How a change in incentives creates behavior change and delivers results
We all have stores that just don’t change. We go to take the order, do the inventory, and just load them up on the regular stuff they need week after week. We all have stores like this that tell us that they “don’t have high GP shoppers” or impulse buy shoppers. However, that is a cop-out and here’s why.
Before The Change ⏳⏳⏳
First, let’s check out the prior year to date numbers for the first 6 months of change after implementing VXP, along with aligned incentives. We see that this particular account’s top five packages are: Busch, Bud Light, Bud Light, Budweiser, and Busch (all can packages). The profitability of those is relatively low compared to our blending portfolio of what we could be selling. In this store, the sales rep under the old incentive program has 8 high GP items in the store. Those high GP items count for $1,111. The total GP/CE blended across the whole store is $3.57.
Under the old incentive package, you can see how a rep is responding to their return on effort. They are going through, checking the box, and responding to their pay for performance (PFP plan) to place Ultra. You can see Michelob Ultra distribution is up because we wanted to increase distribution this year. This is a good thing, but you can see there is limited creativity around other high GP products or other GP opportunities for the sales rep to influence the outcome.
In summary, the old volume-based PFP program was not encouraging creativity. It was directed authoritatively from the top down and was riddled with supplier incentives that were truly inefficient for what the store’s potential could be in relation to distributor profitability. Of course, when all is said and done, we are in this game to make more money while still utilizing our full portfolio.
Current Year Changes 🙈🙉🙊
Now, let’s fast forward to the current year. Our incentive structure change is in place and we have put data into our reps’ hands to make decisions in real-time. You can see with this store, the top 5 packages are the same. A few of the packages have changed positions, but they are exactly the same.
This all means that the complexion of the store has not really changed. The consumer is still shopping for roughly the same packages and the grosses are roughly the same. There is a little bit of volume growth but it is very slight.
Incentive Change 💲💲💲
That isn’t the whole story. There has been a lot of change if you dig into the distribution numbers. You can see that we have a lot more High GP items in the store. You can see a lot more creativity and calculated risk-taking as well.
What drove this additional $500 in GP and an additional 21 cents/GP and new GP/CE to the bottom-line performance of this store?
We can see the top 4 packages from the prior year are all the same Ultra packages, so those are still alive and doing well. As we dig a bit further into the SKU counts, we can see other SKUs that are more creative with higher GPs have been making their way into the store. We have Fresh Squeezed 19.2 cans, a Bud Light Lime addition, New Belgium that is maintaining its package relation from last year, new Shock Top, Discovery Reserve, Voodoo Ranger 19.2 cans, and Goose Island 12 cans. You can see there is added creativity and SKU placements, particularly around the single-serve.
If we look back at the top 10 packages, we can see that 4 of the top 10 packages are single-serve. This is a single-driven account, and the sales rep has used and exploited that opportunity to add high-end single-serve opportunities to the account. The rep has been using their data and changing their behavior to meet their goals.
So, what does this mean now? We have gone from 8 high-end GP packages in the last year to 24 this year, accounting for $1,610 in high GP dollars from those packages. The GP/CE has gone from $3.57 to $3.78. All of that is a positive summary impact for the account, and for the business. So, the profit for this individual account has greatly increased compared to last year.
Under the old compensation program, you can see that the outcomes were ideal for that compensation plan but were not truly up to the profit potential of what the account had.
Incremental Improvement Looks Like 💯💯💯
The most shining example of how the incentive program has changed the account’s performance is in Natty Daddy 25 oz cans. They have sold 65 cases and driven $135 in gross profit. However, when the account and the sales rep were creative and put in Deschutes Fresh Squeezed (which only sold 18 cases) it delivered more total gross profit dollars than Natty Daddy.
Having Fun Again 🎯🎯🎯
The beauty, the fun, and the creativity of this compensation program is that when you look at an opportunity like this and find one, you do not have to double the volume to get the same gross profit results.
You just need to incrementally improve the velocity of a high GP item. Because we can do this at scale, that can drive extreme profitability to the bottom line of our business and deliver the results that we are looking for.
In summary, people respond to incentives. How an account or a part of your business performs is truly correlated to how you are incentivizing your team and your salespeople. You can drive sales rep behavior change and engage them to think differently when they are incentivized to help the business make more money.
Our perfect clients set up an incentive structure focused 50% on gross profit, 35% on volume, and 15% on finished product loss. This will align your sales teams’ outcomes with your operation’s bottom-line profit.
Are you ready to earn more and see these results in your accounts? Reach out to us today to find out more.