Profitable Product Management

Module 2Course Director: Pete Laver

Profitable Product

Management

An opportunity to review your current approaches and compare these with best practice and manage the most common product management challenges. The course has eight modules:

Profitable Product Management agenda

Module 2

Day 4ReviewProject PlaybackPricing and Value

Day 5Getting the message Out ThereGrowing the range (NPD)Review and Close

Review of Module One

Case learning points

Smiths CabinetsThe value of auditingStructured approach:

ExaminationThe audit

PrognosisA prediction about how something will develop

DiagnosisIdentifying the nature or cause after appropriate tests

The importance of quantitative data: market share over time

The value of models

The Planning process

MAT48946

Market total

3537 3833 3931 4412 3565 3689 4392 4294 4215 4224 4247 3992 4132+17%yoy

19.9 Brand One

22.0 20.8 19.3 18.9 19.0 19.4 20.7 20.1 19.7 20.8 21.2 20.8 17.5

0.5 Brand Two

0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.4 0.5 0.5 0.5 0.5 0.6

4.6 Brand Three

4.4 4.3 4.3 4.7 5.2 4.9 5.1 4.8 4.6 3.9 4.4 4.5

0.5 Brand Four

0.3 0.3 0.6 0.7 0.9 1.0 1.2 1.8 0.4 0.2 0.1 0.1 0.1

17.7 Brand Five

18.1 18.2 17.3 17.4 17.2 18.0 17.3 17.4 16.9 16.1 10.6 18.2 22.0

2.4 Brand Six

1.9 2..1 1.9 2.0 2.0 2.0 2.2 2.6 2.7 2.6 2.8 2.6 3.1

1.6 Brand Seven

1.1 1.0 1.0 1.3 1.3 1.5 1.6 1.6 1.7 2.3 2.2 2.2 1.0

42.6 Own Label

42.4 43.1 45.6 46.1 45.4 44.5 44.3 46.4 47.7 47.8 47.8 47.7 47.7

6.8 Other 13.8 9.7 9.0 8.9 9.1 7.9 7.3 5.0 5.6 5.1 4.9 3.5 3.3

Oct 2013

Latest year

Oct 2012

Nov 2012

Dec 212

Jan 2013

Feb 2013

Mar 2013

April 2013

May 2013

June 2013

July 2013

Aug2013

Sept 2013

Oct 2013

Star Traffic driver

Review

High sales value but intense competition pushing down prices

Poor performer. What’s wrong?

Strong contribution on modest sales. Can we improve?

High sales and contribution. Invest to grow

Repair or discard

Develop Existing Business:•Product adjustments•Price amendments•Fill distribution gaps•Develop marketing communications

LEAST RISK, BUSINESS AS USUAL

Develop New products

MEDIUM RISK

Develop New markets:•Macro (completely new)•Micro (new segments)

MEDIUM RISK

Innovation:

•Diversification (new businesses)•Innovation (new products creating new markets)

HIGH RISK, HIGH RETURN

The Growth/ Market Share Matrix

Star

DogCash cow

Question mark

Rapid growth, High share

Slow or static growth, High share Declining sales, weak share

Rapid growth, Low share

Product/ Market Growth Matrix

Star Repair

Review

Attractive market but poor performance from us.Re-think

Put the price up and reduce costs. Consider withdrawal

Currently poor prospects. Hold and review performance.

Promote and grow

Maintain

Product Capability/ Market Strength Matrix

The Volume / Value Matrix

??

Growth

Share

Volume

Value

Market strength Product

capability

Productdevelopment Market development

Four box models

Leppard Bathrooms

POTENTIAL MARKET ADD VALUE-

REVENUE

ADD VALUE-

REDUCE COSTS

ADD VALUE-

EMOTIONAL FACTORS

Consumers   Saves and frees up time Pride – beautiful clean

bathrooms, toilets, etc.

Hospitality

Hotels, etc.

Sparkling bathrooms

improve occupancy rates

Reduced cleaning costs

Improved productivity

allowing more time for

other tasks

Less management

problems, maintaining

standards, etc.

Appearance and

aesthetics

Brand image

Health care

Hospitals, care homes

  Reduced infection

Reduced costs

Peace of mind

Reduced management

problems

Government buildings   Cost savings Image

Manchester United

S.T.P(segmentation, targeting and positioning)

The marketing master strategy

The value of segmentsThe importance of targeting and prioritisation

PositioningThe key to an integrated mix plan

Jordan A/S

Improve the mix

Increase retention

Grow the category

Re-segment

Gain share

Change usage

New customers

Launch Improve volume Improve value Rationalise

Product line extension

Innovation

Product replacement

Alliance /takeover

Barriers entry/exit

New channels

Add new range

Re-position

Re-align prices

Increase pricesFind premium/niche price pointsReduce prices

Cost Reduction

Cut variable costs

Improve quality

Cut fixed costs

Time

Introductory stage Growth stage Maturity stage Decline stageSale

s

an

d

pro

fit

s

Build awareness

Win trial

Attract attention / int.

Identify all possible growth strategies and asses prior to final decision

Pretty Pots

The profit and loss account (P&L) is sometimes called “The Financial History Book”

A record of transactions that allows for a gross and net contribution to be calculated.

Profitability and cash need to be managed separately.

Project Presentations

Pricing and Value

Channels

Channel differences?

Differential pricing?

How much do they charge?What market position do we want?Where is our differentiation?

Competitors

Customers

How much are they willing to pay?

Segment differences?

Company

How much will it cost?

What mark-up will we use?

Pricing

Pricing

Pricing is generally the most important factor in buying decisions. It’s a powerful signal conveying image effects and reflecting brand equity.It can be a competitive tool but it directly influences profits and revenue.•Principles:

– Must fit into acceptable range for the category– Must reflect image and market position– Must accommodate segment differentials– Must account for inevitable deals and offers

•Industry structure– Oligopoly or fragmented?– Price leaders e.g. IBM in IT and Argos in retailing– Specification pricing e.g. TDI, Compressor, GTi

•External factors– Elasticity– Politics and Law

•Internal factors– Life cycle position, Hurdle rates, Share targets, Lifetime value. Portfolio

issues•Value proposition

– Prestige, premium, parity, discount

High fixed cost generally means a volume loaded approach

High fixed costs means a high BE

The profit cone is wide angle, more sales quickly translate into profit

Volume can be loaded by discounts after passing BE

High variable cost generally means a value loaded approach

Low fixed costs means a lower break even

Discounts badly damage profit

Tactics involve added value or niche positioning

Fixed costs

Variable costs

Sales

Value of sales and costs

Business level

Profit

cone

BE

Fixed costs

Variable costs

Sales

Profit cone

BE

Optimisation

Tactics

• Penetration and skimming

• Line pricing– Reflect the market not

the cost e.g. Clothing sizes Sometimes affected by step changes

– Overlaps and migration• Dual pricing

– Seiko and Lorus Bosch and Skil

– Bait, hooks and loss leaders

• Known Value items (KVI)• Timing• Price points• Marginal cost

If you cut your prices by

And your present Gross Margin (%) is ...

10% 15% 20% 25% 30% 35% 40%

5% 50%33.3

%25% 20%

16.7%

14.3%

6% 150%66.7

%42.9

%31.6

%25%

20.7%

17.6%

8% 400%114.3

%66.7

%47.1

%36.4

%29.6

%25%

10% 200% 100%66.7

%50% 40%

33.3%

12% 400% 150%92.3

%66.7

%52.2

%42.9

%

15% 300% 150% 100% 75% 60%

Stage 1Company Audit

Price value proposition Cost model

Our strategy and cost limitations

Stage 3Competitor

(Industry) Analysis

Stage 4Channels to market

Stage 5Objectives

Stage 6Strategy

Growth planContingencies

Price list, Price pointsForecast

Competitive strategy, PositioningOur positioning and competitive

strategy

Stage2Customer Strategy

Internal analysis, Strategic intentCost management, Mix alignment

Industry structureCompetitor analysis

Channel evaluationPromotional plan

Market analysis, Customer cost and use, Customer economics

Value share

Segmentation, TargetingWho are our customers and

what can they afford?

Tactics and timing, Promotions/ Incentives, Marginal cost

Our tactical arrangements

Short medium termVolume and value

Defined financial targetsQuantify the plan

Stages OutcomeIssues

Stage 7Tactics

Marketing planContingencies

Promotional plan, Response plansForward Planning

Schedules and timing

Pricing checklist

Natural high

Price

Them Us

competitive

premium

economy

valuechemical

Product

Them

Us

high

low

immature maturebrand image

taste

Promotion

Them

Us

Channelshighlow

Media

high

low

Place

Them

Us

Specialist/ regional highlow

Mainstream

National

high

low

Value differentiation Revenue gains, Cost reduction or Emotional difference

ReusableContainer,Sampling,on pack

Pence off

Free Draw

Next Purchase,Cash back

Value

Price

Immediate Delayed

Incentives

Adding value

Getting the Message Out There

Effective advertising should follow a plan. There is no one best way to planning an advertising campaign, but in general, Marketers/Product Managers should gave good answers to the following eight questions:

Preparing for the advertising campaign: the 8M formula

1. The management question: Who will manage the advertising programme?

2. The money question: How much should be spending on advertising as opposed to other forms of communication?

3. The market question: To whom should the advertising be directed?

4. The message question: What should the ad say about the product?

5. The media question: What types and combinations of media should be used?

6. The macro-scheduling question: How long should the advertising campaign be in effect before changing ads or themes?

7. The micro-scheduling question: At what times and dates would it best for ads to appear during the course of the campaign?

8. The measurement question: How will the effectiveness of the advertising campaign be measured and how will the campaign be evaluated and controlled?

ReusableContainer,Sampling,on pack

Pence off

Free Draw

Next Purchase,Cash back

Value

Price

Immediate Delayed

Three elements objective, creative, mechanic

Sales promotions - mechanics

Traditional approach

Above the lineAdvertising

display classified

Terrestrial television, press, satellite T.V., cinema, outdoor radio, cyberspace, ambient

Below the lineMerchandisingCustomer servicePublic relationsDirect marketingSales promotion and samplingPersonal selling

Exhibitions and demonstrations Sponsorship

Product audit

Medium term – positioning and value

Customer relationshipShort term - products and services

Expression of brand identity

Staff, buildings, environment, everything

Business plan

Long term equity growth

On and off-line integration

Marketing plan

Communication planHub and spoke

Traditional and non-traditional

Revised

Communications and mix planning

Agency brief example

• Requirements:– What do you want them to do?

• Provide three options for launch including name and logo and images on storyboards for print or TV

• Reason for brief:– What are we changing?

• Launch brand X• Communication objectives:

– What new ideas or benefits do you want them to know?

• Remind them how skin blemishes spoil their life and show them the fun and freedom they will enjoy following treatment

• Target audience:– Avoiding jargon, describe the audience in positive

and straightforward ways• 20-40 women, pre-menstrual who suffer from low

self-esteem and deserve to have fun back in their lives

Assessing the creative work

Does it follow the brief?–Does it create an emotional response?–Is it single minded?–Is it involving and clear?–Does it have impact?–Is it campaign able? –Does it have a customer insight?–Is it consistent across media?

The top ten most influential marketing mediums:

1. Word-of-mouth2. TV3. Coupons4. Newspaper inserts5. Read article6. Direct mail7. Magazines8. In-store promotions9. Cable TV10.Online advertising

Advertising Age January 2nd 2006

WOM– Consumers giving

information to other consumers

• WOM Marketing:– Giving them reasons to

talk and facilitating the process

• Elements:1. Educate them on your

products2. Identify most likely

sharers.3. Provide them with tools to

do it4. Study where, how, when

opinions are shared5. Respond to supporters,

detractors and neutrals

WOM Marketing Typology:

– Buzz high profile entertainment or news to encourage talk

– Viral creating exponential messages often electronic

– Community marketing forming and supporting niche communities to share brand information (user groups, fan clubs, forums, etc.)

– Grassroots marketing motivating volunteers to engage in local and personal outreach

– Evangelists Finding and encouraging leaders to influence others

– Cause related support social issues to earn respect and support

– Conversational fun, catch phrases and entertainment to kick off WOM

– Brand Blogging join the blogosphere in open and transparent communications sharing information that blogger’s value

Measurement

Awareness:– Familiar beats unfamiliar– Four levels:

1. DominanceThe only one they can think of2. Top of Mind (TOM)The first one they think of3. RecallThe others in the set following

TOM4. Recognition(have you heard of Lamborghini?)

Image source: Ikira, I. (2009) Available at: http://en.wikipedia.org/wiki/File:Plutchik%27s_Wheel_of_Emotions.png

Source: Plutchik, R. (2001) The Nature of emotions. American Scientist. Vol. 89, p349, July/August.

Growing the range (NPD)

• Where does creativity come from?

Market needs and demands

Technology push

Market pull

• Understanding the customer

• Brainstorming

• Research labs

• Applying technology

• Developing a better, simpler, easier, cheaper way of doing things

4C innovation Audit

Questions Answers

Internal audit questions

Do we understand how the opportunity is improved by adding value?Describe the product functions and reframe as customer benefits 

 

  Develop the product offer:--add value unobtainable elsewhere -can value be added beyond its functional worth?

How will it enhance brand value? Integrate into long term brand strategy

Find a common thread down through the supply chain creating a platform 

 

  What are the benefits we have to offer?

Are they strong enough?

Go No Go

 

Market audit Define the market and establish the scale and financial potential of the opportunity 

 

  What customer needs are met?Do we have segments? 

 

 Which customers will need to buy our product?

Go No Go

 

4C Innovation Audit

Questions Answers

Industry auditHow do potential customers currently get their needs met? Define the competitive set

 

 How is it different and better than alternative offers (if any)?

Go No Go

 

Value chain audit Is the value chain accessible to us and can we bring enough influence to bear to yield useful results?

Can the value chain be identified and managed?

Moneyo How does money flow through the

value chain and where will we take our profit

Product o What steps does the product

travel through on the way to market and how can we influence this flow

Informationo How does information permeate

the system and where should we place our own educational effort

Influenceo Who are the key influencers and

how will we approach winning their trust

 

 

  Are we in position to bring it to market?

Go No Go

 

4C Innovation Audit Questions Answers

Go    

Create the strategy Set financial and share targets  

Position the new product as a solution to customers problems 

What does the brand contain?What does the brand do for the user?How does the brand make the user feel?What “space” does the brand occupy? 

 

Design the Marketing Mix Product design and packaging  

  Price plan  

  Re-organising around the value chain  

 

  Understand and use knowledge of how information is passed around Providing the right linkages for customers to find you when needed 

 

  Re-designing the customer experience Building a knowledge network and using it 

 

  Incorporate the brand strategy  

Design performance metrics How will we know we have succeeded?

 

4C Audit Questions Answers

Stage-Gate®

Emerging from Chemical engineering, Stage-Gate® was developed by Robert Cooper and is widely applied in new product development. It is a tool for funnelling a new product through as series of gates which decide whether the project is still viable or whether it should be stopped to preserve funds for other, more opportune, projects. The areas between the gates are idea generation, feasibility, capability, testing, validation and launch. Passing a gate normally requires a formal process involving senior management. Front end loading is the engineering term for the stage gate process.

The stage-gate® roadmap consists of five gates:1.Scoping2.Build the business case3.Development4.Testing and validation5.LaunchThe preliminary phase prior to scoping is referred to as discovery and a post-launch review is normally carried out to review lessons learned. An Xpress version can be used for less risky projects and stage-gate lite for modifications, etc.Each stage comprises activities, integrated analysis and deliverables. A cross-functional product team gather information, analyse it and develop deliverables applicable to the next stage.Each gate an assessment of quality of work, continuing validity of the business opportunity and an action plan to go forward with the necessary resources. The project team provide the deliverables (pre-set from the previous stage) which need to meet the criteria (metrics on which the project is judged) and the output is the decision (Go, kill, hold, recycle).

Stages Product idea submission

Stage 1: Scoping

Stage 2: Build business case

Stage 3: Development

Stage 4: Testing and validation

Stage 5: Full production and market launch

Output of stage

Reasons why this idea is a good one

Preliminary project definition

A well-founded project and business plan

Product and production plans ready for testing

Validated production and launch plans

A profitable business and lessons learned

Report templates

Idea submission form

stage1-template.doc

stage2-template.doc

stage3-template.doc

stage4-template.doc

stage5-template.doc

Go/kill decision criteria

Criteria for idea evaluation

Criteria for going into detailed investigation

Criteria for business case approval

Criteria for post development review

Criteria for product release

Criteria for post launch review

Gate decisions

Decision to do a preliminary investigation

Decision to build a business case

Decision to go into development

Decision to go into testing and validation

Decision to go into full production and market launch

Project termination

http://www.stage-gate.eu/stage-gate-templates.asp

Stage-Gate®

Intellectual PropertyAll training materials provided by CIM Learning and Development remain the intellectual property of The Chartered Institute of Marketing or its partners, who assert their right to worldwide copyright unless specifically agreed otherwise in writing.© Pete Laver and The Chartered Institute of Marketing 2015

If you have any questions arising from this course, please email me at this address:

askthecoursedirector@cim.co.uk

Any Questions…