Growth Contribution

🎓 Definition

Growth contribution defines the share of growth (in sales value, volume, margin…) of a defined group (category, sub-category, format, supplier) compared to the total growth of the total group. It is expressed in %

🧪 Example of Growth Contribution

Let's say that the total sales in the Sports Drink Category increased by $100,000 over the last quarter. Brand A, which had sales of $30,000 in the previous quarter, saw its sales increase to $40,000 in the current quarter. Meanwhile, Brand B, which had sales of $20,000 in the previous quarter, saw its sales increase to $25,000 in the current quarter.

To calculate the Growth Contribution for each brand, we would calculate the growth for each brand, which is $10,000 for Brand A ($40,000 - $30,000) and $5,000 for Brand B ($25,000 - $20,000). Finally, we would divide the growth for each brand by the total growth in the category to get the Growth Contribution:

Growth Contribution for Brand A = ($10,000 / $100,000) x 100% = 10%
Growth Contribution for Brand B = ($5,000 / $100,000) x 100% = 5%

In this example, Brand A has a higher Growth Contribution than Brand B, indicating that it is performing relatively better within the sports drink category.

❓What is used for

Some ways that Growth Contribution can be used include:

For Retailers:

• By analyzing growth contribution relative to their competitors or the market, Retailers can identify in which Category or Sub-category where they may be falling behind or where they have room for growth.
• Help Retailer to assess the effectiveness of the Manufacturers and determine whether they are contributing to their overall growth.
• Growth contribution analysis can help Retailers to understand the impact of external factors such as changes in the economy, consumer trends, or competitor behavior. Tracking the trend over time can support Retailers in how to respond to changes in the market.

For Manufacturers:

• Analysis growth contribution can help Manufacturers to identify which Categories, Brands, or SKUs are growing the fastest within their portfolio.
• Understanding growth contribution relative to the market as a whole, can help Manufacturers gain insights into broader market trends and shopper behavior.
• By identifying Categories or Sub-categories growing faster than they are, Manufacturers can explore potential opportunities with Retailers.

How frequently should companies or retailers analyze Growth Contribution to get meaningful insights? Is there an optimal timeframe or frequency recommended for these analyses?

The frequency of analyzing Growth Contribution largely depends on the specific industry, market dynamics, and business goals. However, for many businesses, quarterly or annual analyses might be sufficient to track performance trends and make strategic decisions. Some industries with rapidly changing market conditions might require more frequent assessments, such as monthly or even weekly analyses. It's essential to strike a balance between having enough data to identify meaningful trends and not getting bogged down by overly frequent analyses that could lead to reactive rather than proactive strategies.

Are there any limitations or challenges associated with using Growth Contribution as a metric for assessing performance? For instance, does it account for seasonality or other cyclical factors that might affect sales?

While Growth Contribution provides valuable insights into relative performance within a category or market, it does have its limitations. One of the primary challenges is that it may not fully account for seasonality, promotional activities, or other cyclical factors that can influence sales trends. For instance, a brand might experience a spike in sales due to a seasonal event or promotional campaign, which could distort its Growth Contribution. Therefore, it's crucial to complement Growth Contribution analysis with other metrics and qualitative insights to gain a more comprehensive understanding of performance drivers and market dynamics.

Can Growth Contribution be used in conjunction with other metrics or analytical tools to provide a more comprehensive view of market performance? If so, what are some recommended metrics or tools to combine with Growth Contribution for a more holistic analysis?

Absolutely, Growth Contribution should ideally be used in conjunction with other metrics and analytical tools to obtain a more holistic view of market performance. For example, combining Growth Contribution with metrics such as market share, customer satisfaction scores, and profitability margins can offer deeper insights into competitive positioning, customer preferences, and financial health. Additionally, leveraging advanced analytics tools and methodologies, such as regression analysis or customer segmentation, can help identify underlying trends, patterns, and opportunities that might not be apparent through Growth Contribution alone. By integrating various data sources and analytical approaches, businesses can make more informed decisions and develop robust strategies to drive growth and competitive advantage.