Where Retail meets Tech

June 20, 2018

3 Reasons For Lost Sales (and How to Strike Back with Image Recognition)

Written by Cécile Garrett

Lost sales are a thorn in the flesh of Consumer-Packaged Goods (CPG) companies. At Planorama, we help our CPG clients optimize retail execution with Image Recognition (IR). That is why we want to share with you three ways IR can help you cut down lost sales.

What causes lost sales?

lost-sales-causes-cpg-1Each year, billions of dollars are invested by CPG (or FMCG for Fast Moving Consumer Goods) companies in sales and merchandising strategies to offer shoppers amazing retail experiences, grow their margins, and gain market share. However, they can rarely enjoy the full benefits of their investment because sales are lost unwittingly at the store level. Here are three retail execution-related gaps that cause lost sales.   

1.     Limited coverage

Sales reps can perform only a limited number of audits or store checks per day.  As a field force, sales reps are an expensive but strategic resource for CPG companies. That is why CPGs need to allocate reps’ time carefully to maximize outputs. CPG firms must balance: (1) sending field forces to stores to monitor the implementation of their merchandising strategy, and (2) ensuring they have enough time remaining with the stores to develop strategic relationships. The latter is particularly important because relationship selling techniques are proved to support FMCG companies’ growth efficiently. We came across an interesting research conducted by the School of Marketing of the University of South Australia which interviewed 18 managers from 12 major FMCG manufacturers, as well as two consultants. In the findings, the study shows that “generating turnover and market share is only possible when [CPGs] let retailers participate.”

As a result, CPG companies often seek to optimize revenue by laying out a channel strategy where field reps first concentrate on critical points of sales (POS). According to Bain & Company, nearly 40% of CPG executives view this strategy as the top lever to enhance sales force effectiveness. The downfall is it can cluster sales opportunities to preferred stores. Following a channel strategy does not solve the time constraint tied to field forces’ activities; it works around this limit to reduce its impact. The bottom line is that CPG firms still lose sales in the stores they do not visit.

2.       INefficient shelf monitoring and optimization processes

Besides, the fact that 64% of store checks are still conducted manually in the industry curbs effective retail execution (Microsoft, 2017). In an interview, Lionel Prouve, former Business Partner and Innovation Manager and Mobility for our client Unilever recognizes that performing manual measurements takes a lot of time. Sales reps must fill out excel spreadsheets, complete forms on applications, and sometimes “in some countries you actually see people coming [to the stores] with a kind of rubber, like a linear meter and checking” shelves, says Lionel. On top of that, manual store checks make sales reps visit some stores twice; a first time to collect KPIs, and a second time to apply corrective actions in case of non-compliance. This situation obstructs sales forces from focusing on fixing planogram compliance issues and bringing value to their client from the first visit.

It can be even more damaging when there are Out-of-Stocks (OOS) between both visits. Since 2002, the worldwide average level of OOS in the FMCG industry has remained unchanged at 8%, according to a study ordered by the Procter & Gamble CompanyIt takes a significant toll on CPG firms who “on average lose 30 percent of [their total] sales when consumers confront an OOS item (due to brand switching and not purchasing at all).”

Manual measurements can also be subject to self-serving or cognitive bias, impacting the quality of the insights CPG firms should gain. Sometimes, incentives on store check visits and performance can tempt field forces into distorting visit evaluations or disregarding the measurement of some KPIs due to time constraints. Or, conducting routine visits may misguide them and alter the integrity of data collection. At Planorama, we find that on average, manual measurements lead to 15 to 20% of errors. They hurt retail execution’s efficiency and directly impact sales.

3.       limited persuasion power with retailers

Manual checks can also hurt sales reps’ ability to convince their clients of the reliability of their results. Store managers who doubt data integrity can then become distrustful of sales reps, which may hurt sales and future negotiations. In a research conducted on about 500 leading CPG firms and retailers which demonstrates the value of shelf-centered collaboration, PwC Strategy& revealed that while “most of the respondents agreed in principle about the value of collaboration, (…) they were held back primarily by the lack of trust between [them]”.

Although these issues are known to CPG companies, tackling them is not an easy task. In their study “Perfecting Sales Execution,” Bain & Company showed that 90% of the 120 consumer products executives they surveyed viewed sales execution as their number one business priority. But “fewer than half of the respondents felt their salesforces were operating at full potential.”

Research reveals that sales execution is a top business priority for 90% of CPG firms.

 Still, less than 50% feel sales forces are operating at full potential.

PwC Strategy& came up with remarkably similar results; the lack of trust between CPG businesses and stores is mainly due to poor execution capabilities, 55% of their respondents report.

Image Recognition can help CPG firms turn this situation around.

 

How can Image Recognition help reduce lost sales?

Image Recognition supports FMCG companies’ growth by helping them get the most value out of their store activities. How? By using deep learning to monitor and analyze digital in-store measurements.  

1.       Focus on activities that drive growth

lost-sales-vs-image-recognition-growthSales reps are CPG companies’ retail experts in the field. We found various studies that corroborate that fact and show sales reps are a key growth driver for CPG firms.

For example, the Shopper Technology Institute reveals that 80% of manufacturers use a field team which “highlight[s] the importance of field presence for retail brands.” We also read from a local consultants’ report that increasing the number of field forces improved an FMCG firm’s “sales by 7%” (IPC Consultants, 2017). Equally, McKinsey reveals that “adding expertise to sales teams can help win additional business” in a study that shows that CPG companies with higher than average category growth and better than average improvement in selling costs are the ones who deploy more “functional experts.”

Image recognition helps CPG businesses leverage field activities efficiently and enables field reps to achieve higher sales. Using picture-taking and digital measurements, Image Recognition enables sales reps to cut down the time they spend performing store checks. That means that they can conduct more frequent checks, expand their store coverage, or collaborate with strategic POS to focus on the core of their activity: sales and negotiations. According to Forbes, “Not only does this increase sales reps’ in-store effectiveness, it also frees up time for them to visit and improve other critical stores.”

2.       Get actionable retail insights

lost-sales-vs-image-recognition-actionAnother powerful aspect of Image Recognition is that it provides field forces with real-time insights on KPIs, which they can use to fix compliance issues while they are at the store.

Nearly 78% of products that are not on the shelves are on-hand.

An MIT Supply Chain Management research which investigates the causes of stock-outs reveals thatthe CPG manufacturer incurs highest lost sales due to inefficient store operations.” In nearly 78% of cases, products that are not present on the shelf are on-hand. This retail execution issue can be quickly resolved.

“The CPG manufacturer incurs highest lost sales due to inefficient store operations.”

(MIT research)

With Image Recognition, sales reps can spot such discrepancies even faster by comparing realograms with their company’s reference planogram in real time. They can then apply corrective measures directly at the store level. Sales forces can also rely on Image Recognition to track and analyze other KPIs such as Share of Shelf (SOS), Out of Stocks (OOS), On Shelf Availability (OSA), assortments, pricing, and so on. It gives them the opportunity to be agile and extremely reactive to different situations in stores as well as help their client reach their targets. 

3.       Use unbiased reliable data in negotiations

lost-sales-vs-image-recognition-accuracyIn addition to being a great goal-tracking tool, Image Recognition enables fact-based negotiations with stores. The unbiased and highly accurate results it provides field reps and their clients with help sales forces establish credibility. Reliability is a critical aspect of negotiations, especially when many CPG firms consider that “As soon as there are ‘second guesses,’ [the sale] is lost.”, a participant in the research led by the School of Marketing of the University of South Australia reveals.

“As soon as there are ‘second guesses,’ [the sale] is lost.” 

At the pace at which new entrants make their way into retailers’ shelves, losing sales over second guesses is not an option for FMCG companies. Our client Unilever shares how our Image Recognition solution reverses this effect and supports the selling process in stores:

“It’s actually getting the information back – getting the analysis back in the hand of the sales rep. So, we use this instant report, which means that once you’ve done your audit, after a few minutes, you actually receive the results of that and then you are equipped with the information for you to support your discussion with your contact in-store.”

Are you ready to fight off lost sales with Image Recognition? Contact us or request your free demo:

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Topics: image recognition, retail execution