Knowledge Bank Blog, Category Strategy

Internal vs External Measures

Are you measuring what the shopper measures?

Think about the last time you bought a laptop.  Did you go into a store or online and look at 10 different laptops making a note of all the details – hard drive size, memory type, processor speed and count, battery weight etc?  Do you even know the processor speed on your laptop?  Probably not.

All these details are available to us, but most of us don’t have the time, or inclination, to make detailed comparisons.  The same is true of even bigger purchases, such as cars, sometimes even houses.  Most of us use very simple rules of thumb to make judgements about what to buy.

If this is true for items that are high involvement with a high price, it is even more acute for FMCG.  Particularly for categories that are bought frequently.  Shoppers don’t have the time to do the maths in store and use very simple rules of thumb to make choices.  These simple rules of thumb are what we call ‘external measures’.

These external measures are often different to the measures companies use to judge things internally.  And the ‘internal measures’ are often measuring different things.  So companies often see a different picture to the one the shopper sees at shelf.  Sometimes even the wrong picture.

What do we mean?  Well, think about a price index.  Most of you will know the price index of your product(s) vs the category average or key competitors.  It’s a key internal measure.  However, when did you last hear a conversation that went something like ‘I was in the supermarket the other day and saw a great new product.  You have to try it.  Even better, it was only at a price index of 90 vs the category average’.  It doesn’t happen.

Another example of this is price per ml or per g.  These are measures that can be important for us, but are often meaningless for shoppers.  In most cases the shopper isn’t standing in the chocolate aisle doing a price per g comparison.  They are looking at what the overall price is, how big is the pack, how many do you get in the pack.   Often it is just one of these measures that drives their decision.

So, what can we do to make sure we are measuring what the shopper measures?

Know what the key measures are in your category.  What are the rules of thumb the shopper uses?  And how do your brands stack up on them versus the competition?  Is the absolute price the key?  Do you have a pack with 6 items in it but the competition has 7?  Do you have the same amount of product but in physically smaller packaging? Know your weaknesses and minimise them.  Know your strengths and amplify them.

Measure the right measures.  Often we measure the things we can measure, not the things we should be measuring.  We know a retailer who had a price index measure vs the main competitor.  People were targeted on this measure.  But the price index only measured like for like products – ones sold in both stores.  It didn’t pick up all the lower priced products in retailer B that didn’t exist in retailer A.  The real price index that shoppers experienced was very different to the measured price index that was being used to manage the business.  There was a big price perception issue.  It was only by looking beyond the price index measure that you could understand why.

Get the right language embedded in the Business.  If price per g or number of usage occasions is not important to how shoppers make decisions, then make sure people aren’t talking about them.  Get them talking about the things that do matter at shelf.  A price index of 125 might not look too much of an issue on paper.  Of course, our brand is worth paying 25% more for.  But when the shopper sees you at £2.50, looking no different to the competitor at £2, you might have a problem.

To win in store, we need to see the same things the shopper sees.  This means knowing the things they are using, as simple rules of thumb, to make judgements in your category.

Are the things you are measuring the same things the shopper is measuring?  If not, they probably should be.

Feel free to forward.  Have a great weekend and speak to you next week.