Why we sell the way we do?

Pritha Saha Jun 11, 2018

A deeper look at what we could sell versus what we already sell

Beating the Pareto psychology

Vilfredo Pareto, an economist, had made an observation back in the

1900s, that 20% of the Italian population owned 80% of the property.
This groundbreaking observation was later adapted to most business
problems and is a popular tool to identify the 20% input that is causing
the 80% output.

Paretoʼs Principle implies that most of our effort should be directed

towards those 20–30% inputs which generate the most output.
However a lot of businesses have proven this wrong. Netflix gets most
of its profits from a large number of infrequently requested movies
rather than a few blockbuster and profitable ones. The same holds
true for songs bought on Itunes or products bought on Amazon. This
is where the theory of Long Tail comes in. While Paretoʼs theory can
be applied only where there is a known workflow and applies in
hindsight, Long Tail tells us how we can reap profits by selling “More of
less”.

Although a small percentage of the products contribute to the most

popularity, the cumulative sum of popularity of the larger percentage
of products cannot be discarded either.

According to Chris Anderson, author of the book The Long Tail: Why
the Future of Business Is Selling Less of More, our “economy and
culture is shifting from mass markets to millions of niches”.

Traditional retail economics dictate that only hits get stocked in the
store. But in an online world, where we pay zero cost to showcase
inventory, there is ample scope to stock virtually everything. It is
ultimately the millions of niche choices, which cater to peopleʼs narrow
interests.

We found this theory to be true for our business as well, as

demonstrated by the below graph:

This graph shows the sales contribution of all brands within a 3 month
period.

We found that minimal additional efforts are going behind the small
percentage of brands which are generating most of the sales, just like
hit movies on Netflix.

As a platform, that strives to provide the best of fashion to consumers,

we decided to focus on the width of our assortment which are live on
our platform and have the potential to generate much more cumulative
revenue, in other words the long tail of our assortment.

We discovered a variety of issues with the long tail, ranging from

commercial issues, low percentage of fresh content, pricing issues,
frequent order cancellations, product defects, inventory sync issues,
delays in order fulfillment, etc.

Since these problems were interlinked, it was difficult to decide which

one to prioritise first. After several rounds of brainstorming, we came
up with a process of scoring brands on the basis of different
parameters, which could serve as a reference to the category
managers to come up with a priority order. This was how we got
started with our Brand Audit Methodology.

Structuring the Project

The Project was broken down into three parts:

1. Gathering Data

The first task was to get all the brand metrics in a single place. This
proved to be an extensive task as data was not maintained in the
format that was needed. For instance, all metrics were categorised
brand wise, however there were many instances of one brand coming
from multiple companies. One would be the parent company and the
others would be franchisees or distributors. In that case, for each
company-brand combination, the performance and the commercial
terms would be different.
Once the data structure was resolved, we got down to defining the
metrics. The tool we used in this regard was Google BigQuery, to link
data from several database and transform data in the way we wanted
to view.

The data points were grouped under the following heads-

All in all there were around 26 metrics for a single company-brand.

In order to remove any legacy bias, we were always tracking these

metrics on a rolling 90 days period. The metrics were always viewed in
percentage terms and not absolute figures.

2. Analysis
Now we had a mammoth set of data, with everything in place. But it
was still difficult to make out what was happening with a particular
company-brand. For instance sales might be high for the brand, but
the product returns are huge ultimately generating negative ROI. Also,
we didnʼt know how to compare performances. Brand A could be
priced at Rs.500 and Brand B could be priced at Rs.1,000, but with a
50% discount. If Brand B generated more sales than Brand A, would it
be easy to conclude that this is because the perceived value of Brand
B is more? Or is that just one of the factors?

We proceeded to study the factors , which could influence purchases,

as outlined below

Case 1: In case a brand was coming from different retailers, the pricing
and the nature of products could deviate across the companies. For
instance, in case of a particular lifestyle brand, we were live through
two companies — parent company and a distributor. Our selling pattern
was different for both of them as per the below snapshot of all the
metricsʼ data:
Case 2: Gender preferences were varied when it came to pricing.
Women were more price sensitive than men, hence the average selling
price in certain categories were more for men than women. For a
particular footwear brand this was the average selling price for a
particular month:

Case 3: Behaviour varied for every category. Making a decision to buy

a Rs.500 top was far easier than buying a Rs.500 necklace. There
were three levels of categories — L1, L2, L3. L1 would be the broadest
category, like Clothing. L2 would be a sub category like Dresses and
Jumpsuits and L3 would be a sub category within L2, like Skater
Dress. Price sensitivity was mostly within the L2 category, as
demonstrated below. Hence we decided to consider L2 as a factor.

Basis our studies, we decided to divide our entire assortment into

segments, which are nothing but “company-brand-gender-
category” combinations. There are almost 2,000 such combinations
in Fynd.

Now we needed to find and segregate similarly behaving segments to

make a fair comparative assessment between them. We decided to
place similar segments in a price bucket. This price needed to be the
representative price of the collection of buckets

Segregating similar segments/datasets (based on price)

This was divided into two parts:

a) Identifying each segment/dataset on the basis of a parameter (price

in this case). Firstly we calculated the average price across all items in
a segment. However, the average price did not seem to be a good
indicator for the segment, as in certain cases the deviation amongst
prices could be high. So we calculated the median price of the
segment. Lastly, we calculated the minimum of the average and
median price. This seemed to be a fair indicator of the segment price.
We will be referring to this representative price as min_price from now
on.

Below table showcases the min_price for different segments, for a

particular brand:
b) Bucketing similar segments/datasets

This was a slightly subjective decision and was decided after studying
customer profiles and a round of brainstorming. For segments, whose
min_price was below Rs.2,000, the price sensitivity seemed to change
for every Rs.400. For segments whose min_price was below Rs.4,000,
the price sensitivity seemed to change for every Rs.1,000. Between
Rs.4,000 and Rs.8,000, the price sensitivity seemed to change for
every Rs.2,000.

When we say the price sensitivity changes within a particular price

segment, it means that items within a certain range will probably be
evaluated equally. Hence a customer will view a t-shirt priced at
Rs.200 and a t-shirt at Rs.300 on the same plane. Similarly a customer
will view a dress valued at Rs.5,000 and at Rs.7,000 on the same
plane.

We formulated the below logic for assigning the price buckets, or

Price_Round, as we shall be referring from now on:

We decided to review this logic every quarter.

Based on this logic, we now had the respective Price_Round for each
segment.

So within a particular Price_Round, in a certain category and for a

particular gender, we could compare the performances of each
company-brand and evaluate them.

3. Representing Data

Now that we had put a method to the madness, the next step was to
represent the data in a way that was easily and quickly
comprehensible. There were a lot of metrics we were tracking, hence
making it difficult to immediately conclude if the health of the brand
was good or bad.

We decided to select some crucial metrics, put certain weightage and

formulate a score. These metrics were again normalised to depict the
comparative performance within a price band.

Below scoring chart was used:

The weightage was assigned between absolute values of 1 to 2, to give

similar importance to all metrics. Factors influencing sales/business
the most have been assigned a weightage of 2, followed by 1.5 and 1.
Assigning higher numbers to a very critical metric runs the risk of
biasing the score towards a particular attribute, while undermining
others. However this would be under observation for the first three
months of the project and then could be subject to change based on
the scenario.

The metrics marked in blue were calculated together to form Orders

Score.

The metrics in green were calculated together to form Content Score.

The metrics in pink were calculated together to form Traffic Score.

The threshold score for each was the average score in that segment.

Based on this calculation, we now had a clear picture of performance

among segments:

This is the score card for one of the menʼs sub categories within
Footwear. The brand names have been hidden for confidentiality
purposes. For each company-brand combination, we now know the
performance in each sector-Orders, Content and Traffic, with respect
to a particular Price_Round.
For instance within the Rs.2,000 Price_Round, one company-brand is
performing above threshold in Orders, but below threshold in Content
and Traffic. There is one brand, which is performing below threshold in
all 3 sectors. This is a warning signal and pretty much indicates that it
needs the category managerʼs attention.

Now to identify the exact nature of the problem, the category manager
can deep dive into the individual metrics of the particular sub
category:

This is just a snapshot of the entire metrics board. All the metrics here
were only applicable to segments.

For the entire visualisation, we used Bime Studio, which we connected

with data from Google BigQuery.

With this, we finally concluded laying the foundation for our Brand
Audit project.

However, this is far from over. We would need the support of our brand
partners to achieve our joint goals together. This cannot happen
overnight by enforcing a new process.
Hence we have thought of a creative approach to engage our brand
partners through a human focussed design, or in other words a
gamified journey, to attain goals and earn rewards on the way. This is
still getting conceptualised.

For now we need to keep our sights focussed on the metrics that
define our vision of the Long Tail.

References

The Longtail
The Pareto Principle versus the Long Tail
Understanding the Pareto Rule

We welcome your feedbacks, insights and suggestions for topics that

you would like us to cover, please reach out to us at
brands@gofynd.com.

What an amazing and insightful article this is! I loved your attention to
detail and thoughtful systematic approach to go about explaining the
process. This was very helpful. Thank you!

can you translate this into human terms (non econ acedemic) how
about what it all means to the small business owner who has a botique
clothing store. Also does one need to take into acct. weather winter
months vs summer months?

Hi Sue,

To answer the first question we would first need to consider the

factors which influence purchase and differentiate the purchasing
behaviour. Then we can create segments based on that and check
how they are performing. Weather would be accountable if that is a
determining factor in the purchasing behaviour. Would be happy to
discuss this over a call or Skype to understand better.