographic fit.
- What brands are in distribution there, and who is driving the TDP growth?
- Is the category for Market C highly promoted? What are the price points? How will this impact Trade spend strategy?
- Is Private Label strongly developed there? Who is the brand leader? Is there a fair mix of national & regional brands?
- Attempt to do a forecast and size of prize analysis.
- Others…. as needed
One more thing to consider is retailers. We need to understand a retailer’s strategy and its needs too. Some retailers may just want a few of national brands and their private label, while others may seek a wider assortment for their category. In this example, we are a regional brand and will not resonate with every retailer. Blanketed tactics does not always suffice. Remember, this is just one of many methods you can use to analyze best markets when addressing the business question.