assume that your store A has more profits than your store B, and the market is similar and they are selling exactly the same things. How can you increase the profits for store B?
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How can you isolate solution if the problem is a sales mix problem?
If the sales mix is geared towards lower margin products (supplier negotiations, use alternative suppliers, potential substitutes, etc.) , you can potentially address each profit driver: you can increase prices of the low-margin product(s), you can try to bring down the cost of the low-margin products, and you can stimulate demand of high margin products
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How can you structure a case if you want to see the difference in 2 operations
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Hi Anonymous,
- Firstly you need to identify the numerical driver of the lower profits of store B (the WHAT? question). --> Draw a driver tree to isolate the core of the problem (less customers? less revenue per customer? lower margin products sold? lower pricing? operational costs? etc.)
- Once the numerical problem driver is isolated, you need to understand the WHY? question. For this, the analysis depends on what the actual problem is. If it is a cost problem, you may want to go through the entire value chain to diagnose where the difference/disadvantage lies. If it is a revenue or sales mix problem, you may want to scrutinize strategic measures to adapt the offer 8or way of offering) of store B.
Cheers, Sidi
2 comments
Hi Anonymous,
you can structure the process as follows:
- Understand what is creating the problem for store B:
- Identify how profits are segmented (eg product or customer)
- Identify which segment has the profitability issue compared to A
- Identify if for that segment you have a revenues or cost issue
- If it’s a revenues issue: understand if it’s a price or volume issue. If it is a cost issue: understand if it’s a fix or variable cost issue.
- Understand why you are having the problem in that bucket. You can analyse this dividing in internal and external reasons that could create the problem.
- Understand what could be the solution to increase profits. In general you could work on
- Revenue side
- Work on current product
- Work on new products
- Cost side
- Decrease cost per units of input
- Decrease number of units of input
- Revenue side
- Consider potential risks and next steps in the implementation
Best,
Francesco
Hi,
I would look at the following:
Revenues
1) Average check
- Length of the check
- Product mix in the check
Key check drivers:store format (space and assortment / price / product quality), promo & discounts, personal sales (fashion, electronics), loyalty programs, merchandising, stock availability, etc.
2) Number of customers
- Traffic
- Conversion - important in fashion and consumer electronics. less relevant for grocery
Key customer drivers: Location, Time opened, brand awareness, store format (space and assortment / price / product quality), external factors (parking, signage, etc), in-store experience (queues, look and feel, etc)
Costs
1) Fixed
- Labour
- Rent
- Utilities
- Marketing
2) Variable
- COGS
Best!
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