Product and Portfolio Management

By Dr. Tuhin Chattopadhyay

Trial Rate (%)

The percentage of a defined population that purchases or uses a product for the first time in a given period.

Schematic of Simulated Test Market Volume Projection

First-time Triers in Period t (#)

The number of customers who purchase or use a product or brand for the first time in a given period. Penetration t (#) = [Penetration in t-1 (#) * Repeat Rate Period t (%)] + First-time Triers in Period t (#) Projection of Sales (#) = Penetration (#) * Frequency of Purchase (#) * Units per Purchase (#)

All Commodity Volume (ACV)

The percentage of sales in all categories that are generated by the stores that stock a given brand (again, at least one SKU of that brand).

Distribution
Survey respondents who say theyll definitely try a product are unlikely to do so if they cant find it easily. In making this adjustment, companies typically use an estimated distribution, a percentage of total stores that will stock the new product, such as ACV % distribution. Adjusted Trial Rate (%) = Trial Rate (%) * Awareness (%) * ACV (%)

 After making these modifications, marketers can calculate the number of customers who are expected to try the product, simply by applying the adjusted trial rate to the target population. Trial Population (#) = Target Population (#) * Adjusted Trial Rate (%)

 To forecast trial volume, multiply trial population by the projected average number of units of a product that will be bought in each trial purchase. This is often assumed to be one unit because most people will experiment with a single unit of a new product before buying larger quantities. Trial Volume (#) = Trial Population (#) * Units per Purchase (#)

 Repeat Buyers (#) = Trial Population (#) * Repeat Rate (%) To calculate the repeat volume, the repeat buyers figure can then be multiplied by an expected volume per purchase among repeat customers and by the number of times these customers are expected to repeat their purchases within the period under consideration. Repeat Volume (#) = Repeat Buyers (#) * Repeat Unit Volume per Customer (#) * Repeat Occasions (#) This calculation yields the total volume that a new product is expected to generate among repeat customers over a specified introductory period. The full formula can be written as Repeat Volume (#) = [Trial Population (#) * Repeat Rate (%)]* Repeat Unit Volume per Customer (#) * Repeat Occasions (#)

REPEAT VOLUME

TOTAL VOLUME
Total volume is the sum of trial volume and repeat volume, as all volume must be sold to either new customers or returning customers. Total Volume (#) = Trial Volume (#) + Repeat Volume (#)

Time Horizon Influences Perceived Results

Ever-Tried
The percentage of the target population that has ever (in any previous period) purchased or consumed the product under study. Evertried is a cumulative measure and can never add up to more than 100%. Trial, by contrast, is an incremental measure. It indicates the percentage of the population that tries the product for the first time in a given period.

 Forced Trial: No other similar product is available. For example, many people who prefer Pepsi-Cola have tried Coca-Cola in restaurants that only serve the latter, and vice versa. Discounted Trial: Consumers buy a new product but at a substantially reduced price. Forced and discounted trials are usually associated with lower repeat rates than trials made through volitional purchase.

Evoked Set
The set of brands that consumers name in response to questions about which brands they consider (or might consider) when making a purchase in a specific category. Evoked Sets for breakfast cereals, for example, are often quite large, while those for coffee may be smaller.

New Products
Number of New Products: The number of products introduced for the first time in a specific time period. Revenue from New Products: Usually expressed as the percentage of sales generated by products introduced in the current period or, at times, in the most recent three to five periods.

Target Market Fit

Of customers purchasing a product, target market fit represents the percentage who belong in the demographic, psychographic, or other descriptor set for that item. Target market fit is useful in evaluating marketing strategies. If a large percentage of customers for a product belongs to groups that have not previously been targeted, marketers may reconsider their targetsand their allocation of marketing spending.

New Products
Margin on New Products: The dollar or percentage profit margin on new products. This can be measured separately but does not differ mathematically from margin calculations. Company Profit from New Products: The percentage of company profits that is derived from new products. In working with this figure, it is important to understand how new product is defined.

Year-on-Year Growth (%)

Compound Annual Growth Rate (CAGR)

The CAGR is a constant year-on-year growth rate applied over a period of time. Given starting and ending values, and the length of the period involved, it can be calculated as follows:

Cannibalization Rates
A market phenomenon in which sales of one product are achieved at the expense of some of a firms other products. Cannibalization is the reduction in sales (units or dollars) of a firms existing products due to the introduction of a new product. The cannibalization rate is generally calculated as the percentage of a new products sales that represents a loss of sales (attributable to the introduction of the new entrant) of a specific existing product or products.

Cannibalization
A market phenomenon in which sales of one product are achieved at the expense of some of a firms other products. The cannibalization rate is the percentage of sales of a new product that come from specific set of existing products.

Fair Share Draw

The assumption that a new product will capture sales (in unit or dollar terms) from existing products in direct proportion to the market shares held by those existing products.

Brand Equity Metrics

Brand Equity Ten (Aaker) Brand Asset Valuator (Young & Rubicam) Brand Equity Index (Moran) Brand Valuation Model (Interbrand)

Purpose: To measure the value of a brand.

Brand Equity Ten (Aaker)

1. Differentiation 2. Satisfaction or Loyalty 3. Perceived Quality 4. Leadership or Popularity 5. Perceived Value 6. Brand Personality 7. Organizational Associations 8. Brand Awareness 9. Market Share 10.Market Price and Distribution Coverage

Brand Equity Index (Moran)

Marketing executive Bill Moran has derived an index of brand equity as the product of three factors: Effective Market Share, Relative Price, and Durability. Brand Equity Index (I) = Effective Market Share (%) * Relative Price (I) * Durability (%)

1. Effective Market Share is a weighted average. It represents the sum of a brands market shares in all segments in which it competes, weighted by each segments proportion of that brands total sales. 2. Relative Price is a ratio. It represents the price of goods sold under a given brand, divided by the average price of comparable goods in the market. 3. Durability is a measure of customer retention or loyalty. It represents the percentage of a brands customers who will continue to buy goods under that brand in the following year.

Brand Asset Valuator (Young & Rubicam)

Differentiation: The defining characteristics of the brand and its distinctiveness relative to competitors. Relevance: The appropriateness and connection of the brand to a given consumer. Esteem: Consumers respect for and attraction to the brand. Knowledge: Consumers awareness of the brand and understanding of what it represents.

Young & Rubicam Brand Asset Valuator Patterns of Brand Equity

 Leon Ramsellar of Philips Consumer Electronics, for example, has reported using four key measures in evaluating brand equity and offered sample questions for assessing them. Uniqueness: Does this product offer something new to me? Relevance: Is this product relevant for me? Attractiveness: Do I want this product? Credibility: Do I believe in the product?

Brand Valuation Model (Interbrand)

Interbrand, a brand strategy agency, draws upon financial results and projections in its own model for brand valuation. It reviews a companys financial statements, analyzes its market dynamics and the role of brand in income generation, and separates those earnings attributable to tangible assets (capital, product, packaging, and so on) from the residual that can be ascribed to a brand. It then forecasts future earnings and discounts these on the basis of brand strength and risk. The agency estimates brand value on this basis and tabulates a yearly list of the 100 most valuable global brands.

Conjoint Analysis
Marketers use conjoint analysis to measure consumers preference for various attributes of a product, service, or provider, such as features, design, price, or location. By including brand and price as two of the attributes under consideration, they can gain insight into consumers valuation of a brand that is, their willingness to pay a premium for it.

Conjoint Analysis
A method of estimating customers by assessing the overall preferences customers assign to alternative choices. Conjoint Preference Linear Form (I) = [Partworth of Attribute 1 to Individual (I) * Attribute Level (1)] + [Partworth of Attribute 2 to Individual (I) * Attribute Level (2)] + [Partworth of Attribute 3 to Individual (I) * Attribute Level (3)] etc.