Tuesday, May 26, 2009

Basic Volume Model Understanding as a Mental Framework

One of the wonderful things that CPG companies have that is largely missing outside that industry is the prevalence of relatively accurate volume models. I am no market research expert by far, but the little I have learned about volume models has helped me a fair deal in building my mental model of how and why things sell.

Building a volume model of a new product in CPG, you quickly get focused on two key elements: trial and repeat. Trial is influenced by a number of factors, but these boil down to the purchase intent that your concept shows in early Concept and Use Testing and awareness, which can be driven by distribution, advertising, word-of-mouth and merchandising (including any good packaging). Repeat is driven by how quickly an item is consumed, the after-use purchase intent and awareness, which keeps repeaters buying your product in the category versus someone else's.

Just as the Stage-Gate process provides pretty solid guidance on how to bring one's product through an organization from inception to launch, the volume model provides a framework for understanding what the key levers to success are. The first question as a PM that I look to answer is: what is the consumption rate of the product your managing and how quickly will users look to repeat their purchase? For hardware and software, this is probably best answered with "few repeats, lots of trial". Though for services and some software where they have successfully forced obsolescence (Quicken, for example), repeat is indeed a big variable.

After identifying whether repeat matters, the key levers available are distribution, advertising, concept purchase intent and merchandising. My most recent experience suggests that few technology companies devote the resources to meaningfully drive awareness through advertising. The media budget I controlled in my first year at P&G probably equalled 3 years' media budget of my entire current company (and I am being optimistic). Just the shear lack of know-how about the costs and success criteria of media points the PM in other directions. Namely, toward purchase intent, distribution and merchandising (mostly, packaging).

A compelling concept can very often drive strong purchase intent. With a strong salesman (oftentimes, the PM him or herself), distribution can readily follow. So both concept work and selling are important skills that I will discuss in this blog.

Where I have struggled most in my recent experience has been in merchandising. The "first moment of truth" in a consumers' experience with a brand is as they approach a shelf and see your products. In those few instances, you need to communicate what you're about, how you deliver that and convincingly compel your user to try the product. I will be examining multiple tools to improve merchandising, including but not limited to, variants of packaging creative briefs, superior in-store display vehicles and packaging structure itself.

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