Case study: Key Drivers of Retail Sales

Performance
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Memory Nguwi

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 We approached a major fast-moving consumer goods (FMCG) company operating in Zimbabwe

with the intention to help management understand why some of their retail outlets performed

above expectation while other outlets performed below expectations.

The aim was to identify controllable and non-controllable factors that in uence the performance of

each outlet. The identi cation of controllable factors would then lead to strategies that manipulate
those factors in order to optimize each retail outlet’s performance. We sought to answer the

following questions:

1. Does the diversity of product lines in each outlet in uence sales performance?

2. Does location have an impact on the sales of each retail outlet?

3. Does the presence of certain employees (e.g. sales representatives, merchandisers,

merchandising supervisors) have an impact on the sales of each retail outlet?

4. Does the psychometric pro le of employees in uence the performance of their respective retail

outlets?

5. Does the brand name of each retail outlet attract more (or less) customers leading to differences
in sales?

Answers to these questions would lead to informed decisions when deploying merchandise. Other
factors that have to be taken into account are the effects of location, product diversity, the presence

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 and pro le of human capital, as well as whether or not some brands of outlets should receive more

attention than others.

How We Intervened
We worked together with the retailer’s Human Resources Department and we gathered data to

incorporate in our analysis. The initial stage of our analysis involved building a descriptive analytics

model using regression techniques to identify the major drivers behind the differences in sales

performance of each outlet.

In the second stage we examined the outcome of the descriptive model to see how we could

optimize sales performance. The third stage involved matching insights with appropriate

recommendations aimed at improving the retailers’ overall performance.

Initial Phase
Using our descriptive analytics model, our initial ndings are as follows:

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 As seen in the table above, our descriptive analytics model managed to explain approximately 86%

of the variation in sales. In other words, we identi ed four factors that signi cantly impact the sales

performance of each retail outlet. These factors can be used to accurately explain why some outlets

meet set expectations while others do not.

Manipulating the presence of merchandisers to

improve pro t
Although the differences in merchandiser presence in each outlet explain only 5% of the differences

in sales performance (as suggested by our model), changing the presence of merchandisers in an

outlet from one to two has a greater impact on sales than other controllable factors.

This implies that the FMCG company bene ts from increasing the presence of merchandisers in all

its outlets. Merchandiser presence could be improved by either rotating the available merchandisers

so that each outlet has enough merchandisers, or by recruiting externally, if funds permitted.

Manipulating product diversity and the number of sales

representatives per outlet
Product diversity turned out to be the factor that explains most of the variation in outlet

performance. This retailer distributes merchandise through contractual agreements on shelf space

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 with wholesalers, supermarkets and other shop owners.

Some outlets had only one product line whereas others had more than a thousand. Outlets that fall

in the latter category consistently outperformed outlets with less product diversity. The table above

shows that if the number of product lines changes by X units, sales change by 1.3X%. This implies

that improving an outlet’s product diversity by adding, for example, one more product line improves

an outlet’s sales by 1.3%. This number is practically insigni cant. However, when ten new product

lines are introduced in an outlet, this would translate into a 13% increase in sales performance,

which is a major improvement.

For this particular retailer, product diversity is linked to the number of sales representatives who

frequent each shop. Therefore, the retailer needs to do a cost-bene t analysis since introducing

more product lines means more sales representative presence. This results in more wages or

overtime hours.

Taking advantage of the different brand names the

outlets belong to
Among all the outlets, some outlets had better average sales because of the brand names they

belong to. The implication of this is that when the retailer introduces new products – after having
taken into consideration e.g. the socioeconomic class of the outlet’s clientele – he would consider

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 trying brand names that consistently outsell the other brand names to ensure adequate market

penetration.

Not focusing on the wrong things

According to our analysis, outlets with different merchandising supervisors had no signi cant

differences in sales performance. Such a scenario is highly unlikely. The expectation is that some

employees excel while others fall behind. This result suggests that the way the role of the

merchandising supervisor was structured was not contributing to the business. Also, any form of
remuneration for these supervisors that is linked to the differences in their respective outlets’

performance, was erroneous.

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 Watch Replay

Broadly speaking, average performance of outlets in urban areas could not be differentiated from the
average performance of outlets in peri-urban and rural areas. This means that, when deploying

merchandise, merchandisers and sales representatives, all outlets would have to be treated equally,

without preferential treatment driven by location.

The Second Phase

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 Having identi ed that manipulating the presence of merchandisers in an outlet greatly improves

sales, we sought to identify the attributes of the ideal merchandiser. Should the FMCG company
choose to recruit, it would not only need the right number of merchandisers, but also merchandisers

with the ideal pro le.

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 We sampled merchandisers from selected outlets and invited them over for psychometric pro ling.

This allowed us to measure the cognitive abilities and personality traits of each merchandiser. We
also gathered demographic information (e.g. age, marital status etc.) on all tested merchandisers to
establish if there is a link between selected demographic factors and the performance of the

merchandisers’ respective outlets.

We identi ed three personality traits which, in the right combination, explain 20% of the variation in

performance of each outlet. In other words, the FMCG company now knows the personality traits of
its merchandisers that are associated with higher performance.

The three personality traits are de ned as follows:

1. Striving for social acceptance describes a person’s striving for social status and recognition.

The higher the percentile rank, the more important it is for the person to feel socially accepted
and to behave accordingly.
2. Aspiration level – This dimension indicates whether the respondent tends to set realistic or

unrealistic goals for him or herself (e.g. with regard to the quantity of work that one can carry out
or to the accuracy and thoroughness one aims at). Achievement-motivated people set realistic

but ambitious goals that somewhat exceed their previous achievements. Goals of this type are
indicated by medium to high percentile ranks.

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 3. Extroversion – The merchandiser enjoys being around and interacting with people. He/she

would rather take charge than be reserved.

The insight above is invaluable when the company wants to recruit new merchandisers or take

merchandisers that are already in the system through training.

The Way Forward

Instead of linking psychometric pro les to the performance of outlets, it would be ideal to link each
psychometric pro le to each merchandiser’s performance appraisal score. However, at the time, the

retailer’s performance appraisal system for merchandisers was not re ecting true merchandiser
performance.

When monitoring if the identi ed psychometric attributes are indeed vital to the company’s
performance, we worked hand in hand with the company’s HR manager and merchandising

manager to draft a new performance appraisal system. This system would not only accurately
measure merchandiser performance, but also improve the contribution of merchandising

supervisors to the business.

The objective is to link performance appraisal scores from this new system to each merchandiser’s
psychometric pro le.

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 Conclusion

By following the stages of this project, we identi ed critical factors that are crucial to the

performance of this FMCG company’s outlets by using analytics methods. We also identi ed factors
that did not signi cantly contribute to differences in performance. The combination of all these

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 insights provided an invaluable guide to decide which factors the company strategy should or should

not focus on.

We continued our interrogations and found that psychometric tests where indeed a valid way for

recruitment and developing merchandisers.

We conclude that basing your organisation’s strategy on scienti c methods and moving on to

validate the insights that subsequently come from this approach, is of utmost importance.

This case study demonstrates the bene ts of applying people analytics to the day-to-day business.
By applying analytics and combining these analytics with nancial outcomes we were able to

optimize the business and improve sales performance.

Memory is Managing Consultant of Industrial Psychology Consultants(Pvt). He has extensive

experience in human resources management, in both line function and consultancy services. With

IPC Consultants his aim is to maximise returns on human capital. Contact Memory at
mnguwi@ipcconsultants.com or connect with him on LinkedIn

by Memory Nguwi

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 http://ipcconsultants.com/

Memory is Managing Consultant of Industrial Psychology Consultants(Pvt). He

has extensive experience in human resources management, in both line

function and consultancy services. With IPC Consultants his aim is to

maximise returns on human capital. Contact Memory at

mnguwi@ipcconsultants.com or connect with him on LinkedIn

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