Getting Multi-Channel Distribution Right

CHAPTER 10Using Velocity Graphs to Guide Sustainable Distribution Coverage

10.1 INTRODUCTION

Specifying a model that provides valid estimates of longer-term distribution and other marketing mix elasticities, complete with all or at least most feedback effects, is not easy. But it would be essential if one were to rely on that route to optimizing distribution coverage. In this chapter, we provide a simpler way for a supplier to get to the approximately right level of distribution coverage that is sustainable—by placing itself on a graph showing the cross-sectional pattern of distribution and market shares of competitors in the marketplace.

10.2 THE CONCEPT OF A VELOCITY GRAPH

Figure 10.1 depicts a graph for a hypothetical product category, where each brand is located in the two-dimensional space of Brand PCV% on the x-axis and market share on the y-axis. Such a graph is easy to generate since companies usually have data on share and distribution coverage for their own products and their key competitors. If you don't have these data, the value of velocity graphs should be a reason to collect them. They are often more accessible than the longitudinal data on sales and all its major drivers needed to properly estimate market response models.

We refer to graphs of this type as “velocity graphs” because the slope reflects share velocity (i.e., market share per distribution point for brands that compete in the market). In this particular example, the graph happens to be increasing ...