Business Review

1. Business Review

2. The Context All Great Marketing PlansBegin Here

3. Business Review Module - Presentation Flow 1. What is a Business Review/Why Bother 2. Structuring the Business Review Analysis 3. Translating Data into Key Issues and Opportunities 4. Opportunity Synthesis and Prioritization 5. Developing the Business Review “Story”

4. 1. What is a Business Review? • The opportunity to stand back and evaluate your total market, business situation and activity. • The process of identifying opportunities to move the business forward and achieve competitive advantage in the marketplace. • The all-important first step in preparing a “great” marketing plan.

5. Business Reviews Long Term PlanJan./Feb. Marketing PlanAugust Category PlanSeptember What is a Business Review? The link in the planning process that drives insights for all types of plans.

6. What is the Business Review End-Point? • Synthesis and prioritization of facts and data into a singular focus area for the brand. • Identification of concrete, actionable opportunities to build the business. Foundation for the objective, marketing strategy, substrategy and key program development decisions.

7. OPPORTUNITY IDENTIFICATION Analysis is not an end in itself,it’s a means to an end The End Is

8. Examples of Opportunities • Implement an integrated communication campaign to build awareness of new Nestlé Classic confections. • Test an in-store sampling program on Frutips. • Explore launching a dehydrated dessert range. • Develop an in-store cross-merchandising program between Nescafe and Coffee-mate. • Test increased coverage in the Pharmacy channel.

9. 2. Structuring the Business Review Analysis • To stay focused on the most important issues for the business. • To reduce dead-end “number-tumbling”. • To increase analysis productivity/ effectiveness. If only we knew the answer to ...

10. What are the Opportunities to Build the Business? Based on: TheMarket TheConsumer OurCompetitors Our ChannelCustomers Our BusinessPerformance Structuring the Business Review Analysis • Conduct a scan of the critical questions to identify the key issues to analyze in greater depth. • Look for specific issues and opportunities on your brand relative to the most critical questions.

11. The Critical Questions The Market • What is the definition of the market we compete in (from a consumer standpoint)? • What are market trends within key segments? • Is the market growing or declining; is the trend consistent for sales Taka, volume and profitability? • How can the size of the market be explained in terms of consumer purchase behavior? • What underpins category, segment and brand volumes in this market (i.e. high purchase frequency, purchases of large quantities, etc.)? • What are related/complementary category trends? • What is the market outlook?

12. The Critical Questions The Consumer • What are critical consumer needs in this category? Which represent unmet needs? • What are usage and habit trends amongst consumers? • What consumer perceptions exist about this category and our brand? • Who is our consumer target (influencer, purchaser, user, etc.)? • What is the most relevant consumer segmentation in this category? • What is the composition of our consumer base relative to this segmentation? • How does our consumer base break down in terms of usage (heavy, medium, light users)? • What behavior change amongst which target consumer is most important to building our brand?

13. The Critical Questions The Consumer • What is the flow of the consumer purchase decision in this category? • Where in the consumer purchase decision process can consumers be most influenced? • What environmental factors trigger consumer need for the category (e.g. media, special occasion, on shopping list, family input, price incentive)? • What specific factors trigger selection of our brand (i.e. what makes our target consumer want to buy)? • What are household penetration, purchase frequency, purchase units/ buyer and share of requirement trends for our brand? • How would we categorize the level of loyalty in this category? • How do consumers shop this category (e.g. price hunters, passive, etc.)?

14. The Critical Questions Our Competitors • Who is our competition (from a consumer standpoint)? • What are key competitors’ business trends? • What are key competitors’ strengths and weaknesses? • How do we perform versus competition in key areas (e.g. product, package, pricing, availability, etc.)? • What are price/unit (or per serving) trends for key competitors relative to our brand? • What is the price elasticity for our brand versus competition? • What is the consumer’s perception of our brand’s value equation versus key competitors?

15. The Critical Questions Our Channel Customers • What are category sales trends by channel? Have there been any important shifts? • Which segments and brands are winning/losing & why? • Which channels are most important for us and the competition? • What is the trend in level of support for this category by customers? (display, merchandising, pricing, etc.) • What role does our category play for customers; how does this differ by channel? • What are availability trends for our brand? How do our trade margins compare versus competition in the key channels?

16. The Critical Questions Our Business Performance • What are historical sales, market share and profit trends for our brand; what are the drivers of these results? • What are the key financial and operating ratios on the brand? • Where have we sourced our volume; how will we create growth? (i.e. growing the category vs. growing share within the category)? • What has been the historical effectiveness of our marketing activity/spending and specific programs? • What has been the success rate of new products? What are the key drivers of these results? • How are we performing versus our key substrategies (e.g. product and packaging, integrated communication, customer business development)?

17. What are the Opportunities to Build the Business? The The Our Our Channel Our Business Market Consumer Competitors Customers Performance So How Do I Apply these Critical Questions? • A guide to focus data collection in the initial development stages of a Business Review. • A tool to finetune and build on the existing Business Review as input to the Marketing Plan.

18. 3. Translating Data into Key Issues and Opportunities • For each of these critical questions, we want to answer: • What’s happening? • Why? “I’ll bet ......” • What are the opportunities?

19. OpportunityIdentification Why? What’s Happening? Gather BusinessPerformanceData ProvideRationale Determine“What’sHappening?” Hypothesize“Why? “I’ll bet ...“ Identify“What are theopportunities?” Don’t here Gather CausalData Don’t here Translating Data into Key Issues and Opportunities

20. Translating Data into Key Issues and Opportunities What’s Happening? Why? … I’ll Bet What are the Opportunities? • Purpose is to focus analysis and gather/ analyze causal data to address your hypotheses • Long list and prioritize your “bets” so data search is limited to proving/disproving your hypotheses • Ask a series of questions until there are no more to ask! • So what? • What should we do about it? • action orientation • Collect and analyze the relevant data to answer the questions • Examples: • share/volume is down • why is East higher than West • why did we achieve these sales results

21. Translating Data into Key Issues and Opportunities What’s Happening? Why? … I’ll Bet What are the Opportunities? • A key barrier to Nestlé Milo is that the perception that Nestlé Milo offers little nutritional value • Explore the launch of an intensive sampling and communication campaign that focuses on the nutrition of Milo and a means of getting kids to drink milk. • Nestlé Milo is stagnating in growth while the category grows at 5% per annum.

22. Statement of key issue or problem plan must address Summary of quantitative, factual support Statement of preliminary opportunity Reversing the trend on the Nestlé Milo is critical to the long-term viability of the brand. Nestlé Milo has stagnated at 50 tonnes for 4 years with extensive PFME funding.and the category continues to grow. Within the category, Milo decline\ have been offset by growth in Horlicks and Ovaltine. "Restage" the Nestlé Milo brand including product improvements to achieve 60/40 preference, new communication message to increase relevance, and reformulation. Intensive sampling campaign. Documenting the Key Issues and Opportunities Example

23. Which Are Good Key Issue/Opportunity Statements? 1. We need to increase consumer top-of-mind awareness of Nestlécore chocolate brands to drive consumption • Nestlé confectionery brands have low consumer awareness versus competition Opportunity: Increase advertising investment on core brands and increase in-store visibility 2. Weaker distribution and sales in the Pharmacy channel of Nutrition products indicate a serious area of underdevelopment for Nestlé • Only 2% of Nestlé Nutrition sales come from Pharmacy Opportunity: Support medical detailing strategy with increased distribution and facings in the Drug channel

24. Which Are Good Key Issue/Opportunity Statements? 3. Nestlé GUM is over-reliant in the Central Region • 80% of sales in Central region Opportunity: Develop a specific initiative for the East and West Region 4. A key issue for Nescafe is maintaining distribution in small grocery stores • 200g and 50g are not maintaining distribution and does not offer a one time consumption Opportunity: Develop a specific product for the small grocery outlets

25. 4. Opportunity Synthesis And Prioritization 1. Volume Modeling 2. Brand Strategic Gap Scorecard Purpose: Isolate key drivers of a brand’s sales to enable prioritization of strategic options/ opportunities and focus of effort

26. Volume Modeling Target Segment Population x Awareness x Distribution = Household Base x Trial Rate (Household Penetration) = Number of Trier Households x Retained User Rate/Repeat Rate = Retained User Households x Average Annual Volume/Frequency of Purchase = Total Annual Sales

27. Volume Model - Nestlé Milo Example Target Segment 1.75MM households x Awareness 80% x Distribution 80% = Household Base 1.12MM households x Trial Rate 70% (user rate) = Number of Households 784M user households x Repeat Rate 70% = Average Annual Volume 1.6 200ml/week Total Sales 45,660M drinks consumed

28. Volume Modeling - Example AlternateOpportunity Area(s) IncrementalSales MarketingSpend Risk/Degreeof Difficulty A) Expand target segment population by 50% (to 2.6MM) ? ? High B) Increase usage rate from 70% - 80% ? ? Medium C) Increase consumer usage frequency (+1 drink/year/consumer) ? ? Medium

29. Target Segment Population Awareness Distribution Trial Rate* Influenced by: size of target market awareness rate trial rate distribution based on media spend and reach/frequency delivery perceived product relevance/uniqueness investment in listings relevance of positioning and product product uniqueness degree of unsatisfied needs perceived value price acceptability expected product quality Volume Modeling - Key Variables * can be substituted by household penetration or usage rate

30. Retained User Rate/Repeat Purchase AverageAnnualVolume/ Frequency of Purchase Influenced by product delivery matches consumer expectations consumer acceptability (taste, performance, …) price/value acceptability establishment of habit meaningful product advantage integration into consumption pattern price advantage/acceptability Volume Modeling - Key Variables

31. Volume Modeling - So Where Does This Get Us? Prioritization of Brand Focus of Effort: expand target segment(s)? or increase awareness? or increase distribution? or increase trial? or improve product performance? or increase frequency of purchase? Based on: • incremental sales • incremental marketing spending • risk/degree of difficulty What If?

32. Brand Strategic Gap Scorecard • A tool to assess the gap in our performance in key strategic areas of the brand’s business. Are we actually executing our strategic intent?

33. Brand Strategic Gap Scorecard ActualPerformance Root Causefor Gap Area Desired Performance Gap Indicated Action CompetitivePosition Identify 2-3 areas of superiority or uniqueness vs. competition How are we performing Focus ofEffort Trial, re-trial, continuity, increased consumption frequency, etc. Quantitative level achieved Value Proposition Benefit/price relationship How are we performing EffortPriorities List of 5-6 strategic initiatives How many completed Product and Packaging Target performance (e.g. 60/40, taste profile) Test results

34. Brand Strategic Gap Scorecard ActualPerformance Root Causefor Gap Area Desired Performance Gap Indicated Action Integrated Communication Image/equity Image scores Media Reach/frequency/GRPs, share of voice, awareness level Actual results of media plan Pricing Avg. price vs. competition Feature price vs. competition Channel price targets Actual pricing gaps versus target Availability Distribution targets Actual results In-Store Effectiveness Display targets Shelving targetsMerchandising targets Actual results by channel

35. Brand Strategic Gap Scorecard - Example ActualPerformance Root Causefor Gap Area Desired Performance Gap Indicated Action CompetitivePosition • 60/40 product preference • 55% leadership share of voice • 40/60 • 30% share of voice • (20) points • (25) points • Milo is not being prepared correctly • High spend in Sponsorship • Intensive sampling • Focus on sampling / SOV Focus ofEffort 30% trial level through sampling Sampling to achieve 10% 20 points Ineffective sampling program Refocus sampling effort and tie in to outlet coverage Availability 75% distribution at grocery channel 80% achieved plus NA NA NA Value Proposition Superior rich chocolate delivery at parity with other single serve beverages on per serving basis Parity price achieved; product not 60/40 preferred Product/ Package • Consumer preparation • Lack of single serve • Awareness • Introduce RTD Pricing Competitively priced versus other value-added value beverages on a per serving basis Achieved NA NA NA

36. AlternateOpportunity Area(s) IncrementalSales MarketingSpend Risk/Degreeof Difficulty A) Improve product performance ratio to 60/40 ? ? High B) Invest in increased media support (build SOV to 55%) ? ? Low C) Increase sampling effort ? ? Low Brand Strategic Scorecard - Gap Analysis

37. 5. Developing The Business Review “Story” • Synthesis of business overview: how’s business on the brand and why • explains key reasons for results • Can be tackled as a “news story” • headline concept • sub-headlines • text

38. The Business Review Story - Coffee-Mate Example 2000 was another disappointing performance year for Coffee-Mate with sales down -10% and profit flat versus 1999. Over the past 4 years, the brand has experienced a rapid decline in household penetration (a loss of approximately 40% of our user base) as consumers have shifted away from the static powder segment of the whitening market into the growing liquid segment. On a combined powder and liquid basis, our brand share has declined from 34% in 1999 to 27% in 2000, and within powder, share has declined from 45% to 40%.

39. The Business Review Story - Coffee-Mate (cont’d.) Beyond losing share to other whitening occasions (e.g. liquid), Coffee Mate is also being hurt by the continued growth of Private Label powders (19% share), driven by aggressive pricing. Average selling prices for Control Label were up to 40% less than those for Coffee-Mate in 2000. Critical to the long-term reversal of this business performance is consideration of a launch into the liquid segment followed by a plan to minimize losses on powder including product reformulation, aggressive product cost savings and targeted investment in PFME support.

40. Characteristics of a Good Business Review “Story” Provides sufficient business context (past year, history). Sufficiently explains the “why” behind business performance. Identifies how the reader should be thinking about the brand’s performance (is this good/bad/indifferent). Self contained (like newspaper headlines)

41. Business Review Module - Presentation Flow 1. What is a Business Review/Why Bother 2. Structuring the Business Review Analysis 3. Translating Data into Key Issues and Opportunities 4. Opportunity Synthesis and Prioritization 5. Developing the Business Review “Story”