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How Companies can Select Winning Ideas and Forecast Sales Before Launching New Products Presented to:. What is innovation? What does it mean to you? Can you think of any examples?. New product forecasting. Simulated Test Marketing (STM) Overview STMs Explained: Inside the “black box”

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slide1
How Companies can Select Winning Ideas and Forecast Sales Before Launching New Products

Presented to:

new product forecasting
New product forecasting
  • Simulated Test Marketing (STM) Overview
  • STMs Explained: Inside the “black box”
  • What really drives new product success?
what is nielsen bases what do we do

Nielsen BASES Mission is to help our clients grow through successful innovation on their brands.

Nielsen BASES Objective is optimizing our clients’ high potential initiatives, and minimizing the risk of launching failures.

Nielsen BASES Philosophy is building strong and lasting relationships with our clients.

What is Nielsen BASES? What do we do?
slide5

is part of the family

As part of

The Nielsen Company,

BASES Has Developed

Unparalleled Access

To Insights, Experts,

And Data, To Help

our Clients Succeed

through Successful

Innovation

typical new product development process for consumer packaged goods

Product Forecasting Methods:

    • Best Guess
    • Secondary Data Comparables
    • Qualitative (focus groups)
    • Live Test Markets
    • Simulated Test Marketing
Typical new product development process for consumer packaged goods

Market Definition

Idea Generation and Screening

Concept Testing / Optimization

  • Cost of Failure:
    • Year 1 Advertising / Promotion: $5-30MM
    • Manufacturing Costs: $5MM+
    • Opportunity Costs: good products not launched
    • Brand Equity: negative halo of failed product (consumer and trade)
    • Job Security

Product Development and Evaluation

Prove Business Case

Commercialization and Launch

a history of product testing from the us
A history of product testing from the US

1930

1940

1950

1960

1970

1980

  • 40s: Rise of National Brands:
  • Launching Expensive
  • Success Unpredictable
  • 70s: Controlled Store Testing:
  • Product Stocked at Controlled Store
  • Smaller Markets than TM… Less Expensive
  • Custom ads delivered to homes
  • 70s: STMs:
  • Concept Evaluation/ In-Home Product Test
  • Statistical Sampling
  • Many advantages...
  • 50s: Test Markets:
  • “Little America”
  • Representative Cities -> “Will it play in Peoria?”
advantages and caveats for stms
Advantages and caveats for STMs
  • Marketing elements assumed:
    • distribution levels and builds
    • media spending - timing and execution
  • Major competitive or economic changes prior to launch impact forecast
  • Deviation of tested versus launched concept / product impact estimates
  • Improved accuracy
  • Identify product weaknesses to fix
  • Identify source of volume
  • Weed out losers before test market
  • Shorter “reading” time
  • Enhance concept / product security
  • Perform quick competitive forecast
  • Reduced product requirement
  • Eliminate final packaging need
our methodology ensures data consistency and reliability

Exposure to Concept Stimulus

Evaluation of Concept

AFTER-USE(Post-Trial)

Consumers Re-Contacted after usage period

Evaluation of Product

Our methodology ensures data consistency and reliability

CONCEPT(Pre-Trial)

Consumers contacted

Eligible Consumers Placed with Product

a new product with strong consumer interest pre trial will drive significantly higher sales
A new product with strong consumer interest pre-trial will drive significantly higher sales

BASES Food Example – A comparison of the best and the worse initiative in BASES Database

+315%

Volume potential

example of pre use consumer measures
Example of pre-use consumer measures

Is this a good concept?

Without some benchmark, it is almost impossible to know if the scores are good or not.

BASES has developed extensive databases that provide a robust context for evaluating initiatives.

bases cornerstone assumption
BASES’ cornerstone assumption
  • Strong correlation between consumers’ claimed future purchase behaviour and actual purchasing.
  • Consumers, however, tend to overstate their intended purchase behavior (albeit with great consistency). The level of overstatement varies by country, by culture, and by key demographics.
can you guess which countries have high overstatement
Can you guess which countries have high overstatement?

Purchase intent claims by country

Source: The Nielsen Company

for example consumers overstate their transaction size but it correlates to actual behaviour
For example, consumers overstate their transaction size, but it correlates to actual behaviour

Concept Claimed Units (Fav)

1:1 Line

Trial Units

Source: The Nielsen Company

similarly their claimed frequency of purchase lines up with actual purchase cycle
Similarly, their claimed frequency of purchase lines up with actual purchase cycle

Long

Purchase Cycle

Short

Low

High

After-Use Claimed Frequency

Source: The Nielsen Company

quick quiz
Quick Quiz

When can you reasonably forecast a really new product’s sales?

1. When you can accurately predict its market share

2. When you can predict share and market growth

3. It is often not possible to predict sales using market share

4. This looks like a trick question and I’m not answering

quick quiz1
Quick Quiz

When can you reasonably forecast any new product’s sales?

3. It is often not possible to predict sales using market share alone

4. This looks like a trick question and I’m not answering

forecasting really new products two questions
Forecasting really new products: Two questions

1) Can consumers make reliable judgments about their future purchase behaviour for “really new” products with no competitive set or frame of reference?

2) What unique problems do “really new products” pose for pre-market sales forecasting?

purchase cycle drives repeat rate and repeats per repeater as well

High

Repeat Rate

(Panel)

Low

Short

Long

Purchase Cycle (Panel)

Purchase cycle drives repeat rate (and repeats per repeater as well)

Source: The Nielsen Company

answer to question 1
Answer to Question #1

Can consumers make reliable judgments about their future purchase behaviour for “really new” products with no competitive set or frame of reference?

Yes, because consumers’ claims regarding “really new products” are no more overstated than their claims for common, everyday new products.

answer to question 2
Answer to Question #2

What unique problems do “really new products” pose for pre-market sales forecasting?

A) Calculating market share alone may not work

  • Share of what?
  • What competitive shelf-set?

B) Using “comparables” for estimates also can cause problems

  • Category comparables may be misleading or worse.
  • What if there is no category to pull a purchase cycle from?
validations indicate our methodology works
Validations indicate our methodology works

Within 20% of Actual Sales

91% of Cases

87% of Cases

All Initiatives

Unique Initiatives

Source: The Nielsen Company

volume is calculated by combining together consumer responses with planned marketing
Volume is calculated by combining together consumer responses with planned marketing

What consumers actually do

Volume Forecast

Volume Estimate

Promotion/in-store activity

Adjust for what marketers do to influence consumers

Impact of Marketing Support

Distribution

Awareness

Measure Consumer Perception

Interested Universe

Remove consumer bias factors

Total Addressable Market

Adjust for Overstatement

What consumers say they will do

Consumer Claims

looking at consumer claims alone will be misleading
Looking at consumer claims alone will be misleading

Determine Consumer Interest

50% Purchase Intent

+ Adjustment for Overstatement

BASES Model

= Interested Universe

20% Interested Universe

% of consumers becoming aware

Marketing Plan

+

BASES Model

% of consumers find the product where they shop

+ other activities (e.g. promotions)

Trial Rate

5% Trial Rate

volume is calculated by adding together trial and repeat
Volume is calculated by adding together trial and repeat

Example

Households

Trial Rate

Number of Packages / Purchase

Trial Volume

55 million

10%

1.1

6.1 million

Trial

Volume

+

5.5 million

40%

1.2

3.0

7.9 million

Triers

Repeat Rate

Number of Packages / Purchase

Repeats / Repeater

Repeat Volume

Repeat

Volume

=

Total

Volume

14 million

the relationship between trial and volume is almost linear
The relationship between trial and volume is almost linear

High

Low

Low

High

Source: The Nielsen Company

quick quiz2
Quick Quiz

True or False?

1. Awareness alone strongly predicts trial

True

2. Advertising strongly predicts awareness

True

3. Internet advertising generates high awareness

???

awareness is critical for new products success
Awareness is critical for new products’ success

High

Low

Low

High

Source: The Nielsen Company

example four products same category
Example: Four Products (Same Category)

Tracked Awareness

Year I Trial Rate

Total Unit Volume

Brand D

78%

14.3%

31.4MM

Brand C

48%

8.0%

17.5MM

Brand A

20%

4.5%

9.3MM

Brand B

44%

9.0%

17.4MM

product category affects awareness generation
Product category affects awareness generation

Awareness

Food

Personal Care

Health Care

GRPs

Source: The Nielsen Company

media drives awareness

High

Total Awareness

Even without any advertising there will be some awareness, from distribution.

Low

Low

High

GRPs

Media drives awareness

Higher Impact GRPs

(higher recall)

Lower Impact GRPs

(lower recall)

Source: The Nielsen Company

innovative ideas are more likely to be remembered
Innovative ideas are more likely to be remembered
  • Related recall scores from copy testing show an advantage for innovative products.

Commercial Related Recall

Source: The Nielsen Company

what is the value of memorable advertising
What is the value of memorable advertising?

Me-Too

Innovative

GRPs

Recall

Persuasion

Awareness

Trial Rate

Sales Index

2,000

20%

9%

35%

8.5%

1.00

2,000

30%

9%

45%

11.2%

1.35

Source: The Nielsen Company

advertising timing has an impact on volume
Advertising timing has an impact on volume

10

9

8

7

5.3%

6

Early Flighting

Trial

Rate

4.9%

5

4

3

Spread-out Flighting

2

1

0

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Time in 4 Week Periods

distribution has an even stronger impact on volume and its importance cannot be underestimated
Distribution has an even stronger impact on volume and its importance cannot be underestimated

2

R

= 0.83

Trial Rate

Distribution

Source: The Nielsen Company

one of the challenges for launching new products in russia is distribution
One of the challenges for launching new products in Russia isdistribution

Source: The Nielsen Company

distribution timing is also important

Dist

Construction

Fast: A

Slow : B

Month 12

More time for trialMore time for repeat

Higher volume!

Distribution timing is also important

Influence on trial

Trial rate

A

= 26%

B

Month 12

Influence on volumes

Volumes

= 40%

Month 12

case study coffee in 4 countries including russia

80

Shifting the advertising start by five periods to align with distribution increases volume potential by ~10%

70

60

50

(400)

(400)

40

(300)

(300)

30

+ 9%

109

20

100

10

Volume Index

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Periods

  • Russia
  • France
  • Uk
  • Poland

Actual

Shifted

Shifted GRPs

Actual GRPs

GRPs

GRPs

Media plans typically used for new product launches might not work well in Russia ...

Case Study: Coffee in 4 countries including Russia

Source: The Nielsen Company

influence of a ctual in market execution on performance of the initiative
Influence of actual in-market execution on performance of the initiative

Comparison Between the Original BASES Forecast and Expected Performance based on the Launch Execution Plan

0%

+38%

-19%

+7%

-5%

-20%

Source: The Nielsen Company

quick quiz3
Quick Quiz

True or False?

There is little correlation between the number of:

triers who repeat a first time, and

repeaters repeating a second time.

False -STMs would not be possible without this strong correlation

1st vs 2nd repeat rate
1st vs. 2nd Repeat Rate

Source: The Nielsen Company

2nd vs 3rd repeat rate

100

90

80

70

60

50

40

30

20

10

0

0

2nd vs. 3rd Repeat Rate

3rd Repeat Rate

20

40

60

80

100

2nd Repeat Rate

Source: The Nielsen Company

3rd vs 4th repeat rate
3rd vs. 4th Repeat Rate

Source: The Nielsen Company

buyers can be lost if you have a bad product they will be lost more quickly

Trial

Strong Product

Weak Product

First Repeat

Number of Households

Stabilization

1

2

3

4

5

6

7

8

Number of Repeat Purchases

Buyers can be ‘lost’ – if you have a bad product they will be lost more quickly
incremental trial is important to replace lost buyers
Incremental trial is important to replace lost buyers

Year II to Year I Ad Spend Ratio

  • Marketing efforts influence a brand\'s ability to grow in Year 2.
  • For brands that decline, ad support is generally cut significantly versus Year 1 support.
  • Ideally, a new product should be thought of as “new” for two years rather than one.

Source: The Nielsen Company

slide51

The accuracy of the BASES Model has been validated over 1,700 times, with the average forecast within 10% of actual sales

1700

971

532

100

85

26

1,714

Source: The Nielsen Company

summary
Summary
  • STMs work because of the predictable relationships between (among others):
    • Consumer claims and consumer actions
    • Advertising and awareness
    • Initial and subsequent repeat purchases
  • STMs and other marketing models fail when:
    • Marketing inputs incorrect (probably too optimistic)
    • Category dynamics change after test but before launch
    • Products aren’t launched as tested
success defined by distribution trends

Successful, Marginal, and Failed Products

100

90

Success

80

70

60

% ACV Distribution

50

40

Marginal

30

20

10

Failed

0

Year 1

Year 2

Year 3

"Success" defined by distribution trends

This chart, based on actual in-market data, shows the average % distribution

builds (and declines) for Successful, Marginal and Failed initiatives over three years

slide55

Pre-Use Purchase Intent

Pre-Use Liking

Pre-Use Value

Pre-Use Uniqueness

Pre-Use Claimed Units

Pre-Use Frequency

Post-Use Purchase Intent

Post-Use Liking

Post-Use Value

Post-Use Uniqueness

Post-Use Claimed Units

Post-Use Frequency

Performance vs. Expectations

Activity:From all of BASES Key Measures, pick the most predictive measures of in-market sustainability(and list them in order of importance)1. ________________2. ________________3. ________________

quick quiz4
Quick Quiz

Which is more likely to succeed?

1. A good concept with an average product

2. An average concept with a good product.

quick quiz5
Quick Quiz

Which is more likely to succeed?

1. A good concept with an average product

2. An average concept with a good product.

quick quiz6
Quick Quiz

Which is more likely to succeed?

1. A good concept with an average product

2. An average concept with a good product.

How much does high uniqueness contribute to a concept’s success?

1. A lot (more than 100%)

2. Not much (less than 50%)

quick quiz7
Quick Quiz

Which is more likely to succeed?

1. A good concept with an average product

2. An average concept with a good product.

How much does high uniqueness contribute to a concept’s success?

1. A lot (more than 100%)

2. Not much (less than 50%)

survival rates vs nielsen bases database

Overall Concept Purchase Intent

~2x

Average In-Market Survival Rate

Bottom

Average

Top

BASES Database Ranking

Survival rates vs. Nielsen BASES’ database

Source: The Nielsen Company

survival rates vs nielsen bases database1

Overall After-Use Purchase Intent

~15x

Average In-Market Survival Rate

Bottom

Average

Top

BASES Database Ranking

Survival rates vs. Nielsen BASES’ database

Source: The Nielsen Company

survival rates vs nielsen bases database2

After-Use Value Rating

~2x

Average In-Market Survival Rate

Bottom

Average

Top

BASES Database Ranking

Survival rates vs. Nielsen BASES’ database

Source: The Nielsen Company

slide63

Concept Uniqueness Rating

Average In-Market Survival Rate

Bottom

Average

Top

BASES Database Ranking

Survival rates vs. Nielsen BASES’ database

Source: The Nielsen Company

questions

Questions?

Thank you!

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