Product and Portfolio Management PDF

Product and Portfolio Management 1-1 Product Portfolio o Product portfolio: Collections of products and businesses o Key decisions: o how to allocate cash, expertise, time and other scarce resources across individual products and businesses; o whet...

Product and Portfolio Management 1-1 Product Portfolio o Product portfolio: Collections of products and businesses o Key decisions: o how to allocate cash, expertise, time and other scarce resources across individual products and businesses; o whether to invest or withdraw investment o Decisions may change in time as markets, products, industries, and customers evolve 2 Boston Consulting Group (BCG) Market Growth Rate High Star ? Attractiveness 0.10 Cash Dog Cow Low High 1 Low Relative Market Share Strength 3  BCG Matrix (.45, 44.8) (1.58, 35) Attractiveness (.36, 13.3) (1.66, 3.7) (1.31, -2) (.75, -55.6) Strength 4 Mooradian, T., Matzler, K., & Ring, L. J. 2012. Strategic Marketing. Pearson Education.  BCG Matrix – Some limitations o Market attractiveness depends on many other factors (market size, competitive intensity) than just market growth rate o Strength depends on other variables (marketing capabilities, R&D) than just relative market share o Market share is a good indicator of competitive advantage only in industries in which size leads to cost advantages o Cut-off values used for mapping the axes are arbitrary o BCG matrix ignores synergies between products 5  GE/McKinsey Portfolio Planning Grid (Strength) Additional factors are involved compared to BCG! 6 Mooradian, T., Matzler, K., & Ring, L. J. 2012. Strategic Marketing. Pearson Education.  Evaluating Attractiveness: Flat Screen TVs Step 3 Step 4 Steps 1 & 2 7 Mooradian, T., Matzler, K., & Ring, L. J. 2012. Strategic Marketing. Pearson Education.  Evaluating Strength: Flat Screen TVs) Step 7 Step 8 Steps 5 & 6 8 Mooradian, T., Matzler, K., & Ring, L. J. 2012. Strategic Marketing. Pearson Education.  McKinsey Grid: Flat screen TVs (15, 80) -Seek niches where you can Attractiveness become more competitive -Consider Acquisitions 9 Strength Mooradian, T., Matzler, K., & Ring, L. J. 2012. Strategic Marketing. Pearson Education. GE/McKinsey Grid - Limitations o Greater Subjectivity than BCG Matrix – but it is still helpful o It does not readily capture changes/trends in the market – but these can be tracked if information is available 10 Volume Projections: Purpose o Forecasting sales by learning about customer intentions through surveys and market studies. o Especially useful in the early stages of product development and in setting a schedule for product launch. o To establish proper penetration of a product in the marketplace, we need to take new customers (‘triers’) and ‘repeat’ customers into consideration. 11  Volume Projection for an Existing Product: Construction A system of trial and repeat calculations to anticipate sales in future periods Volume Projection in time t (in units) = Penetration in t (in units) * Frequency of Purchase in t (in units) * Units per Purchase in t (in units) Penetration in t (in units) = [Penetration in t-1 (in units) * Repeat Rate in t (%)] + First-time Triers in t (in units) Based on chapter 7, Farris et al.. Marketing metrics: the definitive guide to measuring marketing performance. 2nd Edition, Upper Saddle River, NJ: Pearson 12 Education/Wharton School Publishing.  Volume Projection for an Existing Product: Example A subscription meal service company started selling a new premium monthly meal package in January. The company typically has an 80% repeat rate and anticipates that this will continue for the new meal package. The company sold 12,000 packages in January. In February, it expects to add 3,000 customers. The company had 18,000 subscribers in August. Later that year, in September, the company had 21,000 subscribers. The repeat customer rate was 80%. The company had 18,000 subscribers in August. 1. What is the expected penetration for 3. What is the volume projection for February, if the meal package in February? both the frequency of purchase and units per purchase is 1? Penetration in February = (12,000 * Volume Projection in February = 0.80)+ 3,000 = 12,600 meal packages 12,600 *1 *1 = 12,600 packages 2. How many new customers has the firm added for its meal package in September? 21,000 subscribers = (18,000 * 0.80) + First-time triers in August First-time triers in August = 21,000 – 14,400 = 6,600 new meal package customers. 13  Volume Projection for a New Product: Construction (I) A system of trial and repeat calculations to anticipate sales in future periods (start calculating from the bottom grey box) Volume Projection in time t (in units) = Trial Volume in t (in units) + Repeat Volume in t (in units) Trial Volume in t (in units) = Trial Population in t * Units per purchase (in units) Trial Population in t = Target Population * Adjusted Trial Rate (%) Adjusted Trial Rate (%) = Trial Rate in t (%) * Awareness (%) * ACV (%) ACV= measures product availability in retailers Trial Rate (%) = (%) of population who definitely will buy the new product*weight % of ‘DEFINITES’ + (%) of population who probably will buy the new product*weight % of ‘PROBABLES ‘ Industry standard expectation weight for definites= 80% Industry standard expectation weight for probables= 30% Based on Chapter 7, Farris et al. Marketing metrics: the definitive guide to measuring marketing performance. 2nd Edition, Upper Saddle River, 14 NJ: Pearson Education/Wharton School Publishing.  Volume Projection for a New Product: Construction (II) Repeat Volume in t (in units) = Number of Repeat Buyers in t * Repeat Units volume per customer (in units) * Repeat Purchase Frequency Number of Repeat Buyers in t = Trial Population in t * Repeat Rate (%) Based on Chapter 7, Farris et al. Marketing metrics: the definitive guide to measuring marketing performance. 2nd Edition, Upper Saddle River, 15 NJ: Pearson Education/Wharton School Publishing.  Volume Projection for a New Product: Example The marketing team of an office supply manufacturer has a great idea for a new product- a safety stapler. To sell the idea internally, the team wants to project the volume of sales over the stapler’s first year. A customer survey yields the results presented in table 1. On this basis the company estimates a trial rate for the new stapler by applying the industry-standard expectation that 80% of ‘definites’ and 30% of ‘probables’ will in fact buy the product if given the opportunity. The company has a strong advertising presence and a solid distribution network. Consequently, its marketers believe they can obtain an ACV of approximately 65% for the stapler and that they can generate awareness at a similar level. The target population consists of 15 million people. Each person buys one unit when trying the product for the first time. Marketers expect the product to be of sufficient quality to generate a 10% repeat rate in its first year. On average the company expects each repeat buyer to purchase on 4 occasions during the first year. On average each purchase is expected to include 2 units. What is the total projected volume in year one for the safety stapler? Based on Chapter 7, Farris et al. Marketing metrics: the definitive guide to measuring marketing performance. 2nd Edition, Upper Saddle River, 16 NJ: Pearson Education/Wharton School Publishing.  Volume Projection for a New Product: Solution Example Trial rate = 15%*80% + 45% * 30% = 12% + 13.5% = 25.5% of target population is expected to try the product if they are aware of it and it is available in stores. Adjusted Trial rate = 25.5% * 65% awareness * 65% availability = 10.8% Trial population = 15,000,000 * 10.8% = 1,620,000 of first-time users Trial Volume = 1,620,000 of first-time users * 1 unit per buyer = 1,620,000 staplers Repeat buyers = 1,620,000 of first-time users * 10% = 162,000 repeat buyers Repeat Volume = 162,000 repeat buyers * 2 units per repeat buyer * 4 occasions = 1,296,000 staplers Total volume in year one for the safety stapler = 1,620,000 + 1,296,000 = 2,916,000 staplers 17 Volume Projections: Caution o Volume (Sales) projections always require KEY assumptions (e.g. expectation for definite, awareness etc.) which may be inaccurate or exaggerated. Perform sensitivity analysis: i.e. use optimistic, moderate, pessimistic estimates / scenarios o Sometime trial and repeat rates are difficult to determine. The same is applicable for awareness, and distribution (availability). Use secondary data & past experiences from other products where possible. 18 Growth Rates: Purpose o To measure growth. Perceptions of success or failure sometimes are based on the assessment of growth. o This can be used for computing month-over-month growth; season-over-season; year-over-year; period- over-period o Compound annual growth rate (CAGR) is a generally accepted metric in business 19  Growth Rates: Construction Value in t – Value in t-1 Year-on-Year Growth (%) = Value in t-1 Compound Annual Growth Rate (%) = -1 Constant year-on-year growth rate applied over a period of time. We only need values for the end year of analysis and the starting year of analysis. Based on Chapter 7, Farris et al. Marketing metrics: the definitive guide to measuring marketing performance. 2nd Edition, Upper Saddle River, 20 NJ: Pearson Education/Wharton School Publishing.  Growth Rates: Example The following data was obtained from Gartner Inc. These figures refer to Apple PC units (in thousands) shipped to the US market from 2007 to 2010. PC market is defined as the one integrated by desktops, notebooks, and mini-notebooks (tablets such as iPad not included here). Year Apple What were the year-on-year sales growth of Apple in 2007 4203.00 2008, 2009, and 2010? 2008 5209.00 Sales GrowthApple, 2008 = (5209-4203)/4203 = 23.9% 2009 5559.90 Sales GrowthApple, 2009 = (5559.9-5209)/5209 = 6.7% 2010 6838.46 Sales GrowthApple, 2010 = (6838.46-5559.9)/ 5559.9= 23% What was the CAGR of Apple sales from 2007 to 2010? CAGRApple, 2007-2010=-1= 17.6% Similar, BUT NOT equal! What is the average annual growth rate of Apple sales from 2008 to 2010? Average Annual Sales GrowthApple, 2007-2010 = [23.9% + 6.7% + 23%] / 3 = 17.9% 21  Growth Rates: Cautions o When data are available we need to adjust rates by such factors as stores, salespeople, products, or expansion into new markets o Same stores sales growth is a better metric for retailers Store Opened Revenue 1st year Revenue 2nd year South side 2016 $100k $90k North side 2016 $190k $490k $200k $440k West side 2016 $200k $150k East side 2017 n/a $500k Total $490k $940k Same stores growth, 2016 to 2017 = [$440k - $490k) / $490k = - 10.2% 22