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

1. Product Initiative Seminar: Improving Odds of Success and Success Criteria Development Leonora Polonsky Lisa Hillenbrand

2. Seminar Objective Raise “Odds of Success” for Product Initiatives

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

4. Definitions

5. Definitions... “Success” How do we define success? When do we declare projects successful?

6. Definitions... “Success” Corporate Scorecard Measure: Positive NPV Adds Shareholder Value

7. Definitions... “Success” What initiative teams must strive for: Meeting Commitments!

8. Definitions... “Success” How we’ve defined success: Achieving 90% Year I volume and going (Year II) Profit Objectives Proxy for meeting 90% of booklet NPV

9. The Success vs. Failure Declaration “Juncture” “ 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

10. Definitions... Types of Initiatives Product Improvement/ Replaces product with better one Upgrade 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

11. TrackRecord

12. Track Record Fewer New Brand and New Category Success Stories

13. TRACK RECORD... FEWER NEW BRAND & NEW CATEGORY SUCCESS STORIES • ANNUAL VOLUME NEW BUSINESSES NEW BRANDS • GROWTH RATE CATEGORIES ENTERED OVER OVER 3 MMCS 20MMCS • TOTAL W/O ACQUISITIONS 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

14. Track Record Success Rates For All Initiative Types Are Low Types of InitiativesSuccess Rate Flankers/New Brands 10% Line Extensions 33% Product Improvements 34%

15. Track Record Rates Disappointing Worldwide (% Positive NPV) • NORTH LATIN • AMERICAEUROPE ASIA AMERICA TOTAL • 63 77 30 53 56 • 1997 data

16. 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

17. Track Record Lots of Little Initiatives Don't Add Up Average Growth Over 7 Years 49% 7% 0 Few Big Initiatives Lot of Small Initiatives Average # Initiatives 2 5

18. Track Record Why aren’t our results better? What should we do differently?

19. 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 Worm • 3. Drive through (success criteria) Stop Signs • 4. Don’t Confuse Me with the Facts • 5. Shoot the Messenger • 6. Starve the Stars • 7. I Can Do Anything Better Than You Can

20. Track Record Some Progress to Report! % Initiatives globally with Positive NPV up from 46% (1994 review) to 56% (1997 review)

21. 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)

22. 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

23. Success Principles Strategic Success Principles

24. Success Principles Success Principles • 1. Understanding category and consumer dynamics is the foundation Category Dynamics Understand 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)?

29. Success Principles 1. Understanding category and consumer dynamics is the foundation! Consumer Understanding Understand both the fundamental functional need (the what) & the motivational need (the why)

31. VIDEO

32. Success Principles 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. Complete Consumer Understanding

33. 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 result in successful businesses? Can high concept scores have limited business potential?

34. How do we generate strong concepts?

35. Success Principles In Context Research Techniques Can Lead to new Insights & Ideas 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.

36. Success Principles Turning Understanding Into New Products By Meeting Unarticulated Consumer Need Understanding Application Brand Insight 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. U. S. Fit Use water to clean vegetables: “probably not doing any good, but...” Dish liquid just adds more chemicals. Fit Produce Rinse

37. Success Principles • Insights Identify signals or occasions which make product more relevant or better communicate the benefit being delivered • 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

38. Success Principles To Get Better Ideas, Look Beyond the Consumer... Mine all Potential Idea Sources Our Customers Consumer Trends Medical Establishment Women’s Health Opportunities Science/ Technology Business Competition Government

39. 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?...

41. VIDEO

42. How about... Crest Tartar Control? Tide with Bleach? Mr. Clean Cleanser? Duncan Hines Tiara Desserts?

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

44. 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

45. Success Principles 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”?

46. Success Principles More Product Strength =Higher Odds of Success! Product Strength (% OOS) Initiative TypeSuperiorParity Line Extensions 49 27 Product Improvements 52 33 OVERALL 50 29 VIRTUALLY ALL THESE HAD INTERNAL WINS

47. Blind Test 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

48. Success Principles Europe C&F Learnings on Blind Tests

49. 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%

50. 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 ProductYear I vs. Past 12 months +7 to +12 points +17% +3 to +6 points + 9% -4 to +2 points - 3%