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Managing the success of your
business in the future
Why your mom can play such a
significant role
Procter & Gamble - Thomas Methner
Little VF Quiz to start off
What will be the total number of coffee drinks
consumed by this audience today?
Think about it for max. 30 seconds, then
raise your hand and let me know
Prize for the closest
bar ☺!
Procter & Gamble - Thomas Methner
European chocolate
Little VF Quiz – rough solution
How many people are in the room?
Who had no coffee yesterday?
Who had 1 coffee drink / 2 coffee drinks / 3
coffee drinks / more than 4 coffee drinks?
What’s the formula for volume?
Population
Penetration
Consumption rate
Just out of curiosity: How many insomniacs do
we have in this group? ☺
Procter & Gamble - Thomas Methner
Agenda
Concepts & processes to think about the future
Forecasting at the center of business decisions
Talk and listen to your mother – it will improve
the quality of your forecast significantly
Forecasting as an ongoing process of an entire
team
Key boundary conditions – any way to
overcome them
The diversity of Europe – France is not Italy is
not Germany …
Key messages to take away
Procter & Gamble - Thomas Methner
Potential Volume Forecasting Frameworks
Volume = Market Size * Market Share
But what if you don’t know the market size?
Or even the market?
Procter & Gamble - Thomas Methner
Potential Volume Forecasting Frameworks
Volume = Market Size * Market Share
But what if you don’t know the market size?
Or even the market?
Volume = HH Population * Penetration *
Buying (Consumption) Rate
Commonly used with Household Panel data
For new products, trial and repeat as well as
purchase frequency and transaction size are not
clearly separated
Procter & Gamble - Thomas Methner
Potential Volume Forecasting Frameworks
Volume = HH Population * Trial * Trial
Transaction Size + Trying HHs * Repeat
* Repeats per Repeater * Repeat
Transaction Size
Components are all measurable and to be
tracked via Household Panel data
Easy to isolate effects of idea / concept and
product
Foundation of BASES model
Procter & Gamble - Thomas Methner
Concepts and processes to think about the future
Before I try to give you some
perspective here, let me ask you a
trivial question …
Procter & Gamble - Thomas Methner
What is Volume Forecasting?
???
Procter & Gamble - Thomas Methner
An attempt for a comprehensive answer …
Assessing the landscape and
culminating all existing knowledge
for any new initiative in a structured
way leading to the most
realistic/achievable ‘size of the prize‘
estimate at any time throughout the
initiative management process
Procter & Gamble - Thomas Methner
Are the following situations familiar to you?
Your F&A counterpart has calculated that we need
to achieve 1200 MSU for a new Hair Care line
extension in the UK in order to deliver the missing
$15MM NPV in the respective initiative portfolio for
the next 2 years
Your business team leader has told the whole team
that the new-to-the-world OTC product currently
being developed by R&D is going to deliver at least
5000 MSU in the US in its first year in 3-4 years
time from now
Procter & Gamble - Thomas Methner
The Challenge
How do you make sure that business teams work
against stretched, but still achievable goals?
How do you find the appropriate balance between
‘advocacy’ and ‘realism’?
Procter & Gamble - Thomas Methner
Forecasting at the center of business decisions
Who
When
How
What
Procter & Gamble - Thomas Methner
Key players for Volume Forecasting
Market Research / Marketing / R&D / Finance /
Product Supply / Demand Planning / Media / Sales
…
External Experts (BASES / Novacion / AC Nielsen /
IRI / Category Experts / Universities …)
Determine a leader for this VF process
Most importantly:
Your Mom ( = real consumer = common
sense!!!)
Procter & Gamble - Thomas Methner
When
Discover
to do Volume Forecasting
Throughout the whole initiative management cycle!
Initiative
Management
Discover
Assess &
Design
Qualify
C&U/BASES II
Concept Testing / BASES I
Ready
Launch
Launch Manager
Volume Forecasting
Degree of risk and data available determine tool, process and team selection
Procter & Gamble - Thomas Methner
How to do Volume Forecasting
Start as early as possible by bringing all available
knowledge together systematically …
Utilize appropriate benchmarks
Update continuously with new information
becoming available
Use more sophisticated tools later in the process
Final degree of sophistication depends on risk
associated with the initiative
But most importantly:
Always keep your Mom engaged!
Procter & Gamble - Thomas Methner
What to do in Volume Forecasting
Most important question to ask throughout the
process:
What if …?
Do not provide just a number but several
scenarios and make the team prepare for all
scenarios
Think out of the box (engage ‘strangers’ (in
addition to your mom) with your team, go
beyond your imagination with regard to
competitive reaction, …)
Be honest and upfront within the business team
Stop an initiative as early as possible where
necessary
Procter & Gamble - Thomas Methner
A first short summary
Volume Forecasting is a multi-functional business team
effort managed by a clearly assigned leader
It is an ongoing process within your initiative management
cycles
Sophistication of tools depends on risk to be managed
Each initiative is different, the art is to determine which of
these differences matter versus the benchmarks from the
past and the anticipated trends in the future
Always engage your mom
your forecast accuracy
Procter & Gamble - Thomas Methner
this will significantly improve
Let’s revisit the VF Framework
Volume = HH Population * Trial * Trial
Transaction Size + Trying HHs * Repeat
* Repeats per Repeater * Repeat
Transaction Size
How do you estimate trial & repeat
volume?
Procter & Gamble - Thomas Methner
What drives trial
Underlying Potential – Consumer Appeal
Consumers have to want you to buy you
Distribution
Consumers have to find you to buy you
Awareness
Consumers have to know about you to buy you
Promotion
Unusually strong or weak promotions drive higher or
lower trial
Procter & Gamble - Thomas Methner
What drives repeat / repeats per repeater
Product Acceptance
Consumers have to like you to buy you again (and again
and again …)
Trial Timing
The earlier the trial, the earlier they can buy you again
Category Purchase Frequency
Size and Availability of Your Product Range
Promotion
Procter & Gamble - Thomas Methner
What drives transaction size
Number of packs bought per purchase
Preference by SKU / Distribution by SKU
Promotion
Procter & Gamble - Thomas Methner
• What is the most important overall component in
determining the volume potential of an initiative?
Category Purchase
Frequency
Marketing
Support
Repeat
Trial
Procter & Gamble - Thomas Methner
• What is the most important overall component in
determining the volume potential of an initiative?
Category Purchase
Frequency
Marketing
Support
Repeat
Trial
Procter & Gamble - Thomas Methner
Fewer people
purchase in long
PC categories
within a given
time (we mostly
measure one
year).
Household Penetration
Sales Dynamics of Long Purchase Cycle Categories
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
<30
This leads to
lower trial /
penetration rates
in long PC
categories.
Procter & Gamble - Thomas Methner
Average Percent Trial
Source: BASES
30-49
50-69
70-89
90+
Purchase Cycle (in Days)
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
<30
30-49
50-69
70-89
90+
Sales Dynamics of Long Purchase Cycle Categories
All other things
being equal, a
mediocre Paper
Towel concept will
lead to a much
higher trial in Year 1
than an outstanding
Cold Remedy
concept.
Average Penetration
The more often a category user is in the market, the more
chances there are to convert her to become a buyer of our
product. With longer purchase cycle items, there are fewer
chances for conversion.
Paper Towel
Cold Remedy
0
Procter & Gamble - Thomas Methner
2
4
6
8
10
Annual Category Purchases/Buyer
12
14
By the way …
Given that Category Purchase Frequency is so
important, do you / your business teams
always spend some quality time for your
initiatives in determining what the category is?
Whitening Toothpaste
Crest Whitestrips
Vicks Red Energy
…
Procter & Gamble - Thomas Methner
Key Boundary Conditions – how to overcome?
In order to increase Category Purchase
Frequency (and thus the purchase frequency
of all products in the respective market!), you
need to invest long-term as in almost in all
cases you need to establish some habit
changes
How likely is this going to happen?
Do you have successul examples from the past?
Procter & Gamble - Thomas Methner
The Diversity of Europe
For each category in which P&G is engaged in
Europe, the key challenge is to detect the
country specific differences in consumer
behaviour and attitude in order to make our
global brands successful in each market
Detailed analyses of BASES show that there is
no universal pattern to accurately predict trial,
repeat and thus volume from one major
European country to another
Procter & Gamble - Thomas Methner
The Diversity of Europe
Thus forecasting in Europe is not just
extrapolating from one or two lead countries
to the other countries (this also holds true for
extrapolating from or to the US)
The business team needs to invest rigor and
quality time in forecasting for each major
country
You need to find your mom in each country ☺
Procter & Gamble - Thomas Methner
Key messages to take away
Volume Forecasting is most powerful and robust as an
ongoing multi-functional process with well-educated
business partners
Sophistication of forecasting tools depends on risk to be
managed
Category purchase frequency is the most important overall
component in determining your volume potential
make
sure you define the category right!
France ≠ Italy ≠ Germany ≠ …
Finally : Always listen to your mom!
Procter & Gamble - Thomas Methner
T H A N K Y O U !!!
Procter & Gamble - Thomas Methner