Business Tip 4
Taking Advantage of Cumulative Share to Identify SKU Contribution

The Challenge

In many categories, as you're probably aware, a few key products are responsible for the majority of sales. But visualizing that in a meaningful way can be a challenge. Can you see how many products in a given category make up the significant portion of total sales? And how that compares to the larger market? The SKU Contribution Analyses is an example of applying the concept of Cumulative Share to answer exactly these questions.

The Solution

Before jumping right into SKU Contribution Analysis, let's take a minute and make sure that the foundation is clear. A Cumulative Share is really nothing more than a ranking (e.g., products in terms of dollar sales) that identifies the total contribution of each item and depicts it as additive. An easy way to imagine this is looking at three products: Product A has sales of $75, Product B has sales of $20, and Product C has sales of $5. Take a look at the table below for the Contribution and Cumulative Share for each of the products in this group.

In the table above, you can see that the Contribution of each product is equal to its share of the total group, and the Cumulative Share for any product is the sum of that product's contribution and the contribution of each product ranked higher in sales. For instance, Product B shows a Cumulative Share of 95% (75%+20%).

Graphically, this type of analysis easily becomes the SKU Contribution Analysis. Take a look at the slide below. This slide depicts the contribution of each SKU in a category of product, and how that compares to the larger market.

The SKU Contribution Analysis above shows how many products make up a significant portion of the sales in the category, and benchmarks this number to the same analysis in the parent market. In this manner, it is easy to see if the assortment in any category is on par with the larger market. An analysis that shows it takes significantly more products in the account to get to the same level of sales as the market may point to the fact that the store is carrying too much variety in a particular category.

Be careful not to jump to conclusions, though. Depending on the category role of the particular retailer, this may be a strategic decision. For instance, a store that targets an active demographic might carry much more variety of isotonic beverages than the larger market.

The Take-Away

Tools like the SKU Contribution Analysis represent the combination of solid analytic foundations, and real-world experience. XP3 is built on these principals and delivers solutions that work in any business environment, with any data. Interactive Edge has released a new type of business template that delivers both the robust analytics and the unprecedented ability to be highly customized by the greatest minds in the Consumer Goods Industry: you.

The data, products and accounts depicted in this example are fictitious. Any resemblance to actual data, products or accounts is purely coincidental.