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What is Category Development Index?
Category development index or CDI is defined as a ratio that measures the sales performance of a particular category of a brand. While calculating CDI only a particular product category is considered. The goal here is to understand the relative performance of the product category when compared to the overall brand.
The index essentially showcases what percentage of overall sales does the product category accounts for. For this purpose, the sales performance of the overall brand and the specific product category for a specific region is considered. By taking a ratio of these percentages the category development index is found.
By definition, the category development index measures the relative sales strength of a category. But it’s important to note that CDI is calculated by considering a particular segment of the overall market to get a more microscopic picture of how the category performs for the said segment. These market segments can be bifurcated based on demographics, age groups, location, etc.
Purpose of calculating Category Development Index
The purpose of calculating the category development index or CDI is to find a reliable metric that can be assigned to a product category. Marketers can then identify and place the product segments in a chart showcasing their relative sales performance. Based on this metric, budgets can be assigned to improve the performance of underperforming categories.
This term is closely related to another popular index called the brand development index (BDI). The brand development index is different from the category development index as it focuses on understanding the relative performance of the entire brand in different market segments. The result is a chart that shows how well the band performs in a particular region.
How to calculate CDI?
The category development index is technically a ratio of sales of a category in a market segment and the total sales of that category for the entire market. Let’s take a look at the CDI formula -
Category development index = [(%Category Sales in a Market Segment/ Market Segment Population) / (Total Category Sales/ Total Market Population)]
Here the market segment can be uniquely defined based on the information needed. The segments can be a particular region or demographic of the overall market.
Examples of Category Development Index
Let’s take an example to understand how you can calculate the category development index. Let us consider a food company that sells a range of food products. We need to find out how the company’s ice cream performs in Seattle, compared to its overall market in the US.
Let’s suppose the ice cream sales in Seattle over a particular period is 200,000 units. The total ice cream sales in the US are 1.8 million units. The population is Seattle is approximately 72 million and the total US population is 330 million.
The category development index can be calculated as follows -
CDI = [200,000/72,000,000] / [1,800,000/330,000,000]
Hence the CDI index is approximately 0.05 for the ice cream product category in the market segment of the region Seattle.