Product Initiative Seminar: Improving Odds of Success and Success Criteria Development

P & G Launching Successful Initiatives Seminar

Product Initiative Seminar:Product Initiative Seminar:Improving Odds of SuccessImproving Odds of Success

andand

Success Criteria DevelopmentSuccess Criteria Development

Leonora PolonskyLeonora Polonsky

Lisa HillenbrandLisa Hillenbrand


Seminar Objective

Raise “Odds of Success”

for Product Initiatives


* Definitions * Track Record * Success Principles * Pitfalls to Failure * Key Diagnostic Tools - MRD Model - NPV Model * Success Criteria Template * Application to Current Projects

Seminar Outline


Definitions


How do we define success?

When do we declare projectssuccessful?

“Success”

Definitions...


Corporate Scorecard Measure:

Positive NPV

Adds Shareholder Value

“Success”Definitions...


What initiative teams must strive for:

Meeting Commitments!



How we’ve defined success:

Achieving 90% Year I volume and going (Year II) Profit Objectives

Proxy for meeting 90% of booklet NPV



“ There is a very fine line between success and failure. Most everything we have done that has been a major success could have “failed” at an early stage and maybe even did in the marketplace”.

“ Further, many of our failures could have succeeded with a better idea or execution at a crucial stage”.

“ It is true we are slow to declare failure, but we need to think about this very thoroughly... I am inclined to listen to a passionate minority with great interest, particularly if it has credibility... Declaring failure is a tense, difficult, and important juncture where objectivity and vision have to be weighed, preferably by experienced managers.”

- Gordon Brunner

The Success vs. Failure Declaration “Juncture”


Product Improvement/ Replaces product with better oneUpgrade

Line Extension Adds variety to an existing feature or new feature to an existing Brand

Flanker Extends a Brand’s positioning into a related Category with a new product

New Brand Enters a new Brand in a Category

Newly Created Category Creates a new category of products

Types of Initiatives

Definitions...


TrackRecord


Fewer New Brand

andNew Category

Success Stories

Track Record


ANNUAL VOLUME NEW BUSINESSES NEW BRANDS GROWTH RATE

TOTAL W/O ACQUISITIONSCATEGORIES

ENTERED OVER OVER3 MMCS 20MMCS

1960’s 7.2% 7.3% Fabric Softener, Paper Towels, 11 3 Oils, Diapers, Mouthwash

1970’s 4.8% 4.8% Potato Chips, Incontinence, 6 2 Hand & Body Lotion

1980’s 4.4% 3.0% Orange Juice, RTS Cookies, 2 0 Catamenials

1990’s 2.8% 2.4% Toothbrush, Analgesic 1 0

1998-2000 7% ??GOAL

FEWER NEW BRAND & NEW CATEGORY SUCCESS STORIES

TRACK RECORD...


Success Rates For All Initiative Types Are Low

Types of Initiatives Success RateFlankers/New Brands 10%Line Extensions 33%Product Improvements 34%

Track Record


Rates Disappointing Worldwide

(% Positive NPV)

NORTH LATINAMERICA EUROPE ASIA AMERICA TOTAL

63 77 30 53 56

1997 data

Track Record


Too Many Small Ideas:In the U. S.:• # of initiatives growing

– +38% in early 1990’s vs. late 1980’s

• Average size is declining at 650 M stat

• 35% of projects deliver 4% of profit – less than $1 MM A.T. per initiative

Track Record


Lots of Little Initiatives Don't Add Up

0

Few Big Initiatives

Track Record

Lot of Small Initiatives

Average # Initiatives 2 5

Average Growth Over 7 Years

49%

7%


Why aren’t our results better?

What should we do differently?

Track Record


Why aren’t our results better?

• We aren’t clear on success drivers

• “7 Bad Habits” get in way of applying success principles

1. “Initiativitis” or “Better Than Nothing-itis”2. Early Bird Gets The Worm3. Drive through (success criteria) Stop Signs4. Don’t Confuse Me with the Facts5. Shoot the Messenger6. Starve the Stars7. I Can Do Anything Better Than You Can

Track Record


Some Progress to Report!

% Initiatives globally with Positive NPV up

from 46% (1994 review) to 56% (1997 review)

Track Record


More Progress to Report!

Initiatives which used Success Criteria had

double the success rate vs. those that didn’t!

(70% vs. 42% positive NPV)

Track Record


Stronger Initiative Mix with More MSA Support in NA

1996 (11 Total) 1997 (13 Total)*

% New Benefit * 18% 69%

% New Form/Flavor/Version 82% 31%

Incremental Volume Objective (MMSU) .5 1.0

Year I MSA ($MM) 14 26

% Sampling 27% 54%

Sampling Investment ($MM)** 3 8

* New Benefit to Brand or Category

** Among initiatives which sampled


Strategic

Success

Principles

Success Principles


Success Principles1. Understanding category and consumer

dynamics is the foundation

Category DynamicsUnderstand all factors which drive success (especially profit) in category. This is especially important when entering new categories.

• Cost/profit structure of key players

• Who’s winning and losing? Why?

• Global potential?

• Business size? Upside potential?

• Distribution/delivery considerations?

• Category practices

(e.g. - pick-up unsold merchandise)?

Success Principles


1. Understanding category and consumer dynamics is the foundation!

Consumer UnderstandingUnderstand both the fundamental functional need (the what) & the motivational need (the why)

Success Principles


VIDEO


Complete Consumer Understanding

Complete Consumer understanding exists when you understand the connection between “what” consumers expect products to do and “why” it’s important to them.

Understanding consumers needs, behavior, attitudes, beliefs, purchase dynamics and key consumer trends provides a foundation for complete consumer understanding.

Success Principles


2. Strong concepts drive odds of success!

Concept Strength

(DWB* vs. Category Avg.) OOS (%)

> 110 index 41%

< 110 index 24%* Definitely would buy

Are there cases when low concept scores can resultin successful businesses? Can high concept scores have limited business potential?


How do we generate strong concepts?


Product Expert Director Technique (PEDT)

Videotape task and watch with consumer

Anthropological Research

In-store observations

“In-context” settings: beauty salons, coffee shops, laundromats, home-ec kitchens, daycare centers, etc.

Success Principles

In Context Research Techniques CanLead to new Insights & Ideas


Turning Understanding Into New Products

By Meeting Unarticulated Consumer Need

Brand Understanding Insight Application

U. S. Fit Series of In-Home PEDT’s to identify new opportunities for Soap

Sector.

1/2 day talking/ house tour/ clean one room

Kitchen: everyone washes produce to get

rid of chemicals, germs, wax.

Use water to clean

vegetables:“probably not

doing any good, but...”

Dish liquid just adds

more chemicals.

Fit Produce

Rinse

Success Principles


Eliminate important negative – Anti-perspirant marks on clothes

Add an entirely new benefit – Always w/wings: eliminates side soil

Reduce the complexity of a task– Dryer added fabric softener; Crisco sticks

Extract desirable attributes from 2+ categories – 2 in 1 shampoo

Capitalize on a key consumer emotion or belief – Folgers Wakin’ Up

Insights

Identify signals or occasions which make product more relevant or better communicate the benefit being delivered

Success Principles


To Get Better Ideas,Look Beyond the Consumer...Mine all Potential Idea Sources

Our Customers

ConsumerTrends

Science/Technology

Competition Government

Business

MedicalEstablishment

Women’s HealthOpportunities

Success Principles


3. Strategic consistency of product benefits with the Brand’s equity in consumers’ minds is a must!

– Identify what equities your brand and competition own and determine

the “equity fit” between initiative under consideration and your brand’s

equity.

– Will initiative under consideration both “borrow from” and “pay rent to”

the core equity? If not, there may be an equity fit issue.

How do the following stack up?...

Success Principles


VIDEO


How about...

Crest Tartar Control?

Tide with Bleach?

Mr. Clean Cleanser?

Duncan Hines Tiara Desserts?


What should we do if a technology is not consistent with our Brand equity?


Assessing when a Technology should be introduced as a New Brand vs. a Line Extension:

Strategic consistency (or equity fit) with the parent!– A new technology should not be considered as a line extension or flanker if it is not

strategically consistent with the parent brand equity in consumers minds.

Magnitude of innovation– New Brands normally require creation of a substantive new technology which fills an

important unmet consumer need (e.g. - Dawn, Luvs, Bounce).

Maintaining a Mega Brand– If important new needs are emerging, new technology may need to be introduced as a

line extension or flanker to maintain an existing mega brand (e.g. - Tide with Bleach, Crest Tartar Control).

Multiple P&G Brands in a Category– Creating multiple P&G brands in a category is most viable when consumer needs are

fragmented and we have a technology which does not fit well strategically with the established P&G Brand.

Maximizing Volume/Minimizing Marketing Costs


4. Superior product performance and/or meaningful new benefits to the category raise the odds of success!

But, what do we mean by “superior product performance”?

Success Principles


More Product Strength =Higher Odds of Success!

Product Strength (% OOS)Initiative Type Superior Parity

Line Extensions 49 27

Product Improvements 52 33

OVERALL 50 29

Success Principles

VIRTUALLY ALL THESEHAD INTERNAL WINS


“ This is another tricky area. You make the point that blind test wins are very valuable, but not necessarily essential. I certainly understand your point.

I would just not undervalue the importance of a blind test win. If you have a win it really is a strong arrow in the quiver. If you have a blind test loss, it is a major risk to your position.

It still is a very clear measure of what the consumer thinks of your product with everything stripped off of it. It has major value and should be our target in all cases.”

- Gordon Brunner

Blind Test Wins


Europe C&F Learnings on Blind Tests

Success Principles


New Benefits Have Highest Success Odds

Product Type Odds of Success

New Benefits 70%

Size 53%

Performance Upgrades 40%

Package 38%

Scents/Flavors 36%

Restages 23%

Forms/Versions 16%

Success Principles


Consumer Meaningful Product Upgrades Can Build Business

Impact of Product Performance on Product

Upgrade results -- Past decade

Product Test Diff. Avg. % Share Change

Versus Old Product Year I vs. Past 12 months

+7 to +12 points +17%

+3 to +6 points + 9%

-4 to +2 points - 3%


Additional Product Considerations:

1. Claimable strategic advantage– Claim we can support in our advertising

– Strategically important to our Brand

(consistent with core equity)

– Sets us apart from competition

2. Protectable position– Patent protection

– Stream of innovation

– Material source advantage

– Cost structure advantage


5. Strong Advertising Programs raise the odds of success!

But, what do we mean by “strong advertising programs”?

Success Principles


Above Normal Copy Potential Raises the Odds of Success!

COPY POTENTIAL (%OOS)

ABOVE BELOW

NORMAL GOOD NORMAL Line Extensions 52% 38% 26%

Upgrades 50% 33% n/a

Overall 51% 36% n/a

Brands should consider both the Trial Forecast and the Overall Potential in evaluating copy strength for new items.

* This analysis isolated the impact of copy by including only

initiatives with sufficient media.

Success Principles


Sufficient Media Raises the Odds of Success*

1. Introductory heavy-up lasting at least 2 purchase cycles or 13 weeks, whichever is longer

2. Introductory heavy-up at an 85 Reach and 400 TRP’s

3. Sustaining Presence

*Line extension and flanker analysis.

Success Principles


Meeting Media Delivery PrinciplesImproves Odds of Success

# Principles Met Odds of Success

All 3 75%

Met only 2 57%

Met only 1 22%

Met none 33%

Success Principles

Based on Line Extensions and Flankers.


Strong Advertising Programs haveHigher Odds Of Success!

Ad Program Strength* Definition % OOS

Strong Above Normal Copy 51%Sufficient Media

Average Good Copy & 36%Sufficient Media

Weak Below Normal Copy 19%OR Insufficient Media

* Based on line extensions and upgrades.

Success Principles


STRONG PRODUCT AND ADVERTISING

IS THE TARGET!# INITIATIVES

Product and Met Below Odds of

Advertising Strength Objective Objective Success

Both Strong 16 4 80%

One Strong & One Average 18 25 42%

Any Weakness 23 103 18%

Based on Line Extensions and Upgrades.

Success Principles


% Weak Launches with Weakness In

Past Decade Past 2 Years

Insufficient Media 78% 79%

Weak Copy* 34% 21%

Inferior Product** 5% 4%

* Below normal copy

** Blind test loss

Note: some initiatives had multiple weaknesses


Strong Initiatives Generate More Profit

Average Per Initiative

Success Rate Incremental Volume Incremental Profit

(MMSU) ($MM A.T.)

Strong Product

and Advertising 80% 2.8 9.9Program

1 Strong and 42% 1.0 3.91 Average

Any Weakness 18% 0.3 1.5


6. Growing Base Brands Breed Successful Initiatives!(Line Extensions & Flankers)

Base Brand Share (% OOS)

Growing 45%

Stable 28%

Declining 0%

When we upgrade declining brands, we meet

our objectives only 6% of the time.

Success Principles


Key Principles for Success (Recap)1. Clear understanding of Category & Consumer

Dynamics is the foundation.

2. Strong concepts raise odds of success.

3. Strategic consistency of product benefits with the Brand’s equity is a must.

4. Superior product performance and/or meaningful new features to the category raise odds of success.

5. Strong advertising programs raise odds of success.

6. Growing base brands are much more likely to produce successful initiatives.

Success Principles


HABC Europe Initiative Analysis -- Same Success Drivers!

HABC Europe initiative results confirm the universal relevance of key success drivers: Copy, Sufficient Media, Superior Product, Value, and Pre-Launch Qualification.

Concept/Copy MSA/Media Superior Product ValuePre-Qualified

Successes

Pantene Yes Yes Yes Yes Yes

Teen Skin Moisturizer Yes Yes Yes Yes Yes

Venezia Yes Yes Yes -- --

Daymed Yes Yes Yes No --

TD Gums Yes Yes Yes Yes No

FailuresBC-18K Yes Yes Yes No No

Hair Care Pump/Spray No No Yes No No

Vidal Sassoon Restage Yes No No No --

Teen Skin Pads/Gel/Stick No No Yes No No

Cover Girl Yes -- No No No

Vaposyrup (U.K.) -- Yes No No --

Yes = Factor worked positively in our favor.

No - Not in our favor.

Success Principles


Non-P&G Learnings -- Key Success Factors

Success Principles

1. A Superior Product That Delivers Unique Benefits To The User

2. A Well-Defined Concept3. Core Competency in Technology4. Quality Product Development and Production5. Quality Pre-Market Assessment6. Quality Execution of Marketing Activities7. Market Attractiveness (High Growth, High Need For

Product)8. Top Management Support9. Competitive Activity

Source: R. G. Cooper Winning at New Products*Success vs. Unsuccessful

(544)

(327)

(253)

(215)

(172)

(139)

(126)

(242)

(276)

Index *


Customer/ECR ConsiderationsRecent Efficient Product Introduction (EPI) work has led to:

1. Addition of customer focused go/no go criteria to

Success Criteria Template.

2. Development of a benchmark based distribution

estimation CBA to ensure initiative decisions are based

on rigorous, data based distribution projections.

3. Development of an “external scorecard” for customer

use in initiative decisions.


Customer Acceptance Success Criteria:

Measure: $ Sales/Sku Ranking

Objective: All SKU’s rank in top 1/2 of category*.

Minimum: All SKU’s rank in top 2/3’s of category*.

* Key to leveraging this criteria is objectively ranking proposed new SKU’s versus the relevant, in-market competitive line-up (e.g. - category definition, outlet considerations, average customer SKU list vs. All IRI SKU list).


Rationale for $Sales/SKU Customer Acceptance Criteria:

Consistent with efficient assortment CBA, focuses P&G resources on top performing SKU’s.

Should result in better customer support for P&G initiatives as we introduce fewer non-viable SKU’s.

Minimizes cost and complexity -- for both P&G and our customers -- associated with churn.

Only Success Criteria which looks at by-SKU viability. This should help optimize line-ups.

Criteria is highly actionable. Validated to “weed out” non-viable SKU’s. For example, if 6 of 8 SKU’s in a proposed line-up meet minimum criteria, the line-up can be modified to eliminate the 2 non-viable SKU’s.


Distribution Estimation CBA:

Determining status of an initiative versus the Customer Acceptance Criteria requires by-SKU volume forecasts, which requires by-SKU distribution estimates.

Historically, we have not done a very good job of estimating “any presence” distribution, never mind by-SKU distribution.

A new tool, the “Distribution Estimation CBA” has been developed by MRD, Sales, Advertising to help develop realistic “any presence” and by-SKU distribution estimates.

This CBA has the potential to improve the accuracy of this key input to the MRD model from the current 20-30% overstatement to within 5% of actual.


External Customer “Scorecard”:

Concept: P&G to lead Customer thinking on how to evaluate initiatives when making distribution, shelving, merchandising, pricing, etc. decisions.

Current Status: Scorecard related to our internal Success Criteria template has been developed. Adds category and vendor considerations.

Validation work and customer discussions underway.


BLEND - A - GUM CASE


Marketing Plan

Principles

Marketing Plans


Optimize Copy Length

Use shortest length necessary to convey your copy message

Consider testing alternate copy lengths

Recognize that you may need longer length copy if you have a complicated message

No example of successful initiatives with :15 copy

Marketing Plans


Successful Initiatives Tend to Borrow Media $ From the Parent

Can borrow up to 100% of parent brand media for up to 6 months if:

– Strategically consistent line extension

– Parent brand is healthy with high awareness

Test media scenarios in BASES to determine best options

Marketing Plans


When Launching Concurrent Initiatives on Same Brand Make Sure

Both Have Adequate Strengths

High failure rate - of 32 concurrently launched initiatives only 3 met commitments (9%)

Nearly all (92%) had significant weakness

Biggest weakness was inadequate media


Initiatives That Justify Premium Pricing Make More Profit!

A.T. Profit Increase per Successful Initiative

PREMIUM PRICED PARITY PRICED $12 mm $4 mm

BUT...?

Marketing Plans


Low Value Scores are aQuick Road to Failure!

BASES After-Use Value Rating

%OOS

Top/Middle Tertile 43%

Bottom Tertile 8%

Marketing Plans


Should We Size DownOn Premium Priced Initiatives?

MET BELOWODDS OF

OBJECTIVES OBJECTIVESSUCCESS

5 8 38%

2 7 22%

Size Down toHold Price

Price Up inSame Size

Marketing Plans


MAXIMIZING TRIAL


Advertising + Sampling Drives Highest Trial

Strong Copy/Media Sampling Trial

Yes Yes 46%

Yes No 22%

No Yes 21%

No No 12%

Marketing Plans


On “Major Initiatives” over the past decade, have we optimized our trial programs?


Even on “Major Initiatives” we are under-utilizing sampling to drive trial: Initiatives which sample achieve on average

double the trial vs. initiatives which do not sample (33% vs. 17%).

In the 1970’s, 63% of New Brand initiatives sampled versus only 28% of past decade “Major Initiatives”.

In the 1970’s, sampling coverage in the 35MM-50MM range was common; We haven’t even simulated sampling coverage above 30MM on most recent initiatives.


Geographic comparisons support importance of Sampling:

Deep coverage generally produced higher share levels on Pert Plus. Avg. % HH’s Sampled Avg. Share

UAE

Singapore

Australia 71% 13%

Kuwait

Thailand

Taiwan

UK

Canada 30% 8%

United States


1. Insufficient Product Strength Need noticeable product superiority

Met Volume/Profit Objectives Blind Test Wins Blind Test Parity

Sampled 75% 25%

Not Sampled 56% 26%

Only half of initiatives were blind test winners

Why aren’t we sampling?


Key reasons for reduction in sampling:

“Short-term profit pressure” Only about half of blind test winning products sampled Key reason given for not sampling blind test winning

product is “short term profit pressure” (regardless of payout, don’t want to invest money “this fiscal”).

“Other” reasons given: Inability to pay-out sampling Optimized marketing plans do not include sampling Practical/Feasibility considerations


Opportunities to make sampling more “affordable”:

1. Develop highly efficient sampling executions.

2. On initiatives with significant product/copy strengths, consider premium pricing and investing some of the increased revenue in sampling.

3. Reduce “Other” MSA to fund Sampling.


Direct To Consumer Copy

–Use to target consumer groups and/or increase persuasiveness/depth of sale

–Use with Sample to enhance conversion» Olay Body Wash

–Use alone to drive trial at lower cost


Packaging Versioning Principles1. Preserve brand equity

2. Highlight the difference

3. Position the “difference” near the logo

4. Identify and use category “visual language”

5. Make sure resulting design is consistent with the brands character and strategy

Marketing Plans


Public Relations

Marketing Plans

- Generate Awareness & Trial

- Eliminate and/or Manage Issues


Should My Marketing Plan Include PR?

1. Can PR help build awareness among my target?

2. Can PR build credibility?

3. Can PR help me reach thoughtleaders and educate consumers?

4. Can PR eliminate or manage a vulnerability?

Marketing Plans


To Ensure Success:

Identify experience & learnings from prior launches

Have strong, relevant news

Create a “hot” story angle

Fully integrate your PR activities

Build alliances prior to launch

Develop a solid understanding of PR strategies and tools

Marketing Plans


Advertising Public RelationsBought Earned

Brand Speaks 3rd Party Speaks

Complete Control Limited Control

Higher CPM Lower CPM

Message Sent Message Sought

Asset: Controlled Asset: Credibility Message

Marketing Plans


Avoid Holiday Timing!

JUNE-SEPT OCT-JAN* FEB-MAY

Odds of 39% 16% 33%

Success

* Specific Holiday times may vary by region. Oct-Jan is

based on U. S. Thanksgiving/Christmas period.

Marketing Plans


Marketing Plan Principles - Recap

1. Optimize Copy Length

2. Price for Premium Profits

3. Sample Superior Products

4. Package so consumer makes right choice

5. Leverage Public Relations

6. Avoid Holiday Timing

Marketing Plans


Era Case


Pitfalls to

Failure

Pitfalls To Failure


“We must go forward on fastest possible timing. Competition is on the verge of introducing...!”

Pitfalls To Failure


“We have a great concept... it scored two bazillion above average! There’s no way to lose”

Pitfalls To Failure


“PDD thinks this will be a big win!”

“The brand and agency judge the copy is excellent”

Pitfalls To Failure


Testing Should Not Be Optional

Odds of Success- % Increase (Tested vs. Non Tested)

Product Improvements Premium Priced L.E.

Product Test +10% +32%

Copy Test +16% +41%

Both Product & Copy +24% +41%

Test Market +35% +35%


“Based on the most likely costs, this initiative will deliver...!”

Pitfalls To Failure


“This looks like a huge idea. Let’s go ahead and purchase the capital so we can accelerate national expansion!”

Pitfalls To Failure


“We’d like to invest in more trial, but ... !”

Pitfalls To Failure


“I’m not sure about the volume forecast assumptions... !”

Pitfalls To Failure


“Yes, the competition does have Direct-Store-Delivery, but they won’t be able to compete with us on Advertising and Product”


Competitive Response Modeling:

Competitive Response Modeling: a structured framework for collecting and organizing data on how competition will react to a P&G initiative.

Often leads to modifications to the initiative to increase the probability of success.

P&G Corporate Competitive Analysis group offers in-house, multi-functional Competitive Response Modeling sessions (Kevin Wise).


Competitive Response Modeling Considerations:

Competitive strengths and weaknesses– Cost Positions

– Sources of value-added

– Technology

– Other

How important to competition is the business we’re threatening?

What is the absolute worst thing we could think of doing if we were in competitions’ shoes?

Areas of sustainable competitive advantage (for P&G and for competition)


Pitfalls to Failure1. Rushing to Market with insufficient strengths

2. Failing to execute winning concept in copy

3. Overreliance on judgment

4. Not doing scenario analysis

5. Letting spending get ahead of learning

6. Starving our stars

7. Not developing databased volume forecast assumptions

8. Underestimating competition

Pitfalls To Failure


Key Diagnostic Tools:

- MRD Volume Forecast


Volume = Trial Volume + Repeat Volume

Trial Volume = # HH x % Trial* x Trial Transaction Size

Repeat Volume = # of Triers x % Measured Repeat* x

Average repeats per repeater x Repeat transaction size

* “Trial” is defined as first purchase; “Measured repeat” is defined as the % of triers

making a second purchase by the end of year one.


Trial Volume = # HH x % Trying x Trial Transaction Size

TargetAudience

Sizes OfferedSize Preferences

Distribution of Sizes

Marketing Support (Media, Sampling)Awareness/Incentives To Try

Purchase CycleConcept/Copy Appeal

Distribution


% Measured Repeat x Repeats per repeater x Repeat Transaction Size

Product Performance/ValuePurchase CycleRepeat Decay

Sizes OfferedSize Preferences

On-going Distribution by Size


High “Turn” Categories have Potential to Produce Large Volume Brands

Lots of household buyingReflect areas of considerable need

Quality of Life Enhancing - dirt & stain removal, cavities, skin softening

Global Reapplication

Frequently Re-purchased - High Turn ItemsNon-discretionary - soap, laundry detergent, paper towels, diapers

Can evaluate promptly

Advertising more efficient

Bigger volume / Higher profit


• There are new learnings on “Early Predictors” for nationally expanded line extensions:

» If not met year I share objective by month 3 or 4 post SOA, virtually never meet targets; When on track early, about 2/3’s succeed.

• 3 of 4 test markets overstate expansion results (average overstatement is +58%).

» Why? Don’t expand what we test (e.g. - cut MSA)

Can’t achieve what we test (e.g. - can’t micro-manage nat’l)

Early Predictors


KEY DIAGNOSTIC TOOLS:

–NPV Model


NPV MODEL

Principles: The current CBA for evaluating the financial attractiveness

of an initiative is incremental cash return. We no longer evaluate initiatives based on profit alone.

Cash returns from a project are “discounted” to “today’s” dollars at the average return required by P&G investors and “netted” against the discounted value of project investments to yield a Net Present Value (NPV):

Net Present Value represents shareholder value.


NPV MODEL

Example: Line Extension (Project “Phantom”) P&G invests $15MM to develop a new cleaning technology:

The new technology is expected to reduce costs and increase volume. The annual savings and volume build are worth $5MM/Year.

Question Would you have made this investment?


NPV MODELCash Flows

Project “Phantom”

Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr.5

P&G Investment ($15MM) Savings & Vol. Build $ 5MM $5MM $5MM $5MM

$5MM Net Cash Flow(Year End) ($10MM) $5MM $5MM $5MM $5MM


NPV MODELDiscounted Cash Flows

Project “Phantom”

Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr.5

Net Cash Flow(Year End) ($10MM) $5MM $5MM $5MM $5MM Discount Factor (1+7%)1 (1+7%)2 (1+7%)3 (1+7%)4 (1+7%)5

Discounted Value ($9.3MM) $4.4 MM $4.1 MM $3.8 MM $3.6 MM

Net Present Value= $6.5MM


NPV MODEL

Considerations:

• Project life.

• Do you have better investment opportunities (Category team issue)?

• What are your chances of success?

• Can you further optimize this project for a higher NPV?


NPV MODEL - BENCHMARKING

The benchmark database is a powerful tool that leads to insightful discussion by Category teams and project teams about success criteria and results in ownership of the project targets.

– Used for Project Team NPV Objective Setting

– Project teams select from benchmark database relevant projects of similar scale

– Project teams strive to create “best in class” initiatives that are robust enough to attract resources ($ + people)

– Stretching expectations lead teams to change their paradigms

– Avoids rework because objectives are clarified early between General Manager and Project Team


NPV MODEL - BENCHMARKING

INITIATIVE DATABASE

Primary Price

Measure Change

Project (Date Launched) Description NPV @ 7% $/SU

Category W

Project 1 Product Upgrade 46.5

Project 2 Line Extension 14.2 +25% vs. Base

Project 3 New Size 10.0

Other Benchmark Elements

Gross Volume (MMSU) Capital $MM

Incr. Volume (MMSU) PDD Resources FTEs

Profit $MM A.T. Above Going MSA $MM B.T.

TDC Change $/SU Project Life Years


NPV MODEL - PROBABILITY EVALUATION

Project “Phantom” Line Extension

FOR EACH KEY CASH FLOW INPUT (In Order) •Define most optimistic outcome.•Define most pessimistic outcome.•Define most likely outcome.•Use @Risk to calculate probable set of outcomes.

0%10%20%30%40%50%60%70%80%90%

($60.00) ($40.00) ($20.00) $0.00 $20.00 $40.00 $60.00

Net Present Value $MM

Pro

bab

ility

--

%

Total Project


•“Cost-Benefit” chart used for project evaluation.•Cash flow inputs are presented as Risk/NPV ranges (dotted lines) which sum to the total project NPV (solid line).•Allows project teams to focus resources on key leverage points for NPV improvement rather than premature weeding due to low NPV.

NPV MODEL - PROJECT OPTIMIZATION Cost-Benefit Analysis

Project “Phantom” Line Extension

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-60 -40 -20 0 20 40 60

Net Present Value $MM

Pro

bab

ility

--

%

Raw Mt'l Upper

Volume Build

Pkg. Mat'l SaveCapitalIntro MSA

Total Project


Success Criteria

What is it

- Why use it

- How use it

Principles Template


Success Criteria - What is it?

A contract between a project team and management on deliverables, resources, and basis for future decisions.

necessary and sufficient results on all critical success factors

resources needed to deliver results within given time frame

decisions to be made if criteria are met

management commitment to resources/decision plan


Success Criteria - Why use it?

Benefits for General Management Greater confidence in the quality and value of initiatives Opportunity to proactively influence innovation at initiative start Less time wasted “fixing” initiatives

Benefits for Initiative Teams Confidence initiatives will be approved if they deliver Less rework due to changing criteria Less time wasted getting resources approved Less time lost arguing criteria across functional boundaries at low

levels

Benefits for Company Increased initiative success rate, sales growth, and profitability Improved productivity from multifunctional innovation system


Success Criteria - How use it?1. GM’s use success criteria as basis for up front

expectation setting and decision making.

2. Multi-functional alignment and sign-off is essential.

3. Team leader is accountable for delivering criteria.

4. Success criteria should be defined for all brand initiatives using clear, quantifiable measures.

5. Objectives = Targets

Minimums = Go/No go decision basis

6. Focus on critical few criteria which will drive success on project.


Initiative Success Criteria Template

Success Criteria Measure Objective Minimum Status

Appealing Consumer Idea

Strong Product and/or Package

Strong Advertising (Copy and Media)

Customer Acceptance

Overall Volume Assessment

Overall Financial Assessment

Other


Recommended Training for Initiative Teams

Product Initiative Seminar - This course!

– Course # C159

SIMPL Training -- 1/2 Day – Course # C157

Team Effectiveness -- 2 Days – Course # C155 (Team Leaders)

– Course #C156 (Team Members)


APPLICATION TO YOUR BUSINESS

Product Initiative Seminar: Improving Odds of Success and Success Criteria Development

Documents

Transcript of Product Initiative Seminar: Improving Odds of Success and Success Criteria Development