How Sales Reports Can Fool You into Making Bad Decisions

It’s easy to be fooled by sales reports. If you don’t watch out, they will cause you to make bad decisions, which may cause revenue leaks in your business. Let me highlight two common mistakes merchants make again and again.

Sales reports are certainly helpful when analysing the performance of different products in your store. However, if you are not aware of these traps when interpreting those numbers, you may be hurting your revenue without even knowing it.

Mistake one is the worst-seller trap.

Mistake two is the best-seller trap.

Both can occur when you’re not fully aware of how consumers behave in specific shopping situations – a topic I’ve spent years exploring in my job as a consumer insights researcher.

Mistake #1: The worst-seller trap

This mistake illustrates how easily you can lose money when you select the wrong existing product to replace with a new one.

Pretend for a while that you sell chewing gum. Now, a pack of new chewing gum is introduced to the market, and you want to sell it in your store. Let’s assume you don’t have space on the shelf (or in your warehouse) unless you remove one of the existing product lines. So you ask yourself:

Which of the existing chewing gums should I ditch?

You look at the sales report. It tells you, with perfect precision, which one of the existing chewing gums is the least popular in your store.

You see that all 16 mint variants sell better than any other flavour. The odd flavours – strawberry, lemon, melon and some others – are at the bottom of your gum sales list. You sell only one variant of each of these because of the low demand. You notice that melon is the least popular, so that’s obviously the one to kick out, right? Besides, the new gum is mint; destined to be a best seller just like all the others of that flavour. The choice seems so easy: melon out, new mint in.

Or?

No. Not necessarily.

It may, actually, be a much more profitable choice to remove the least popular mint gum. Why? Because the consumer who prefers mint can switch to another mint variant without too much hesitation. The leap isn’t that big. As for the consumer who wants a melon gum? You’re asking them to choose an entirely different flavour. That consumer is very likely to go elsewhere to find their preferred choice.

What does this mean for your online store?

Give that question some thought. When reading your sales reports, you need to take the substitution effect into account, both when deciding which products to have available/promote to customers – including colours, sizes and flavours – and which ones to downplay. Ask yourself: will your consumer choose another of your products if they don’t find this specific one in your store, or will they buy their favourite gum somewhere else? This question is also relevant when deciding how to present your range online – which products to promote at any time.

So you can see, it’s about being aware of customer behaviour. Sales reports only tell half the story.

Mistake #2: The best-seller trap

The fact that your best-sellers are best-sellers doesn’t necessarily mean they are performing well. When Swedish football star Zlatan Ibrahimovic was at the peak of his career, he didn’t always perform well, even if he – at the very same time – was considered one of the best players in the world.

In the same way,  your best-sellers might be performing miles off their full potential. By tweaking the price, or the way these products are presented/promoted (What features are you playing up? What problem does this specific product solve for consumers? etc.), or maybe changing a couple of features (if you produce your own products), you could take sales to even higher levels.

But how? What should you tweak? And in what way?

Optimising product performance – or product range performance for that matter – is an art in itself. The consumer’s decision to buy or not to buy, and for what price, is the result of a myriad of parameters. For example:

How are the different attributes of a product presented? Are there different options? How many? What is the price? Are there other products on the same page that affect the perception of the price?

It can quickly get very complex. Adding a new colour can make as much difference to the bottom line as a price change. You can’t simply ask people “Would you buy this in pink?” or “Would a package that combines X, Y and Z inspire you to buy?”. Apart from anything, their answer is unlikely to be congruent with how they act in real life, when the product is presented alongside a number of competitors. What people say they would do, and what they actually do, are two different things.

There are ways to deal with this. If you have the resources to introduce variations of products, and run A/B tests changing one attribute at a time, that can work well. In my profession, we use scientifically proven techniques like conjoint analysis to help determine how consumers value the different attributes that make up an individual product or service. Survey participants are invited to make choices in up to 20 different simulations, where assortment and product attributes are presented in multiple combinations. For the participants, it’s impossible to figure out what’s being tested. Is it price? Is it colour? The process comes very close to real-world behaviour. In the end, it’s clear what changes can be made to products to optimise performance.

The moral of the story:

Just because the sales reports tell you which your best-sellers are, it doesn’t mean you should get complacent. Yes, your star products may consistently perform well, but how much more could you earn by optimising your offers and your communication to better fit consumer needs and behaviours? How do you know products have truly reached their full potential unless you try to push them further?

Don’t let the sales reports fool you.

Always be aware of real consumer wants, needs and behaviours.

Read more from Viveka:

Should You Ask Your Customers What They Want? The Answer Isn’t Obvious

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About the author

Viveka Söderbäck

Consumer Insights Manager at Klarna

What I do during an average week: Follow up on consumer behaviours we observe to understand the reasons/drivers governing those behaviours. Talk to consumers to understand and map unsolved problems they face, test new ideas and concepts to evaluate and iterate them, follow up on satisfaction metrics to see where we need to put our attention.

One secret from my life: I am no creative mind, but I am fascinated by those lucky people who are. I love finding patterns and digging into behaviour, and I am very often surprised at how consumers reason, as this is often quite different from my own line of reasoning.

What I personally shop online: Everything; I rarely go to physical stores, except for day-to-day groceries.

What I want to bring as a columnist: A better understanding of consumer behaviour and why it’s so important to understand consumers deeply.

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