Knowledge Bank Blog, Behaviour Change, Pricing & Promotions

Key Numbers

Let’s start with a short quiz…

A. In the UK what % of wealth do the top 1% of wealthiest households own?

B. In the UK what % of young adults (25-34) still live at home with their parents?

C. In the UK what % of teenage girls give birth each year?

How do you think you did? Here are the answers…

A. 23%. Guess higher? If so, you’re not alone – the British public thinks it is 59%.

B. 14%. Guess higher? The British public thinks it is 43%.

C. 2%. Guess higher? The British public thinks it is 20%.

The top 1% own less wealth than we think. Young adults are more likely to have left home than we think. Teenage girls are much less likely to give birth than we think.

Daniel Kahneman, the great psychologist, explained one of the key reasons for this. “When faced with a difficult question, we often answer an easier one instead.”

So rather than saying “of all the teenage girls I know, how many are already mothers?” we say, “can I think of a recent news story about teenage pregnancy?”

So there is often a big gap between what we think we know and what we actually know.

Why are we talking about this? If you work in the FMCG & Retail industry there are a lot of numbers you will know. Your sales growth. Your market share. Your performance against plan. You can probably reel them off right now.

There are lots of other numbers you probably know. The type of numbers that appear in your monthly reports and dashboards. Things like how many shoppers have bought you in the latest time period – penetration. How often they have bought you – frequency. You have a pretty good idea of these numbers, right…?

These numbers (sales, share, penetration) are the headline numbers. The ones that are most top of mind. The ones that you use to make decisions about your business.

However, there are other numbers that are not the headline ones. That often fly below the radar. That you probably don’t know. But you probably should know. Numbers that can tell you a lot about the current and future health of your brand.

What are they? Well, here are 3 numbers that we think you should get to know better…

Repeat. What % of shoppers buy you more than once? The headline number everyone knows is penetration. You’ve been told it is “How Brands Grow”. This has led to an obsessive focus on penetration in many companies. But to appear in your penetration figures shoppers only need to buy you once. That, particularly in categories that are bought frequently, isn’t that much. Getting shoppers to buy you once is good for the headline penetration figure. It’s not a great indicator of the health of your brand.

A better indicator of the health of your brand is the % of shoppers who buy you more than once. The shoppers who repeat buy. This number often flies below the radar. But it is important. For instance, Brand A and Brand B both have 20% penetration. Brand A has 25% of buyers who buy them more than once. Brand B has 75% of buyers who buy them more than once. Which brand is in a better position? Do you know how many shoppers buy you more than once?

Loyalty. What % of their total spend in a category do shoppers spend with you? The headline number that most people know is average spend. The amount a buyer of your brand spends on your brand. This is interesting enough. But if your average buyer spends £5 per year with you is that good or bad?

Well, it depends on how much they spend in total on the category. If a shopper spends £5 with you out of £10 in the category you are doing well. If they spend £5 with you out of £50 in the category you’re not doing so well. Most of the buyers of your brand will spend (often a lot) more on competitor brands than they do on your brand. Do you know how much?

Average Price. What is the average price paid for your brand? The headline number most people know is their base price. The price they are sold at when not on promotion. The problem is a lot of brands are on promotion. A lot of the time. They end up selling much more of their volume on deal than they do at base price. So, you might have a base price of £2 but you are sold on deal at £1 so often that your average price is much closer to £1.

This matters. It matters to the category because it distorts the pricing hierarchy. Shoppers can trade up without paying the price to trade up. It matters to price expectations. You train shoppers to buy on deal. Why pay £2 this week when you can pay £1 next week? It matters to price reality. The ‘real price’ for your brand is not the base price it is the average price paid.

The headline numbers are still important. They tell you a lot about your performance.

But it is often the numbers below the radar that tell you even more.

How well do you know them?

Feel free to forward. Have good weekend. Speak to you in a fortnight.