Flashcards in Product and Brand Management Deck (43)
Market Penetration - existing products and market
Product Development - new product, existing market
Market Development - existing products, new markets
Diversification - new products and markets
Stages of New Product Development Model
Monitor and Evaluation
Product testing purpose
- Understanding demand
- Helping capital investment, HR, supply chain, marketing/sales and budgeting decisions - better information makes these decisions more profitable.
- Don’t do volume forecasting for any new products that are not concept tested as well
Data Collection methods
Classic text marketing
Classic text marketing
- Select a small town demographically similar to entire population
- Launch the new product on a small scale
- Observe trial rate (actual sales behaviour)
- Project sales to entire population
- Create concept boards (explaining new product in detail)
- Use concept boards as stimulus in simple experiment/survey
- Adjust statistically for biases
- Calculate projected sales to population
Volume projection is based on actual trial rate observed in a test market. IS the number of triers directly observed in a test market
Trial rates often estimated on basis of surveys of potential customers and their intentions to buy/trial etc. Because all respondents do not follow through their intentions, firms make adjustments to the % in the top two boxes in developing realistic sales projection.
Sales projection include adjustments of?
- Lack of awareness about the product within a target market
- Estimated availability/ distribution of product
- Lack of awareness and distribution reduces trial rate
Estimate fraction of people who try a product and then repeat the purchase decision. Metric = Repeat Rate. In reality, initial repeat rates are often lower than subsequent repeat rates
- Trial - First time buyers
- 50% of First time buyers make a Second time purchase (first repeat buyers)
- 80% of Second time buyers make a third time purchase (second repeat buyers
Volume projection metrics challenges
- Don’t confuse trial rate in a test market (actual behavior) and concept test/survey (self-report) setting. Adjustments to self-reported trial does not apply to trials in test markets (where it is observed behaviour)
- Assumptions concerning awareness have uncertainty involved. i.e, what sort of awareness does the product need
- Some products generate strong results in the trial stage but fail to maintain ongoing sales.
- Customers may be acquired, lost, reacquired and lost again
- Trial repeat model suited to projecting sales over first few periods
We care about growth because
- Engine of free-market economies
- Stockholder expectation
- How to manage existing products: track product life cycle and deduce strategic implications
Sales are slow to build, little competition, appeals to innovators
Rapid sales growth, very profitable, competitors slow to react
Sales rising, fierce competition, weaker competitors drop out
growth slows/stalls, competition stabilises, strategy diversification (fixed strategic positions)
sales drop, substitutes enter, marketing support cut
Year on Year growth purpose
To assess how the company (units/brands/ territories) is performing over time in terms of revenue/profits/volume/% AND what has the company achieved this year, compared to last year.
Uses the prior year as a base for expressing % change from one year to the next.
Year on Year Growth measurement challenges
- Changes over time in the BASE from which growth is measured. Changes in # of stores, people, sales etc. Utilisation of “same store” measure address this issue.
- Compounding of growth over multiple periods. If company achieves 30% growth in year 1, but its results remain unchanged in year 2 and 3, that would not mean the company has had 10% growth in each 3 years. (CAGR) address this issue.
Same Stores Growth
- "Same-store sales" (or "comparable store sales”) has been a key indicator of a retailer's health
- Analysis of results from stores that have been in operation for a while and ignoring the stores which has not been in operation DURING the concerned period of time. Ensures comparability.
- Same stores growth calculations excludes stores that were not open in the beginning of the period of consideration
- The question arises how average growth over multiple years can be adequately represented to discount the effect of compounding, a mathematical artifact resulting from the increasing base year to year.
- By compounding, managers adjust growth figures to account for the iterative effect of improvement
- CAGR is a “smoothed” year-on-year growth rate over multiple years better representing “average” growth
- CAGR is a constant year-on-year growth rate
A market phenomenon in which sales of one product are achieved at the expense of some of a firms others products. Main purpose to assess the reduction in sales of old products as a result of introducing new products e.g. IPhone cannibalized the iPod.
Cannibalisation is a familiar business dynamic & dilemma
- Strong brands/ companies may want to introduce line extensions, new products to better serve certain segments – danger is that they cannibalize the existing products’ sales
- If they don’t introduce product(s), competitors may jump in and capture sales and market share.
- In general, the more similar the new product is to the old, the higher the danger of cannibalisation
- You always have to calculate contribution margins as well as sales
- Firms considering introducing new products should estimate the potential cannibalization beforehand to provide an idea of how the product line’s contribution as a whole will change.
Cannibalisation rate problems
- The difficulty of determining what proportion of sales are lost directly because of the new product’s introduction, uses a lot of assumptions.
- Contribution analysis is a useful way to make decisions about new product introductions – but the time horizon has to be taken into account: will initial contribution decreases be made up later (e.g., the original business was on a downswing even before the new product was introduced)
Brand Equity is?
- About what the brand is worth to a customer. It is the value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent (Generic soda vs Coke)
- Brand equity is strategically crucial, but famously difficult to quantify
Brand Equity purpose
- Measure the intangible value brands represent for firms and consumers
- Business’ long-term objective is sustainable competitive advantage, the marketing function’s long-term objective is strong brands (which secure present and future consumer demand)
- Brands are marketing assets even if they are not necessarily accounted for as such in financial accounting
Brand Equity can be measured through
Quantitative (profit margins, market share, price premium charged, sales volume
Qualitative (prestige, associations, evaluating brand image)