Consumer goods companies have to navigate through a rather heterogeneous and increasingly challenging market, with demand patterns being greatly influenced by geographic and social-demographic aspects. Tailoring a distribution strategy in accordance with all these different factors is paramount to success. Our client operates in a very scattered market with over one million outlets.
The challenge was to evaluate consumption patterns across these outlets and to optimize the product distribution on an outlet-level, aiming to identify opportunities to capture market share.
By leveraging a country-wide survey to outlets, data was collected on product-level sales. A three-step methodology was deployed to pinpoint distribution opportunities:
Outlet segmentation – Application of a clustering algorithm to characterize consumption patterns relating to price and product characteristics throughout the country;
Demand model – Development of an analytical engine to evaluate the sales potential of introducing any product in a given outlet, considering the substitution effects on similar products.
Range optimization – An optimization algorithm was developed to identify the products with the largest potential impact on total volume and margin for each outlet according to its specific consumer demand patterns.
By implementing the proposed distribution strategy, opportunities were identified leading to a 7% potential increase in sales volume through the optimization of the ranged products.
Furthermore, with almost 70% of the volume increase originating from only 20% of outlets, substantial gains can be achieved with a considerably lower investment in distribution.
The development of a dashboard to explore the identified opportunities enabled users to explore demand patterns and distribution gaps across the country which improved the actionability of the proposed distribution strategy and provided valuable market insights to our client.
By: Pedro Campelo