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Understanding Measures of Distribution for Expansion

If you are a marketer, business owner, or manager, you may be considering diverse strategies to grow or expand your business. To make an informed decision, you should conduct various distribution measures to understand the sales dynamics of your retail chain and better comprehend where your opportunities lie.

 There are three main measures of distribution that you may consider. These include Numeric Distribution, All Commodity Volume (ACV) and Product Category Volume (PCV). We will explore each of these measures, but before, consider the following scenario:

You are the manager of a cookie shop that sells its products in several retail stores in Candyland. Your town (Candyland) only has four retail stores, and your cookies are available in two of these stores.

Outlet

Do they sell your cookies?

All Sales

All Cookies Sales

Store 1

No

$100,000

$30,000

Store 2

Yes

$50,000

$10,000

Store 3

No

$50,000

$2,000

Store 4

Yes

$150,000

$50,000

Numeric Distribution:

Numeric Distribution (ND) is the most basic out of the three distribution measures. It represents a percentage of the number of stores that sell your product compared to all existing stores that sell similar products. In other words:

ND = number of stores that sell your cookies/total stores in the cookie market

Let’s go back to the Candyland example. We have identified that the town only has four stores, and your cookies are available in two of those stores (Store 2 and Store 4). Therefore:

Numeric Distribution = 2/4 = 50%

All Commodity Volume:

The next measure of distribution is All Commodity Volume (ACV). It represents a percentage of the total sales of the retailers that sell your product compared to the total sales of all retailers in the same market.

ACV = total sales of stores that sell your cookies/ total sales of stores in the cookie market

In Candyland, the two stores that sell your cookies generated total sales of $200,000, while all stores that sell cookies generated sales of $350,000.

ACV = $200,000/$350,000 = 57.1%

Even though your numeric distribution is only 50%, your ACV is 57.1%. This value has a positive interpretation as the stores that sell your cookies generate more sales than the stores that do not sell your product. However, this number is not representative of the sales of your product category and is not indicative of how well cookies are selling.

Product Category Volume:

Lastly, Product Category Volume (PCV) is a percentage that represents the sales of your product category in stores that sell your product compared to the total sales of your product category in all stores in the same market.

PCV = cookie sales of stores that sell your cookies / total cookie sales for all cookie stores

In Candyland, the stores that sell your cookies generated total cookie sales of $60,000, while all cookie stores generated total cookie sales of $92,000.

PCV = $60,000/$92,000 = 65.2%

It appears that you have selected the best stores in Candyland for cookie sales. Even though your numeric distribution is 50% and ACV is 57.1%, your PCV is 65.2%, which means that your retailers generate more cookie sales than stores that do not sell your cookies. Although this says little about the sales of your cookies, you have an undeniable opportunity to sell your product in the selected retailers. If PCV were lower than ACV and numeric distribution, you might investigate expanding to stores with higher PCV.

PCV is the measure of distribution that is most useful when evaluating your market. Product Category Volume is the most indicative of where customers go to purchase the product or service category. If category-specific sales data is not available, you can use ACV as a substitute for PCV. Nevertheless, this is not ideal as ACV is not a reflection of sales in your category. For example, in ACV, your data might show high total sales in a store that generates little to no sales of your product category, so tread with caution. Unfortunately, Sales and Product Sales data is not always available, so you may have to refer to numeric distribution instead.

Utilize these calculations when considering growing or expanding your retail chain as distribution measures can enlighten where opportunities may exist. Best of luck!

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