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?
2
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
New product forecasting
• Simulated Test Marketing (STM) Overview
• STMs Explained: Inside the “black box”
• What really drives new product success?
3
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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.
4
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
5
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Here is a snapshot of some of the clients that we
work with:
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Simulated Test
Marketing Overview
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
Cost of Failure:
• Year 1 Advertising / Promotion: $530MM
• Manufacturing Costs: $5MM+
• Opportunity Costs: good products
not launched
• Brand Equity: negative halo of failed
product (consumer and trade)
• Job Security
8
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
A history of product testing from the US
1930
1940
40s: Rise of
National Brands:
•Launching
Expensive
•Success
Unpredictable
50s: Test Markets:
•“Little America”
•Representative
Cities -> “Will it play
in Peoria?”
1950
1960
70s: Controlled
Store Testing:
•Product Stocked at
Controlled Store
•Smaller Markets
than TM… Less
Expensive
•Custom ads
delivered to homes
1970
1980
70s: STMs:
•Concept
Evaluation/ InHome Product
Test
•Statistical
Sampling
•Many
advantages...
9
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Advantages and caveats for STMs
•
•
•
•
•
•
•
•
•
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
• 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
10
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
STMs Applied:
Consumer Data
Our methodology ensures data consistency and
reliability
CONCEPT
(Pre-Trial)
Consumers contacted
Exposure to
Concept Stimulus
Evaluation of Concept
Consumers
Re-Contacted after
usage period
Evaluation of Product
AFTER-USE
(Post-Trial)
Eligible Consumers
Placed with Product
12
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
A new product with strong consumer interest
pre-trial will drive significantly higher sales
800
Volume potential
Concept Potential Score
BASES Food Example – A comparison of the best and the worse initiative in BASES
Database
852
900
700
+315%
600
500
400
300
270
200
100
0
Weak concept
Strong concept
13
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Example of pre-use consumer
AdeSmeasures
AdeS
mers)
(Total Consumers)
Chocolate
(250)
ent Purchase
(%)
Intent (%)
uld buy
Definitely would buy
59
uld buy
Probably would buy
26
r probably
would or
buy
Definitely
probably would buy
85
not buy
Might/might not buy
8
uld not
buy
Probably
would not buy
1
uld not
buy
Definitely
would not buy
6
Rating
(6-point
scale)
Mean
Liking
Rating (6-point scale)
4.5
Rating
(5-point
scale)
Mean
Value
Rating (5-point scale)
3.0
eness
Rating
(5-point scale)
Mean
Uniqueness
Rating (5-point scale)
3.7
onsumers)
(Favorable Consumers)
(212)
Chocolate
(250)
Is this a good
concept?
59
26
Without
some
85
benchmark, it is almost
8
impossible to know if
1
the scores
are good or
6 not.
4.5
BASES
3.0 has developed
extensive databases
3.7
that provide a robust
context for evaluating
(212)
initiatives.
ed Units
atClaimed
Trial Purchase
Mean
Units at Trial Purchase
1.8
1.8
ed Annual
PurchaseAnnual
Frequency
Mean Claimed
Purchase Frequency
23.1
23.1
14
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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.
15
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Can you guess which countries have high
overstatement?
France
Russia
Russia
Spain
Spain
Italy
Germany
UK
intent claims by country
SpainPurchase
Italy
Italy
France
Russia
Spain
Spain
Italy
Italy
Italy
UK
France
Russia
Germany
UK
France
Russia
Spain
Italy
16
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Concept Claimed Units (Fav)
For example, consumers overstate their
transaction size, but it correlates to actual
behaviour
1:1 Line
Trial Units
17
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Short
Purchase Cycle
Long
Similarly, their claimed frequency of
purchase lines up with actual purchase cycle
Low
After-Use Claimed Frequency
High
18
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
19
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
20
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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?
21
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Why is purchase cycle important in
new product forecasting?
22
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Purchase cycle drives repeat rate (and
repeats per repeater as well)
Repeat Rate
(Panel)
High
Low
Short
Purchase Cycle (Panel)
Long
23
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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.
24
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Answer to Question #2
What unique problems do “really new products” pose for premarket 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?
25
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Validations indicate our methodology works
100
90
80
70
60
50
40
91% of
Cases
87% of
Cases
All
Initiatives
Unique
Initiatives
Within
20% of
Actual
Sales
30
20
10
26
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
STMs Explained:
Inside the “Black Box”
Volume is calculated by combining together
consumer responses with planned marketing
Volume
Forecast
Impact of
Marketing
Support
Measure
Consume
r
Perceptio
n
Total
Addressable
Market
What
consumers
actually do
Adjust for what
marketers do to
influence
consumers
Volume Estimate
Promotion/in-store activity
Distribution
Awareness
Remove
consumer bias
factors
What
consumers say
they will do
Interested Universe
Adjust for Overstatement
Consumer Claims
28
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Looking at consumer claims alone will be
misleading
Determine Consumer Interest
50% Purchase Intent
+ Adjustment for Overstatement
BASES Model
= Interested Universe
% of consumers becoming aware
% of consumers find the product where
they shop
20% Interested Universe
Marketing Plan
+
BASES Model
+ other activities (e.g. promotions)
Trial Rate
5% Trial Rate
29
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Volume is calculated by adding together
trial and repeat
Example
Households
Trial
Volume
+
Repeat
Volume
=
Total
Volume
55 million
Trial Rate
10%
Number of Packages / Purchase
1.1
Trial Volume
6.1 million
Triers
5.5 million
Repeat Rate
40%
Number of Packages / Purchase
1.2
Repeats / Repeater
3.0
Repeat Volume
7.9 million
14 million
30
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Unit Volume Per 100 Households
The relationship between trial and volume is
almost linear
Low
2
R = 0.84
Year I Trial Rate
High
31
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
True or False?
1. Awareness alone strongly predicts trial
True
2. Advertising strongly predicts awareness
True
3. Internet advertising generates high awareness
???
32
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Awareness is critical for new products’ success
Year I Trial Rate
R2 = 0.56
Maximum % Awareness
Low
High
33
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Example: Four Products (Same Category)
Brand A
Brand B
Brand C
Brand D
Tracked Awareness
20%
44%
48%
78%
Year I Trial Rate
4.5%
9.0%
8.0%
14.3%
9.3MM
17.4MM
17.5MM
31.4MM
Total Unit Volume
34
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Awareness
Product category affects awareness generation
Food
Personal Care
Health Care
35
GRPs
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Total Awareness
Media drives awareness
Higher Impact GRPs
(higher recall)
Lower Impact GRPs
(lower recall)
Even without any advertising there will
be some awareness, from distribution.
GRPs
36
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Innovative ideas are more likely to be
remembered
• Related recall scores from copy testing show an advantage for innovative
products.
Commercial Related Recall
40
30
20
10
0
Me-Too Products
Innovative New
Products
37
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
What is the value of memorable
advertising?
Me-Too
Innovative
GRPs
2,000
2,000
Recall
20%
30%
9%
9%
Trial Rate
35%
45%
Sales Index
8.5%
11.2%
1.00
1.35
Persuasion
Awareness
38
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Advertising timing has an impact on
volume
Trial
Rate
10
9
8
7
6
5
4
3
2
1
0
5.3%
Early Flighting
4.9%
Spread-out Flighting
0
1
2
3
4
5
6
7
8
9
10 11 12 13
Time in 4 Week Periods
39
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Distribution has an even stronger impact on
volume and its importance cannot be
underestimated
2
Trial Rate
R = 0.83
40
Distribution
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
One of the challenges for launching new
products in Russia is distribution
Median Year 1 distribution build - Russia vs. Europe
80
Average weighted distribution
70
60
RUSSIA*
50
France
40
UK
30
Italy
Spain
20
Germany
10
0
1
2
3
4
5
6
8
7
Year 1 periods
9
10
11
12
13
41
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Distribution timing is also important
Dist
Construction
Trial rate
Influence on trial
A
= 26%
Fast: A
B
Slow : B
Month 12
Month 12
Volumes Influence on volumes
More time for trial
More time for repeat
= 40%
Higher volume!
42
Month 12
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Media plans typically used for new product
launches might not work well in Russia ...
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)
40
(400)
(300)
30
(300)
20
10
0
1
Periods
2
3
4
•Russia
5
6
7
•France
Actual GRPs
8
9
10
11
•Uk
Shifted GRPs
12
13
Volume Index
+ 9%
109
100
•Poland
Actual
GRPs
Shifted
GRPs
43
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
1378
1377
1109
1000
0%
954
907
888
+38%
-19%
+7%
-5%
-20%
Original BASES
Forecast
Actual Distribution
Actual GRPs
Copy Test Results
Delayed Launch of
Trial Pack
Actual Sampling
Revising Pricing
44
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
45
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
1st vs. 2nd Repeat Rate
100
90
2nd Repeat Rate
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
1st Repeat Rate
60
70
80
46
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
2nd vs. 3rd Repeat Rate
100
90
3rd Repeat Rate
80
70
60
50
40
30
20
10
0
0
20
40
60
2nd Repeat Rate
80
100
47
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
3rd vs. 4th Repeat Rate
100
90
4th Repeat Rate
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
60
3rd Repeat Rate
70
80
90
100
48
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Buyers can be ‘lost’ – if you have a bad product
they will be lost more quickly
Number of Households
Trial
Strong Product
Weak Product
First
Repeat
Stabilization
1
2
3
4
5
6
Number of Repeat Purchases
7
8
49
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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.
1.06
0.49
Up/ Stable Brands
Declining Brands 50
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
51
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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
52
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
What Really Drives
New Product Success?
"Success" defined by distribution trends
Successful, Marginal, and Failed Products
100
% ACV Distribution
90
Success
80
70
60
50
40
Marginal
30
20
10
Failed
0
Year 1
Year 2
Year 3
This chart, based on actual in-market data, shows the average % distribution
builds (and declines) for Successful, Marginal and Failed initiatives over three years
54
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Pre-Use Purchase
Intent
Pre-Use Liking
Activity:
From all of BASES Key
Measures, pick the
Pre-Use Claimed
Units
Pre-Use
Frequency
Post-Use Liking
Post-Use Value
Pre-Use Value
Pre-Use
Uniqueness
Post-Use
Purchase Intent
most predictive measures
of in-market sustainability
(and list them in order of
importance)
1. ________________
2. ________________
3. ________________
Post-Use
Uniqueness
Post-Use Claimed
Units
Post-Use
Frequency
55
Performance vs.
Expectations
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
Which is more likely to succeed?
1. A good concept with an average product
2. An average concept with a good product.
56
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
Which is more likely to succeed?
1. A good concept with an average product
2. An average concept with a good product.
57
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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%)
58
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
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%)
59
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
Average In-Market Survival Rate
Overall Concept Purchase Intent
80
70
60
~2x
50
40
30
20
10
0
<20
20-39
Bottom
40-59
60-79
Average
80+
Top
BASES Database Ranking
60
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
Average In-Market Survival Rate
Overall After-Use Purchase Intent
80
70
~15x
60
50
40
30
20
10
0
<20
20-39
Bottom
40-59
80+
60-79
Average
Top
BASES Database Ranking
61
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
Average In-Market Survival Rate
After-Use Value Rating
80
70
60
~2x
50
40
30
20
10
0
<20
20-39
Bottom
40-59
60-79
Average
80+
Top
BASES Database Ranking
62
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
Average In-Market Survival Rate
Concept Uniqueness Rating
80
70
60
50
40
30
20
10
0
<20
20-39
Bottom
40-59
60-79
Average
80+
Top
BASES Database Ranking
63
Source: The Nielsen Company
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Questions?
Thank you!