Posted by InsightsNow Marketing Team on October 14, 2010
by Alec Maki, Product Marketing Manager
How do you…
- Make the most money with a product line?
- Decide which line extensions to keep and which to prune?
- Which will reach the most new consumers without stealing share from the rest of the line?
In a push to expand market share, consumer packaged goods (CPG) brand teams have answered these same questions for decades. Over time, marketing research tools have been developed to address these questions. Even today, as new line extensions are brought to market, the same traditional tools are used. In recent years however, a confluence of events has exposed limitations of these traditional methods.
The problem is, we as an industry have been too successful. Since the 1970’s, the number of products sold in an average supermarket has exploded from 10,000 to over 47,000 - with superstores carrying over 100,000. Each year, thousands of additional new products are thrown to the market as well, with 85% of them being line extensions. This explosion in product variety has happened for three reasons. Namely, line extensions serve to:
1. grow brands by addressing specific consumer needs;
2. protect and increase shelf space; and
3. decrease risk and cost of new product development.
Now we have supermarkets saturated with product lines that vary by format, size, flavor, fragrance, color, ingredient, packing option and benefit. We have split the proverbial hair not once, nor twice, but eight ways. When it comes to line extensions, we got lazy. We relied on what worked in the past, while not considering a changing future. Well, here we are. The future is no longer the future. The future is now.
Consumers are caught in a sea of “me too” products – where varieties within product lines and across brands have little meaningful difference. Choice has become commoditized. The battle for share of wallet has intensified. And the battlefield has shifted under our very feet. In the midst of the Great Recession, brand loyalty has eroded. Consumers are increasingly frugal. Couponing has become chic. Private label brands have stepped up with lower-priced products that deliver on quality and value. Moving forward, the fastest brands, both manufacturer and private label, will adapt to the new landscape, gaining a competitive advantage.
So how do you as a brand manager or researcher, adapt? For starters, you must question everything you thought you knew about product innovation and line extensions. You must re-evaluate fundamental truths and assumptions. You must revisit tried-and-true techniques. The vehicles the industry successfully used to reach this point may not achieve the same success in the future.
When it comes to product line optimization, traditional approaches have significant limitations which are being exposed in this economic landscape. TURF (Total Unduplicated Reach and Frequency) analysis has been a standard technique used to determine optimal product lines. It tells the percentage of consumers uniquely reached by a set of products. The trick is to identify the set of products with the greatest reach. In most real-world cases, there is no statistical difference between the best set and, at times, dozens of other combinations. In other words, making a product line decision with traditional TURF output is often arbitrary. Arbitrary may have worked in the past, but it is no longer good enough.
To compound matters, purchase intent (PI) is typically used as the key measure for TURF analysis. However, purchase intent is a poor surrogate for how consumers behave in the market place. Consumers tend to rate familiar items higher, which simply fans the flames of “me too” proliferation and downplays new or niche offerings. Often, purchase intent provides inadequate discrimination between products - let alone between products within the same line. Given the changing landscape within the CPG industry and a market saturated with too many “me too” products, you have to ask yourself “Do you really want to base product launches on techniques that encourage familiarity, do not discriminate and lead to arbitrary decisions?”
When you, as a marketer, evaluate product line optimization, you should look beyond traditional approaches. Instead, consider how people behave. Consider market dynamics. Use this perspective to inform how you approach product innovation and line extensions. Why? Because, brands have purpose! Products provide benefits. And, at the end of the day, consumers make choices. As a marketer, given your business objectives, it makes sense to incorporate one or more of these factors into how you look at your product line. Some companies have already started in this direction. But few, if any, have completed the transition.
To bring this idea to life, I invite you to join Liz Yandall and myself for our October 26th webinar, “Beyond Traditional Measures – Optimizing a Product Line more Effectively”. During this time, we’ll uncover product line optimization leading practices and how to identify which products will perform best in the marketplace. Upon registration, we encourage you to send any questions you may like addressed during the live event.