Making strategic decisions requires understanding performance metrics. The Brand Development Index (BDI) is a focused metric offering a clear lens through which businesses can view their performance in specific geographic markets. This tool provides a quantitative foundation to evaluate and compare how well a brand resonates with consumers from one area to another.
What is the Brand Development Index?
The Brand Development Index (BDI) quantifies how well a brand is performing in a specific market segment compared to its average performance across all markets. It measures the relative sales strength of a brand in a defined area, which is often a geographic location but can also be a demographic group. The purpose of BDI is to help marketers identify which markets are strongholds for their brand and which are weak spots.
By comparing the percentage of a brand’s total sales in a market to the percentage of the total population in that same market, BDI provides a standardized score. This score tells a business whether its sales in that region are proportional to the population size. This allows for an objective assessment of brand penetration, highlighting areas of high consumption and those that may be underdeveloped.
The Brand Development Index Formula
The calculation for the Brand Development Index is a straightforward ratio. The formula standardizes a brand’s sales data against population data to make comparisons across different markets fair and insightful.
The formula is as follows:
BDI = (% of Total Brand Sales in Market / % of Total Population in Market) x 100
To use this formula, you need two main components. The “% of Total Brand Sales in Market” is the portion of your brand’s nationwide sales from the specific area you are analyzing. The “% of Total Population in Market” is that area’s share of the total national population. Multiplying the ratio by 100 converts it into an index number.
How to Calculate BDI Step-by-Step
To illustrate the BDI calculation, let’s use a hypothetical example of a beverage company, “Sparkle Soda,” analyzing its performance in California.
First, gather the necessary sales and population data. Assume Sparkle Soda generated $20 million in total national sales last year, with $4 million in sales from California.
Next, calculate the percentage of brand sales from that market. In this case, you divide California’s sales by the national sales: ($4,000,000 / $20,000,000) = 0.20 or 20%. This figure shows that California accounts for 20% of Sparkle Soda’s total sales.
The third step is to gather the relevant population figures. Suppose the total population of the United States is 330 million, and the population of California is 39.6 million. This information is available from government census data or demographic data providers.
You then calculate the market’s percentage of the total population. Divide California’s population by the total U.S. population: (39,600,000 / 330,000,000) = 0.12 or 12%. This tells you that California represents 12% of the total national population.
Finally, apply the BDI formula using the calculated percentages. Divide the brand sales percentage by the population percentage and multiply by 100: (20% / 12%) x 100 = 166.67. The BDI for Sparkle Soda in California is approximately 167.
Interpreting BDI Results
Once calculated, the BDI number indicates your brand’s performance in that market. The baseline for interpretation is a score of 100, which acts as the average against which market performance is measured.
A BDI of 100 indicates that the brand’s sales in that market are proportional to its population. This means the brand is performing at an average level, and the per capita consumption in this market mirrors the national average.
When the BDI is greater than 100, it signals that the brand is performing better than average in that market. A high BDI suggests strong brand penetration and a higher-than-average concentration of your customers. For example, a BDI of 167 for Sparkle Soda in California means that sales there are 67% higher than expected based on the state’s population size.
Conversely, a BDI below 100 signifies that the brand is underperforming relative to the market’s population size. A low BDI points to weak brand penetration and presents an area for growth. It suggests that the brand has not captured its fair share of the market and could benefit from increased marketing efforts.
Using BDI with Category Development Index
While BDI provides a view of your brand’s health, its strategic power increases when used alongside the Category Development Index (CDI). CDI measures the performance of an entire product category in a specific market. The formula is similar: CDI = (% of Total Category Sales in Market / % of Total Population in Market) x 100. By plotting BDI and CDI together on a matrix, you can derive strategic insights.
This matrix creates four quadrants, each suggesting a different approach.
- High BDI and High CDI: This is a “star” market where both your brand and the product category are popular. This is a strong, healthy market where the primary goal is to protect your existing market share and invest to continue growth.
- Low BDI and High CDI: This represents a significant opportunity. The product category is popular, but your brand is underperforming. This signals a prime opportunity for growth, suggesting that increased investment in marketing could capture a larger share of an interested market.
- High BDI and Low CDI: Here, your brand is popular, but the overall product category is not. While your brand is a leader, it’s in a potentially declining or niche market. The strategic focus is on investigation and defending existing sales, as attracting new users may be difficult.
- Low BDI and Low CDI: This market is the least attractive. Neither the product category nor your brand is performing well. It may be best to avoid significant investment, limit spending, or even divest from such markets.
Limitations of the Brand Development Index
While the Brand Development Index is a useful diagnostic tool, it is important to recognize its limitations. The metric provides a snapshot of what is happening in a market but does not explain why. A high or low BDI score doesn’t reveal the underlying reasons for the sales figures, such as competitive activity, promotions, or distribution issues.
The accuracy of a BDI calculation depends on the quality of the sales and population data used. Inaccurate or outdated information can lead to a distorted BDI and flawed conclusions. Furthermore, BDI doesn’t account for intangible factors like brand equity or customer loyalty, which are also components of brand health.
The index provides a signal about a market’s state but does not offer explicit recommendations for action. Therefore, BDI should not be used in a vacuum. It is most effective when combined with other market research and qualitative data to form a comprehensive understanding of each market’s dynamics.