Randall Beard — November 23, 2016 As a teenager, I raced motocross. Racing is, of course, hard on engines, and it wasn’t long before I twisted a countershaft and faced the question of rebuilding the engine myself or taking it to a local repair shop.
Given the expense involved, it really wasn’t much of a choice, so I completely disassembled the engine to install the new part. Parts were strewn about everywhere. I then painstakingly and carefully reassembled it―only to find it wouldn’t start. Hugely frustrated at my failure and several days later, I discovered an errant part occupying space on the windowsill instead of in the engine. No part, no engine start.
I don’t race motocross anymore, but this experience taught me an important lesson. Following a rigorous process and making sure you install all the right parts is a necessary formula for success.
A new product launch plan sometimes reminds me of my motorcycle mechanic follies. Marketers meticulously build a winning concept and product only to fail in market―and discover later the missing part. One of the often overlooked “parts” is this: checking to make sure your proposed launch plan is sufficient to make your new item an in-market success.
Why the “Product Launch Plan Sufficiency” Part Is Important
Companies routinely invest tens of millions of dollars in discovering a compelling proposition and developing the best possible product, line up, and packaging, only to launch with an insufficiently robust product launch plan and fail in the market.
To underscore this point, Nielsen’s BASES database shows that about one of every five initiatives that are evaluated as “ready” for launch based on strong concept and product test results still fail in the market due to weak execution or insufficient marketing support.
Forgetting to check if your launch plan is sufficient is a little like me failing to install a key part in my engine rebuild but then expecting the engine to start. What’s needed is a launch plan “sufficiency” metric
The Retailer Perspective―A Zero Sum Game
It’s helpful to put this into a retail context. Brands are competing for limited retailer distribution slots. A retailer typically allocates a set number of “slots” or SKU’s to a given category, which is, for the most part, fixed in the short run.
This means that for any new product launch with incremental SKU’s, the retailer is playing a zero-sum game. For any new items they accept, they are going to kick out a similar number of other items. Which items are most at risk? Items with the lowest turnover, of course.
New Items Need a Sales Velocity Goal
Given this, it’s obvious that new items need to generate sales at a higher rate than the items they replace. Or, to say it differently, your new items need to be at or near the top in volume or they will face permanent risk of delisting by the retailer.
Given this, the answer to the sufficiency question is a simple two-step process:
- All new items need a reliable volume forecast using your base launch plan.
- Foretasted new item volume should be compared to in-market SKU’s for sufficiency.
With these two things in place, we can estimate the likelihood of new item success over time.
New Product Launch Plan Volume Forecasting
Volume forecasting is a relatively straightforward exercise with the right data. If you’ve done high-quality concept and product testing, you should have measures of purchase intent, frequency, and amount per transaction size as well as likely repurchase. Combining this with other key data, you can derive a reasonably accurate volume forecast.
For perspective, Nielsen BASES, one of the first systems developed to forecast new items in this way, produces forecasts vs. actual that average +/- 20% about 90% of the time.
New item forecasting as part of a plan should be a given. It’s the foundation for new item financial analysis. And it enables brands to simulate various launch plans to optimize sales impact.
Ranking Your New Item vs. In-market SKU’s
Armed with the new item volume forecast, we can compare this to the real world volume in the category using scanner data. Why is this important? It’s important because the new item’s volume ranking has a strong correlation with in-market performance.
In fact, Nielsen’s analysis of numerous new product launches across a range of categories shows very conclusively that a new item’s odds of achieving Year 1 volume and maintaining distribution over time, are much, much higher if its sales velocity ranks in the top two quintiles (40%) of current category SKU’s.
This really shouldn’t be that surprising. If a new SKU ranks in the bottom 40% for sales velocity, it’s at significant risk of delisting as competitors launch new items. And delisting means lower volume and lower likelihood of success.
What’s Different? Product Launch Plan Sufficiency
So what’s new here? The new thinking is to both forecast your item’s new volume and use the new item sales volume quintile ranking before you finalize your new item launch plan.
If results are favorable and your new SKU’s volume forecast ranks in the top 40%, then move forward. But if it’s unfavorable, consider it a flashing red alert. Rework the product launch plan until you have a ranking in the top 40%―that is, sufficient to sustain distribution and ensure a high likelihood of market success.
That’s a much better plan than launching your new product to great fanfare, only to have it be an abject failure and then discover that you left out a key part. Trust me, I know all about missing parts. After all, I’m the guy who spent the better part of two days trying to restart his rebuilt motorcycle engine.
Business & Finance Articles on Business 2 Community(66)
