Applying the Stage Gate Process to Sterling Brands’ Clients

1. Applying the Stage Gate Process to Sterling Brands’ Clients

2. Contents • the value of Stage Gate for Sterling Brands • the Stage Gate process

3. What is Stage Gate and why is it valuable to Sterling Brands? • Stage Gate is a process designed to help companies successfully develop new products and services • it’s about doing “the right projects right” • it’s about mitigating risk • it’s about making tough decisions • it’s about becoming more rigorous in our approach to new product development • ultimately, it’s about helping our clients product great products that sell on average, 33% of a company’s sales come from new products source: Winning at New Products; Robert Cooper • Understanding Stage Gate is relevant for a number of reasons • Everyone in the organization produces products or services • Increasing client requests for innovation projects • Would help Sterling brand strategists better understand the client side • Has the potential to extend duration of project… and secure additional fees

4. What are the main pitfalls to creating successful new products and services? in product failures, 74% reported the detailed market study was “poorly done” or not done at all! PREPARATION Lack of a strong market orientation Not enough upfront homework PROCESS Moving too quickly No focus, too many projects The lack of a systematic new product process with discipline PRODUCT Poor quality of execution A lack of product value for the customer 16% of companies cite product problems or defects as the main cause of failure source: Winning at New Products; Robert Cooper source: Winning at New Products; Robert Cooper lack of external understanding is one of the major needs for improvement >>> this bodes well for Sterling Brands

5. What does success look like? • Support from top management • Leveraging core competencies • Market attractiveness • Tough go/kill decisions are made • Quality execution • Resources are available • Speed - but not at the expense of execution • Multistage, disciplined process like Stage Gate • There are 15 critical success factors in new product development • Unique superior product • Strong market orientation • International opportunities • Predevelopment homework • Sharp and early product definition • Properly executed launch • Right organizational structure > do your homework > make it superior moderate moderate source: Winning at New Products; Robert Cooper source: Winning at New Products; Robert Cooper

6. it’s critical to understand the relationship between stages and gates • The Stage Gate process is simply a series of STAGES and GATES • GATE • STAGE • to evaluate the work done in each stage and make go/kill decisions • information is brought together - senior management always involved • consists of 1) deliverable 2) criteria 3) outputs • to assure the proper work is done, deliverables created • includes parallel activities performed by cross-functional team • each stage costs more than the proceeding stage “People fall in love with their own ideas.” “Someone will always hate your decisions.” David Goldsmith, MetaMatrix Consulting Group

7. The Stage Gate process • >>> We are going to use the current Liquor Innovation project to illustrate the value of Stage Gate: • To “age-down” its brand, a leading liquor brand is looking to create a new product aimed at men/women ages 25-34 the opportunity gate 1 historical Sterling Brands stop point stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 LAUNCH post launch review

8. project charter specifics • Scope • USA is the lead market • Initial on-premise distribution (bars, restaurants, clubs) • No immediate plans to roll out Globally until proven in North America • Assumptions Packaging - • Aspirational to the target consumer with cues based on Brand DNA • Explore premium bottle/decorations – acid etch, silk screen, metallic inks Liquid development – • Based from Coffee, but distinctive from Base Brand • Evaluate higher proof – up to 40% abv • Cost/ Retail Pricing • Target retail 750mL pricing at $19.99 • Margin will be slimmer than Base Brand • >>> Ship March 2008

9. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • It all starts with DISCOVERY • The goal is to “increase the mouth” • From top-down, bottom-up, or ideally, both 1. First, determine potential platforms • ex: energy, all natural, experiential • 2. Techniques for discovery • Look for changes in the alcohol industry • Create best/worst case alternate scenarios • Use voice-of-the-customer research • interviews at bars, in liquor stores, focus groups with drinkers (client brand vs. competitors) • speak with bartenders to gain different perspective on what customers want • Work with lead or innovative consumers • develop a diverse and ongoing panel of outsiders to act as a sounding board • Attend trade shows, read trade publications, consumer magazines • 3. Create an idea bank • Accessible to the entire organization

10. gatekeepers • director of innovation • brand manager gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • GATE 1: IDEA SCREEN - decision to commit to the project • Deliverables • a series of fresh product ideas inspired by real consumers and industry trends • Criteria • Does the product “fit with the brand”? • Does the product fit with ourstrategicdirection? • Does it meet ourenvironmental standards? • Is the idea unique?Differentiated? “Ownable”? • Is itrelevantto the consumer? • Does it appear to have a sizeable marketopportunity? • Is it technicallyfeasible? Does it leverage our production resources? • Outputs • Go/Kill decision - tentative commitment to project • Agreed to key initial criteria that will be used to assess options throughout the process

11. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • STAGE 1: SCOPING - understanding the merits • GATE 2: SECOND SCREEN - evaluate scoping documents

12. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • STAGE 1: SCOPING - understanding the merits • Preliminary market assessment • internet search, focus groups, quick concept testing • identify points of differentiation and superiority • Preliminary technical assessment • feasibility • timing and cost: identify suppliers • technical, legal, and regulatory risks • Results: • An understanding of the magnitude of opportunity and a technical assessment • GATE 2: SECOND SCREEN - evaluate scoping documents • Deliverables • documents from the scoping stage: market opportunity, technical assessment • Criteria • Is the market opportunity large enough? • Can we produce this drink? • What are the margins? What is the payback period? • What are the implications for sales? Marketing? Legal? • What time is required? What existing / new capabilities would be needed? • Outputs • Go/Kill decision - if granted, begin moving into heavier spending stages • Potential for up to 3 product ideas to be prototyped • gatekeepers • sales, legal, director of marketing, finance

13. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • GATE 3: GO TO DEVELOPMENT • STAGE 2: BUILDING THE BUSINESS CASE historical Sterling Brands stop point

14. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • GATE 3: GO TO DEVELOPMENT - gateway to spending • Deliverables • Descriptions of 3 products, project justification, detailed project plan • Criteria • Was Stage 2 homework completed well? • Were the results positive enough to warrant funding? • Which product option has the best financial outlook for the company? • Outputs • Go/Kill decision - selection of the ONE product that will go into development • A clear product definition • STAGE 2: BUILDING THE BUSINESS CASE - doing the critical homework • 1. Defining the product offering • target market definition • product benefits, features and value proposition • desired product features attributes, requirements and specifications • 2. Competitive analysis • 3. Technical appraisal • 4. More detailed business and financial analysis • 5. Preliminary operations and marketing plan • Results:Clear product definition, project justification, detailed project plan historical Sterling Brands stop point • gatekeepers • CEO, CFO, Operations, Director of Marketing, Director of Sales

15. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • STAGE 3: DEVELOPMENT • GATE 4: GO TO TESTING

16. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • STAGE 3: DEVELOPMENT - implementation of plan • Lab testing (continuous) • alpha, in-house, lab tests • consumer feedback leading to iterative prototypes • Parallel processing • operations plans • launch plans - selection of 5 launch markets • updated financial analysis • legal, regulatory and patent issues cleared • Results: A lab-tested prototype that consumers love • GATE 4: GO TO TESTING - checking all work thus far • Deliverables • a working prototype • Criteria • Is thequalityhigh enough? • How does ittaste?Smell?Look?Sound?Feel? • Does the product meet thedefinitionin Gate 3? • Are themarketingandoperationsplans clear? • Does the revisedfinancialanalysisstill meet fiscal goals? • Outputs • Go/Kill decision • Validation plans for next stage evaluated and approved • Marketing and operations plans reviewed for probable future execution • gatekeepers • Operations/QA, Marketing, CFO, Director of Research, Legal

17. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • STAGE 4: TESTING AND VALIDATION - • GATE 5: GO TO LAUNCH

18. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch • STAGE 4: TESTING AND VALIDATION - evaluating every aspect • In-house product tests in test kitchens • Consumer taste testing • Pilot production- to improve production process • Test markets- 5 cities being selected, on-premise only, gauge reactions, effectiveness of launch plan, expected market share and revenues • Revised business and financial analysis • TEST RESULTS? • if not satisfactory, rewind to stage 3 and improve the product • GATE 5: GO TO LAUNCH - ensuring validity • Deliverables • most refined marketing, operations and launch plans to date • Criteria: Testing the Testers • How well was the validation performed? • What is the expected financial return? • How smart are the operations and marketing plans? • Outputs • Go/Kill decision - the official green light; also the last chance to kill the idea • gatekeepers • CFO, Operations, Marketing, director of research

19. gate 1 stage 1 Scoping gate 2 stage 2 Build Business Case gate 3 stage 3 Development gate 4 stage 4 Testing & Validation gate 5 stage 5 Launch post launch review • STAGE 5: LAUNCH - implementation of all plans • Marketing launch plan • Operations / production plan • Results: Roll out of product in 5 markets • POST-LAUNCH REVIEW • evaluate 5 test markets and decide if successful > go/kill nationwide rollout • 6-19 months post-launch • cross-functional project team disbands • product performance review vs. projections (revenues, costs, expenditures, profits, and timing) • post-mortem discussion: what went well, what could be improved

20. thanks