Are you getting incrementality wrong?

February 14, 2023
By Randy Ornstein, Sr Director of Alcohol at Gopuff, Author
Hayley Ornstein, Author, Ph.D. Counseling Psychology

Success in selling comes from having data to back you up!

Always, always use data to make your case. Saying, “This is going to work” or “My item will sell in your store” does not make for a powerful case and will not get you the “Yes.”

A sales metric that is often used, but often used incorrectly, when selling is incremental opportunity.

Incremental opportunity refers to new revenue that will be gained from a new item minus dollars that it cannibalized from its category. (Depending on your situation, you can interchange “new item” with “new program” or “new process.”) As leader of the Gopuff Alcohol Merchandising team, incremental opportunity is typically used when referring to how much additional revenue a new item will bring to our Alcohol category.

However, time and time again when I meet with suppliers, I see them getting incrementality wrong. They present their new item and say, “This item will bring 80% incrementality to your beer category.”

I think to myself, “There is no way this item, which is just like other items in the category, is going to bring 80% incremental growth.”

A novice in business or an overly ambitious salesperson may mistakenly believe that any grocery store will, of course, benefit monetarily from carrying and selling their new product. However, this is short-sighted.

If you are selling a me-too (copy-cat) item or an item that is similar in any way to other items in the store, the dollars generally just transfer from one item to another within the category, an effect called cannibalization. The more differentiated your item, the smaller the cannibalization rate and the more incremental opportunity it will provide.

There is no perfect way to calculate cannibalization. Every new item will cannibalize an old one to a degree. You just need to estimate by how much.

After working with sales data my entire career, I use the following guidelines:

  • A “me-too” or copy-cat item (an item that is very similar to an already existing item) has a cannibalization rate of 80–100%. This is an incremental opportunity rate of 0–20%.
  • A differentiated item (a new flavor, etc.) has a cannibalization rate of 50–80%. This is an incremental opportunity rate of 20–50%.
  • A new-to-the-world item (the first of a product to enter a category) has a 30–50% cannibalization rate. This is an incremental opportunity rate of 50–70%.

In my opinion, nothing has a cannibalization rate of less than 30% or an incremental opportunity rate of over 70%.

Syndicated data providers (e.g., IRI, Nielsen) can provide their own, potentially more accurate, estimated cannibalization rate based on their data and algorithms. (Don’t ask me how they do it; that’s why we pay them the big bucks.) Here is an example (with fabricated numbers) of how incremental opportunity could look with a new item in an established category.

If a retailer’s BBQ Sauce Category sells $10 million a year and a new Randy’s Yellow Curry BBQ Sauce is projected to sell $1 million. $1 million is the size of the prize. If the cannibalization rate is projected to be 70%, then the amount of new money it would really be bringing into the category (the incremental opportunity) is $300,000—not $1 million. The other $700,000 would be dollars taken away from other BBQ sauces in the category. The retailer’s projected BBQ Sauce Category sales will go from $10 million to $10.3 million.

52 Week Dollars

If you state that you expect a 30% incrementality rate, you should provide support for your estimation. Support could be as simple as unique facts about your product or as in depth as feedback from a focus group. Whatever your approach, provide some specifics to back up your incrementality estimate.

Incremental opportunity consideration is important, not only when selling to external retailers but also when pitching projects and ideas internally. For example, if a beer brand plans to create a new product, such as a seasonal IPA, they would want to know the incremental opportunity of the new item, given it would likely cannibalize other items in their portfolio.

When you understand incremental opportunity, you not only will understand the financial benefit of selling highly differentiated products but will be better equipped to present and make decisions about your business.

More tips on how to effectively sell and get the “yes” can be found in Randy Ornstein’s newly-published book, Grow: The Essential Guide to Getting Promoted. Grow contains tangible tips to incorporate into your daily work life and is a practical guide to advancing your career in any environment. This book is a compilation of best practices accumulated throughout Ornstein’s work with national retailers, top-selling brands, and fast-growing startups. The recommendations are supported by real-life examples, expert testimony, and research in the fields of business and psychology. Grow: The Essential Guide to Getting Promoted is available at Amazon, Barnes & Noble, and Porchlight Books.

Grow by Randy Ornstein