EDT - 06 - Nielsen Bases Presentation PDF

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How Companies can Select Winning Ideas and Forecast Sales Before Launching New Products Presented to:

What is Nielsen BASES? What do we do? Nielsen BASES Mission is to help our clients grow through successful innovation on their brands.

Nielsen BASES Objective is optimizing our clients’ high potential initiatives, and minimizing the risk of launching failures. Nielsen BASES Philosophy is building strong and lasting relationships with our clients. 2

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Simulated Test Marketing Overview

Typical new product development process for consumer packaged goods Market Definition

Idea Generation and Screening

Product Forecasting Methods: • Best Guess • Secondary Data Comparables • Qualitative (focus groups) • Live Test Markets • Simulated Test Marketing

Concept Testing / Optimization

Product Development and Evaluation

Prove Business Case

Cost of Failure: • Year 1 Advertising / Promotion: $530MM • Manufacturing Costs: $5MM+ • Opportunity Costs: good products not launched • Brand Equity: negative halo of failed product (consumer and trade) • Job Security 4

Commercialization and Launch Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Our methodology ensures data consistency and reliability CONCEPT (Pre-Trial)

Consumers contacted

Exposure to Concept Stimulus

Evaluation of Concept

Consumers Re-Contacted after usage period

Evaluation of Product

AFTER-USE (Post-Trial) Eligible Consumers Placed with Product

5

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

STMs Applied: Consumer Data

Can you guess which countries have high overstatement? Purchase intent claims by country

France Russia Spain Germany Italy

UK

Germany

UK

France

Russia

Source: The Nielsen Company

Spain

Italy

7

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Concept Claimed Units (Fav)

For example, consumers overstate their transaction size, but it correlates to actual behaviour

1:1 Line

Trial Units 8

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Short

Purchase Cycle

Long

Similarly, their claimed frequency of purchase lines up with actual purchase cycle

Low

After-Use Claimed Frequency

Source: The Nielsen Company

High

9

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Purchase cycle drives repeat rate (and repeats per repeater as well)

Repeat Rate (Panel)

High

Low Short

Purchase Cycle (Panel)

Long

10

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

STMs Explained: Inside the “Black Box”

Volume is calculated by combining together consumer responses with planned marketing Volume Forecast

Impact of Marketing Support

What consumers actually do

Adjust for what marketers do to influence consumers

Promotion/in-store activity Distribution Awareness

Measure Consumer Perception

Total Addressable Market

Volume Estimate

Remove consumer bias factors

What consumers say they will do

Interested Universe Adjust for Overstatement Consumer Claims

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Looking at consumer claims alone will be misleading Determine Consumer Interest

50% Purchase Intent

+ Adjustment for Overstatement

BASES Model

= Interested Universe

20% Interested Universe

% of consumers becoming aware Marketing Plan + BASES Model

% of consumers find the product where they shop + other activities (e.g. promotions)

13

Trial Rate

5% Trial Rate Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Volume is calculated by adding together trial and repeat Example Households Trial Volume

+ Repeat Volume

= Total Volume

55 million

Trial Rate

10%

Number of Packages / Purchase

1.1

Trial Volume

6.1 million

Triers

5.5 million

Repeat Rate

40%

Number of Packages / Purchase

1.2

Repeats / Repeater

3.0

Repeat Volume

7.9 million 14 million

14

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

The relationship between trial and volume is almost linear

Unit Volume Per 100 Households

High 2

R = 0.84

Low

Year I Trial Rate

Low

High

Source: The Nielsen Company

15

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

High

Awareness is critical for new products’ success

Low

Year I Trial Rate

R2 = 0.56

Maximum % Awareness

Low

High

16

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Awareness

Product category affects awareness generation

Food Personal Care Health Care

17

GRPs Source: The Nielsen Company

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Total Awareness

High

Media drives awareness

Higher Impact GRPs (higher recall)

Lower Impact GRPs (lower recall)

Low

Even without any advertising there will be some awareness, from distribution.

Low

GRPs

High

18

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

What is the value of memorable Advertising?

Me-Too

Innovative

GRPs

2,000

2,000

Recall

20%

30%

9%

9%

Trial Rate

35%

45%

Sales Index

8.5%

11.2%

1.00

1.35

Persuasion Awareness

19

Source: The Nielsen Company

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Advertising timing has an impact on volume

Trial Rate

10 9 8 7 6 5 4 3 2 1 0

5.3% Early Flighting

4.9%

Spread-out Flighting

0

1

2

3

4

5

6

7

8

9

10 11 12 13

Time in 4 Week Periods 20

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Distribution even stronger impact on volume - its importance cannot be underestimated 2

Trial Rate

R = 0.83

21 Distribution

Source: The Nielsen Company

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Distribution timing is also important Trial rate

Distribution Buildup Influence on trial

Fast: A

A

= 26% B

Slow : B

Month 12

Month 12

More time for trial More time for repeat

Influence on volumes Volumes

= 40% Higher Sales Volume 22 Month 12 Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Influence of actual in-market execution on performance of the initiative Comparison Between the Original BASES Forecast and Expected Performance based on the Launch Execution Plan 1378

1377

1109 1000

0%

954

907

888

+38%

-19% +7% -5%

-20%

Original BASES Forecast

Actual Distribution

Actual GRPs

Copy Test Results

Delayed Launch of Trial Pack

Source: The Nielsen Company

Actual Sampling

Revising Pricing

23

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

1st vs. 2nd Repeat Rate 100 90

2nd Repeat Rate

80 70 60 50 40 30 20 10 0 0

10

20

30

40

50

60

70

80

1st Repeat Rate

24

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

2nd vs. 3rd Repeat Rate 100 90

3rd Repeat Rate

80 70 60 50 40 30 20 10 0 0

20

40

60

80

100

2nd Repeat Rate

25

Source: The Nielsen Company

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

3rd vs. 4th Repeat Rate 100 90

4th Repeat Rate

80 70 60 50 40 30 20 10 0 0

10

20

30

40

50

60

70

80

90

100

3rd Repeat Rate

26

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Buyers can be ‘lost’ – if you have a bad product they will be lost more quickly

Number of Households

Trial Strong Product Weak Product

First Repeat Stabilization

1

2

3

4

5

6

7

8

Number of Repeat Purchases 27

Copyright © 2011 The Nielsen Company. Confidential and proprietary.

Incremental trial is important to replace lost buyers Year II to Year I Ad Spend Ratio • Marketing efforts influence a brand's ability to grow in Year 2.

1.06

• For brands that decline, ad support is generally cut significantly versus Year 1 support. 0.49

• Ideally, a new product should be thought of as “new” for 2 years rather than one.

Up/ Stable Brands

Declining Brands 28

Source: The Nielsen Company Copyright © 2011 The Nielsen Company. Confidential and proprietary.

The accuracy of BASES validated over 1,700x, with the average forecast...