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This article discusses how regional managers can build a cognitive system for digital sales. The establishment of a digital sales cognitive system is an iterative process based on existing market operations, not entirely a new system built from scratch. **Start with the sources of sales volume. The underlying logic of sales volume is composed of the number of active outlets and volume per outlet. These two dimensions can be expanded into multiple sub-dimensions and variables based on actual conditions. For example, the number of active customers in a market can be broken down by channel, such as distributor channel, traditional grocery channel, foodservice channel, travel and tourism, and modern trade. Similarly, sales volume for each channel can be calculated using these two dimensions. In this issue, we will focus on the distributor channel, traditional grocery channel, and modern trade. You will find that modern trade has the highest level of digitization. It is precisely because modern trade customers are highly digitized and professional that companies can apply data in a targeted manner, generating a series of professional operational modules, from staffing to process-driven execution actions, as well as professional promotion plans and annual business plans. By operating these modules, regional managers can understand and build a cognitive system for digital sales, and promote the good skills to other channels.

Understanding Digital Sales Starts with Sales Sources

First, the foundation of digital sales is sales itself. Let's first understand the sources of sales volume, with the aim of returning to the essence of sales. As the highest commander in the market, a regional manager must understand the capacity and potential of the market, the brand's market share, how to improve execution, and how to achieve growth. 1. Sales Sources: Sales = Active Outlets (AO) × Volume per Outlet (VPO) That is, the number of active outlets and volume per outlet determine the sales level. The sales volume of a market can be calculated using this formula, and the sales volume of each channel in a market can also be calculated. Similarly, if you want to increase sales, you can do so from two aspects: horizontal growth, by increasing the number of active outlets; and vertical growth, by increasing volume per outlet. 2. How to Grow Sales? Horizontal Growth: We call the growth of active outlets horizontal growth. Active outlets are customers who order regularly. It is essentially continuous market coverage and ongoing penetration of outlets. If you have customers but they don't order, there is no sales. If your customers don't order every month, or only order once every 3 months or half a year, your sales are unstable. For example, if your market has a total of 10,000 outlets, you have 3,000 cooperative customers, and 2,000 ordering customers. Horizontal growth would be increasing from 3,000 customers to 6,000, and active customers from 2,000 to 4,000. Analyzing growth points by channel, you can break down the 10,000 outlets into channels to see where coverage is low and where to focus. Which channels will contribute the most to the 3,000 new customers? Once you clarify this, resource allocation becomes easier. Analyzing growth points from an execution perspective, the ratio of active customers to total customers is 66.7%. A smart regional manager will notice that sales representatives below 66.7% have room for improvement and need further analysis on what can be improved. Vertical Growth: Growth in volume per outlet is called vertical growth. It can be increased through outlet execution, market activities, and new products. The average volume per outlet is calculated by dividing the total quantity ordered by all outlets by the number of ordering outlets. For example, if the average volume per outlet is 5,000 yuan per store, to increase it, you can do the following two things. First, improve execution rates by doing what hasn't been done well. Second, increase resource investment, for example, by increasing the number of displays and the number of SKUs. For example, increase displays from 1 to 2; increase the current 15 SKUs to 20. There are other means, such as reducing out-of-stock occurrences and introducing new products. This way, vertical sales can increase from 5,000 yuan to 6,000 yuan. From the above examples, if a regional manager has sufficient and accurate data, you can calculate the sales volume of your market, the sales volume of each channel, and the increment for each channel. Among them: How to obtain horizontal growth data? It can be obtained by the team recording outlet information through street sweeps, or through third-party paid or free data. The larger the area a regional manager is responsible for, the larger the data volume. For example, in a prefecture-level administrative region, the urban area is the main sales force and has more personnel. Generally, a prefecture-level city has more than 10 counties, each divided into urban and township areas. This is a huge undertaking. How to obtain vertical growth data? It can be obtained through self-estimation and from customers, but the difficulty varies by customer. It is easy to get data from small stores, but difficult from large customers. For example, for a traditional small store, sales are low and can be calculated by subtracting inventory from purchase amount. Since small stores sell fewer product categories, it is easier to get SKU-level data. For customers with annual sales in the millions, we need to know not only total sales but also data for each SKU. The data complexity is high, and the accuracy of estimates is low. The question is, how can we get this data? Is it easy to get? Of course not! Different channels have different situations, and the data obtained varies greatly! Next, let's look at the channels that regional managers are familiar with and those they are not, and see where the differences in data lie across channels.

Differences in Digitization Across Channels

From the channels that regional managers are familiar with, let's analyze the distributor channel and the traditional grocery channel:

1. Distributor Channel: It is an important node in the distribution chain, distributing products to downstream customers and having its own distribution network. Distributors can be roughly divided into those that cooperate with enterprises and wholesalers that only do distribution without fixed cooperation. Most distributors do not have systematic inventory data, and even if they do, they are not willing to share it with enterprises. There are various reasons: they consider data as their core secret, a bargaining chip to balance the relationship with enterprises, and they worry that if enterprises obtain distribution data, it will be disadvantageous to them. 2. Traditional Grocery Channel: Family-run non-self-service or self-service stores, including grocery stores, bakeries, cake shops, tobacco and alcohol stores, etc., located in commercial areas and communities. Outlets in this channel are supplied by distributors, B2B e-commerce, and enterprises. Store owners operate simply without much professional requirement. They hope to sell genuine products, at low prices, with promotions and display fees. It is difficult for us to obtain data; data is more often verbal experience or estimated from purchase volumes. Conclusion: These two channels lack systematic data, have weak digital capabilities, and limited operational possibilities, making it impossible to have a panoramic digital sales application.

Modern Trade is the Most Digitized Channel

Modern trade includes four channels: hypermarkets (e.g., Walmart), supermarkets (e.g., China Resources Vanguard), convenience stores (e.g., 7-11), and cash-and-carry (Sam's Club and Metro). Compared with the above channels, it has the following very distinct characteristics. Characteristics of Modern Trade Customers: 1) Many national chain hypermarkets/supermarkets/convenience stores are professionally managed companies with corporate culture, management concepts, standardized operating procedures, and modern inventory systems. In short, they operate digitally. Here are two important examples: a. Professional organizational management, with a separation of purchasing and operations. That is, operations and purchasing support and constrain each other. Purchasing functions are centralized at headquarters, mainly negotiating investment and cooperation with suppliers, signing cooperation agreements, and obtaining resource support from enterprises. Stores, as operational functions, are responsible for implementing agreement terms and completing product sales. b. The KPI systems of customer purchasing departments and stores are systematic and professional. To achieve revenue and profit targets, they set indicators including front-end gross margin, back-end gross margin, order fill rate, turnover, etc. When negotiating with enterprises, purchasing will always revolve around key indicators. Many regional managers feel passive when negotiating with purchasing, always feeling that purchasing constantly demands resources. The root cause is this. If you compare the indicators of purchasing and regional managers, purchasing has all the indicators that regional managers have, but regional managers do not have some indicators that purchasing has. This is the fundamental reason why regional managers are passive. Why do regional managers always suffer? First, they are at a disadvantage in indicators, and second, regional managers lack professional operating methods and experience. 2) Modern trade customers fully consider the consumer's route from entering the store to leaving, designing and placing shelves, end caps, and floor displays according to customer flow. They "intercept" consumers multiple times along the route. This interception is the action of consumers grabbing products and putting them into their shopping baskets. Increasing the grab rate means increasing sales! In simple terms, stores adopt many professional and effective methods in product display and presentation to make consumers spend more money. Regional managers must understand these professional operations to increase sales. 3) Modern trade customers have POS settlement data. Each shopping receipt contains time, product name, packaging, price, and other information, which facilitates sales data analysis. These data are complete, systematic, and diverse, and their advanced nature is unattainable in the distributor and traditional grocery channels. The above introduction of several prominent characteristics of modern trade gives you a sense of its professionalism. Next, we will introduce the sources of sales volume to appreciate the degree of digitization in modern trade. Sources of Sales Volume in Modern Trade 1. Where does store sales come from? The PITA model explains it well: of the total number of people entering the store, how many buy products, how often do buyers come to the store, and what is the average transaction value per visit? Multiplying these four factors gives the total store turnover. Each time a consumer buys something, the receipt records this data, called POS data. If the enterprise and the customer have agreed on data terms in the annual agreement, the customer will provide the sales situation of the enterprise's products according to the agreement. Of course, providing sales volume is the most basic information in POS data. There will also be sales information during promotions, member basket information, etc. Customers regard POS data as valuable wealth and do not share it easily. More dimensional POS data is only shared with enterprises that customers consider valuable for cooperation. For example, if a customer believes that an enterprise has the ability to analyze and use POS data to generate greater sales and help the customer achieve better KPI indicators, the customer is willing to cooperate. Why is POS data so important? Some regional managers may ask: I know the product details sold to the customer, and I can also analyze the reasons and find sales opportunities. Using the sales data sold to customers can certainly find sales opportunities, but is there more precise data? This is a matter of refinement. Let's define the concepts: data sold to customers is called sell-in data, while data customers sell to consumers is called sell-out data, i.e., POS data. Sell-in data includes customer inventory and POS data. In many cases, sales representatives push inventory to customers to complete monthly sales tasks. After one order, customers need 2-3 months to digest, sometimes even half a year for one order. POS data, on the other hand, shows the products bought by consumers in the current month. Because our sales goal is for consumers to buy, not to sleep in the customer's warehouse, which can cause product age issues and lead to returns and exchanges. Compared with estimated data, POS data is more accurate and has greater business guidance value. 2. How do products generate sales in modern trade? Of course, you can use the PITA formula and POS data to calculate. But from the perspective of enterprise execution, we can also obtain sales through the following methods. When the enterprise delivers products to the store's warehouse, the sales of the products begin. Sales rely on the turnover of products on shelves, floor displays, end caps, refrigerators, and other display positions. We call the products placed on these displays visible inventory, a vivid metaphor for inventory that consumers can see. The speed of visible inventory turnover determines the size of sales. Below, we use a store example to illustrate the impact of visible inventory on sales. Impact of shelf display on sales: Suppose an enterprise has products on shelves, with each SKU having 3 facings. According to customer rules, the facing space for each SKU is determined. The amount when fully stocked is 2,500 yuan. Through daily monitoring by merchandisers, weekly sales are 1,250 yuan. Thus, the shelf turnover rate is calculated as the proportion of products sold in a week: 2,500 yuan turnover rate is 0.5 times per week. Over 4 weeks, monthly sales are 5,000 yuan. Impact of floor display on sales: Suppose an enterprise invests in a 2-pallet floor display with a product amount of 2,750 yuan. Weekly sales are 3,025 yuan, equivalent to 1.1 turnovers per week. Monthly sales would be 12,100 yuan. Impact of end cap display on sales: Suppose an enterprise invests in an end cap display with a product amount of 1,925 yuan. Weekly turnover is 0.5 times, and monthly sales are 3,850 yuan. Amounts are calculated at enterprise supply prices. Aggregating all displays gives the enterprise's sales in the store. If you only have shelf display, under normal circumstances you can get 5,000 yuan in sales. If you add a 2-pallet floor display on top of the shelf, sales can reach 5,000 yuan + 12,100 yuan, totaling 17,100 yuan. If you have products on shelves, floor displays, and end caps, in good display positions, you can get monthly sales of 20,950 yuan. This example shows that sales in hypermarkets and supermarkets are obtained through the turnover of each display position. Increasing displays can also increase sales! However, achieving this sales is also affected by other factors, such as display position, area, displayed products, display price, promotion intensity, promotion period, etc., as well as product availability, execution by sales representatives and merchandisers, customer cooperation, etc. Each influencing factor has professional operating methods. We often hear people say that doing business with store customers must lose money. That must be a problem in some link, a problem in operating methods! Is it true that increasing displays proportionally increases sales? Not necessarily. The linear relationship between display and sales is affected by PITA. With a certain customer flow, sales have a peak, which limits the number of displays. At the same time, the investment cost must meet the enterprise's input-output standards. This requires finding a balance point. Overall, where does sales come from? Professional operations based on data, combined with experience, and mutual trust and division of labor with customers, produce sales. Healthy sales mean that products are bought by consumers in stores, mean stable and continuous growth, and mean reasonable input-output!

Building a Cognitive System for Digital Sales by Leveraging Modern Trade Management Methods

1. What data can be obtained from modern trade? 1) POS data: a. Full-category data: If you can obtain the customer's full-category POS data, you can know category development trends and changes in consumer preferences, as well as your brand's share in the customer. b. Enterprise product data: You can know how many products consumers bought. If delivered through distributors, you can know accurate sell-in and sell-out data. 2) Member data: If you can obtain member data, you can understand the composition of shopping baskets, discover which products are associated with yours, conduct associated sales, and know consumers' average transaction value and other very useful information. 3) Order fill rate data: Customers have high requirements for delivery services. Through data, you can sort out processes in ordering, billing, production, warehousing, and logistics. Reducing out-of-stocks is increasing sales! It also improves customer satisfaction. 2. Why is data so important for achieving goals? 1) Experience is valid but limited; data is extensive and scientific Sales cannot be separated from experience, there is no doubt about that. But relying too much on experience is not feasible. We will analyze from the dimensions of time and space. From the time dimension, the experience summarized and accumulated at the time was suitable for the situation then, and appropriate solutions were found. If you summarize your experience, you will find that the logic of data is completely connected. This is an unconscious process of applying data. The problem with empiricism is that when market conditions change, there is no timely adjustment, and old methods are used to deal with new situations, that is, using unsuitable methods. The important factor that guides us to understand market changes is data. In other words, data + experience can yield new methods and experience, while acting on experience alone does not necessarily yield new experience. Experience also has the same phenomenon from the geographical dimension. Experience accumulated in coastal markets may not be suitable for inland markets. Similarly, we often see regional managers doing well in the market where they started, but not necessarily succeeding in other provinces. One reason is that they use too much experience and too little data! 2) Refined store management requires data support With the deepening of business, refined management is the only way. Business twenty years ago and business now have undergone earth-shaking changes. For example, twenty years ago, sales representatives visited stores without any equipment, and regional managers could not know what they did all day. Later, a handheld terminal was developed to help sales representatives record visits, but it was expensive and only a few enterprises could afford it. Now, mobile phones are used to complete store execution, ordering, and a series of actions, so refined management is an inevitable trend. Among many channels, modern trade is the channel with the highest degree of refined management. We say that store sales come from the turnover of visible inventory, and increasing turnover requires refined management. Quantifying execution actions is one manifestation of refined management. The visit actions of sales representatives are professional, standardized, and simplified, and so are the actions of merchandisers. Therefore, refined management cannot be separated from data. 3. What can we do with data? In achieving goals, with data support, we can achieve not only revenue targets but also share and profit targets, which is what business owners hope to see. In sales execution, we can quantify the operating procedures of sales representatives and merchandisers through data. Digitally check execution results, and track differences between execution and goals through reports. In planning, we can formulate targeted promotion plans that take into account both customer and our KPI indicators. By analyzing data to find opportunity points, we can make resources strike precisely like missiles, thereby improving the efficiency of cost use. We can also work with customers to develop joint business plans to achieve common goals. By analyzing the sources of sales, we recognize the importance of data. Different channels have different levels of digitization. Modern trade has the highest level. The PITA model and visible inventory turnover theory tell us the sources of sales in modern trade. Through refined management, we can increase sales, and the focus of refined management is data. Therefore, regional managers can build a cognitive system for digital sales by leveraging modern trade management methods. About the author: Cao Yang, expert in key account and modern trade management. From frontline to headquarters in a world-renowned Fortune 500 company, he has served as regional manager, key account manager, group key account director, and national key account channel general manager. He localizes world-class marketing experience and explores the way of industry transformation. Willing to exchange and learn with peers for common progress, and willing to use years of accumulation and precipitation to help those who are still struggling! The above articles only represent personal views.