Velocity

Velocity was a term I wasn’t familiar with until I entered the CPG world, but is something that is so important to a brand manager. I’ll explain what velocity means in the context of the CPG industry and why it is such a commonly used metric in marketing.

In a nutshell, velocity is the rate at which a product sells in stores. Velocities are typically measured by the number of units sold per store per week, or u/s/w. The reason why velocity is such a great measure is because it takes distribution out of the equation, which makes it easy to compare the performance of different brands in the same geography. I’ll use an example to help illustrate why taking distribution out of the equation is important.

Let’s say your company launched a new product this year and it is slowing gaining distribution in retailers across the U.S. As you market your new product you want to see how it is performing relative to competitive items (items within the same category and of the same pack type/size). Chances are the competitive items have higher distribution than your new product, because you’re slowly gaining distribution, so it makes it hard to compare your product to competitive products because the distribution for each product is totally different. Velocities make it easy to compare the performance of your product versus the competitors’ because it only measures sales based on the number of stores selling your product. So no matter how large or little distribution your product has, you see how many u/s/w your product sells. You also see how the competitive product is selling based only on those stores it is sold in. It is an apples to apples comparison across different brands in the same geography.

It is important to be aware of your product’s velocity so that you can measure its performance against the competition, but there is another reason you should pay attention to velocities carefully. At a grocery store there is limited shelf space and as a result only a limited number of products are allowed to fit on the shelf. Makes sense right? So retailers are interested in selling those products that move quickly, because the more products they sell the more money they make. Again, that makes total sense. So retailers look at velocities to decide what products to include in the planogram and what products to take out of the planogram. If your product’s velocities are low there is a chance that your product will eventually be taken off the shelf. The inverse is also true, if your product’s velocities are high it will keep its place on the shelf and continue to make the retailer happy.

So if you are a brand manager it is in your best interest to watch velocities to see which retailers your product may be struggling in and know where additional marketing support is needed. This will help you to know where to execute incremental marketing programs to help create awareness and drive trial for your product, and thus increase velocities. Watching velocities over a long period of time is also a good way to discover seasonality of your product, see trends, and measure the effectiveness of a marketing program (coupons, an in-store demo, a sampling tour, etc.).