1. P & G Launching Successful Initiatives Seminar Product Initiative Seminar: Improving Odds of Success and Success Criteria Development Leonora Polonsky Lisa Hillenbrand

2. P & G Launching Successful Initiatives Seminar Seminar Objective Raise “Odds of Success” for Product Initiatives

3. P & G Launching Successful Initiatives Seminar * Definitions * Track Record * Success Principles * Pitfalls to Failure * Key Diagnostic Tools - MRD Model - NPV Model * Success Criteria Template * Application to Current Projects Seminar Outline

4. P & G Launching Successful Initiatives Seminar Definitions

5. P & G Launching Successful Initiatives Seminar How do we define success? When do we declare projects successful? “Success” Definitions...

6. P & G Launching Successful Initiatives Seminar Corporate Scorecard Measure: Positive NPV Adds Shareholder Value “Success” Definitions...

7. P & G Launching Successful Initiatives Seminar What initiative teams must strive for: Meeting Commitments! “Success” Definitions...

8. P & G Launching Successful Initiatives Seminar How we’ve defined success: Achieving 90% Year I volume and going (Year II) Profit Objectives Proxy for meeting 90% of booklet NPV “Success” Definitions...

9. P & G Launching Successful Initiatives Seminar “ There is a very fine line between success and failure. Most everything we have done that has been a major success could have “failed” at an early stage and maybe even did in the marketplace”. “ Further, many of our failures could have succeeded with a better idea or execution at a crucial stage”. “ It is true we are slow to declare failure, but we need to think about this very thoroughly... I am inclined to listen to a passionate minority with great interest, particularly if it has credibility... Declaring failure is a tense, difficult, and important juncture where objectivity and vision have to be weighed, preferably by experienced managers.” - Gordon Brunner The Success vs. Failure Declaration “Juncture”

10. P & G Launching Successful Initiatives Seminar Product Improvement/Replaces product with better one Upgrade Line ExtensionAdds variety to an existing feature or new feature to an existing Brand FlankerExtends a Brand’s positioning into a related Category with a new product New BrandEnters a new Brand in a Category Newly Created CategoryCreates a new category of products Types of Initiatives Definitions...

11. P & G Launching Successful Initiatives Seminar Track Record

12. P & G Launching Successful Initiatives Seminar Fewer New Brand and New Category Success Stories Track Record

13. P & G Launching Successful Initiatives Seminar ANNUAL VOLUMENEW BUSINESSESNEW BRANDS GROWTH RATE TOTALW/O ACQUISITIONS CATEGORIES ENTERED OVER 3 MMCS20MMCS 1960’s7.2%7.3%Fabric Softener, Paper Towels,113 Oils, Diapers, Mouthwash 1970’s4.8%4.8%Potato Chips, Incontinence, 62 Hand & Body Lotion 1980’s4.4%3.0%Orange Juice, RTS Cookies, 20 Catamenials 1990’s2.8%2.4%Toothbrush, Analgesic 10 1998-20007%?? GOAL FEWER NEW BRAND & NEW CATEGORY SUCCESS STORIES TRACK RECORD...

14. P & G Launching Successful Initiatives Seminar Success Rates For All Initiative Types Are Low Types of InitiativesSuccess Rate Flankers/New Brands10% Line Extensions33% Product Improvements34% Track Record

15. P & G Launching Successful Initiatives Seminar Rates Disappointing Worldwide (% Positive NPV) NORTH LATIN AMERICA EUROPE ASIA AMERICATOTAL 63 77 30 53 56 1997 data Track Record

16. P & G Launching Successful Initiatives Seminar Too Many Small Ideas: In the U. S.: # of initiatives growing –+38% in early 1990’s vs. late 1980’s Average size is declining at 650 M stat 35% of projects deliver 4% of profit –less than $1 MM A.T. per initiative Track Record

17. P & G Launching Successful Initiatives Seminar Lots of Little Initiatives Don't Add Up 0 Few Big Initiatives Track Record Lot of Small Initiatives Average # Initiatives 2 5 Average Growth Over 7 Years 49% 7%

18. P & G Launching Successful Initiatives Seminar Why aren’t our results better? What should we do differently? Track Record

19. P & G Launching Successful Initiatives Seminar Why aren’t our results better? We aren’t clear on success drivers “7 Bad Habits” get in way of applying success principles 1. “Initiativitis” or “Better Than Nothing-itis” 2. Early Bird Gets The Worm 3. Drive through (success criteria) Stop Signs 4. Don’t Confuse Me with the Facts 5. Shoot the Messenger 6. Starve the Stars 7. I Can Do Anything Better Than You Can Track Record

20. P & G Launching Successful Initiatives Seminar Some Progress to Report! % Initiatives globally with Positive NPV up from 46% (1994 review) to 56% (1997 review) Track Record

21. P & G Launching Successful Initiatives Seminar More Progress to Report! Initiatives which used Success Criteria had double the success rate vs. those that didn’t! (70% vs. 42% positive NPV) Track Record

22. P & G Launching Successful Initiatives Seminar Stronger Initiative Mix with More MSA Support in NA 1996 (11 Total) 1997 (13 Total)* % New Benefit * 18% 69% % New Form/Flavor/Version 82% 31% Incremental Volume Objective (MMSU).5 1.0 Year I MSA ($MM) 14 26 % Sampling 27% 54% Sampling Investment ($MM)** 3 8 * New Benefit to Brand or Category ** Among initiatives which sampled

23. P & G Launching Successful Initiatives Seminar Strategic Success Principles Success Principles

24. P & G Launching Successful Initiatives Seminar Success Principles 1. Understanding category and consumer dynamics is the foundation Category Dynamics Understand all factors which drive success (especially profit) in category. This is especially important when entering new categories. Cost/profit structure of key players Who’s winning and losing? Why? Global potential? Business size? Upside potential? Distribution/delivery considerations? Category practices (e.g. - pick-up unsold merchandise)? Success Principles

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29. 1. Understanding category and consumer dynamics is the foundation! Consumer Understanding Understand both the fundamental functional need (the what) & the motivational need (the why) Success Principles

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31. VIDEO

32. P & G Launching Successful Initiatives Seminar Complete Consumer Understanding Complete Consumer understanding exists when you understand the connection between “what” consumers expect products to do and “why” it’s important to them. Understanding consumers needs, behavior, attitudes, beliefs, purchase dynamics and key consumer trends provides a foundation for complete consumer understanding. Success Principles

33. P & G Launching Successful Initiatives Seminar 2. Strong concepts drive odds of success! Concept Strength (DWB* vs. Category Avg.)OOS (%) > 110 index41% < 110 index24% * Definitely would buy Are there cases when low concept scores can result in successful businesses? Can high concept scores have limited business potential?

34. P & G Launching Successful Initiatives Seminar How do we generate strong concepts?

35. P & G Launching Successful Initiatives Seminar Product Expert Director Technique (PEDT) Videotape task and watch with consumer Anthropological Research In-store observations “In-context” settings: beauty salons, coffee shops, laundromats, home-ec kitchens, daycare centers, etc. Success Principles In Context Research Techniques Can Lead to new Insights & Ideas

36. P & G Launching Successful Initiatives Seminar Turning Understanding Into New Products By Meeting Unarticulated Consumer Need Brand Understanding Insight Application U. S. Fit Series of In-Home PEDT’s to identify new opportunities for Soap Sector. 1/2 day talking/ house tour/ clean one room Kitchen: everyone washes produce to get rid of chemicals, germs, wax. Use water to clean vegetables: “probably not doing any good, but...” Dish liquid just adds more chemicals. Fit Produce Rinse Success Principles

37. P & G Launching Successful Initiatives Seminar  Eliminate important negative –Anti-perspirant marks on clothes  Add an entirely new benefit –Always w/wings: eliminates side soil  Reduce the complexity of a task –Dryer added fabric softener; Crisco sticks  Extract desirable attributes from 2+ categories –2 in 1 shampoo  Capitalize on a key consumer emotion or belief –Folgers Wakin’ Up Insights Identify signals or occasions which make product more relevant or better communicate the benefit being delivered Success Principles

38. P & G Launching Successful Initiatives Seminar To Get Better Ideas, Look Beyond the Consumer... Mine all Potential Idea Sources Our Customers Consumer Trends Science/ Technology CompetitionGovernment Business Medical Establishment Women’s Health Opportunities Success Principles

39. P & G Launching Successful Initiatives Seminar 3.Strategic consistency of product benefits with the Brand’s equity in consumers’ minds is a must! – Identify what equities your brand and competition own and determine the “equity fit” between initiative under consideration and your brand’s equity. – Will initiative under consideration both “borrow from” and “pay rent to” the core equity? If not, there may be an equity fit issue. How do the following stack up?... Success Principles

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41. VIDEO

42. P & G Launching Successful Initiatives Seminar How about... Crest Tartar Control? Tide with Bleach? Mr. Clean Cleanser? Duncan Hines Tiara Desserts?

43. P & G Launching Successful Initiatives Seminar What should we do if a technology is not consistent with our Brand equity?

44. P & G Launching Successful Initiatives Seminar Assessing when a Technology should be introduced as a New Brand vs. a Line Extension:  Strategic consistency (or equity fit) with the parent! –A new technology should not be considered as a line extension or flanker if it is not strategically consistent with the parent brand equity in consumers minds.  Magnitude of innovation –New Brands normally require creation of a substantive new technology which fills an important unmet consumer need (e.g. - Dawn, Luvs, Bounce).  Maintaining a Mega Brand –If important new needs are emerging, new technology may need to be introduced as a line extension or flanker to maintain an existing mega brand (e.g. - Tide with Bleach, Crest Tartar Control).  Multiple P&G Brands in a Category –Creating multiple P&G brands in a category is most viable when consumer needs are fragmented and we have a technology which does not fit well strategically with the established P&G Brand.  Maximizing Volume/Minimizing Marketing Costs

45. P & G Launching Successful Initiatives Seminar 4.Superior product performance and/or meaningful new benefits to the category raise the odds of success! But, what do we mean by “superior product performance”? Success Principles

46. P & G Launching Successful Initiatives Seminar More Product Strength = Higher Odds of Success! Product Strength (% OOS) Initiative TypeSuperior Parity Line Extensions 49 27 Product Improvements 52 33 OVERALL 50 29 Success Principles VIRTUALLY ALL THESE HAD INTERNAL WINS

47. P & G Launching Successful Initiatives Seminar “ This is another tricky area. You make the point that blind test wins are very valuable, but not necessarily essential. I certainly understand your point. I would just not undervalue the importance of a blind test win. If you have a win it really is a strong arrow in the quiver. If you have a blind test loss, it is a major risk to your position. It still is a very clear measure of what the consumer thinks of your product with everything stripped off of it. It has major value and should be our target in all cases.” - Gordon Brunner Blind Test Wins

48. P & G Launching Successful Initiatives Seminar Europe C&F Learnings on Blind Tests Success Principles

49. P & G Launching Successful Initiatives Seminar New Benefits Have Highest Success Odds Product Type Odds of Success New Benefits 70% Size 53% Performance Upgrades 40% Package38% Scents/Flavors36% Restages23% Forms/Versions 16% Success Principles

50. P & G Launching Successful Initiatives Seminar Consumer Meaningful Product Upgrades Can Build Business Impact of Product Performance on Product Upgrade results -- Past decade Product Test Diff. Avg. % Share Change Versus Old ProductYear I vs. Past 12 months +7 to +12 points +17% +3 to +6 points + 9% -4 to +2 points - 3%

51. P & G Launching Successful Initiatives Seminar Additional Product Considerations: 1. Claimable strategic advantage – Claim we can support in our advertising – Strategically important to our Brand (consistent with core equity) – Sets us apart from competition 2. Protectable position – Patent protection – Stream of innovation – Material source advantage – Cost structure advantage

52. P & G Launching Successful Initiatives Seminar 5.Strong Advertising Programs raise the odds of success! But, what do we mean by “strong advertising programs”? Success Principles

53. P & G Launching Successful Initiatives Seminar Above Normal Copy Potential Raises the Odds of Success! COPY POTENTIAL (%OOS) ABOVE BELOW NORMAL GOOD NORMAL Line Extensions 52% 38% 26% Upgrades 50% 33% n/a Overall 51% 36% n/a Brands should consider both the Trial Forecast and the Overall Potential in evaluating copy strength for new items. * This analysis isolated the impact of copy by including only initiatives with sufficient media. Success Principles

54. P & G Launching Successful Initiatives Seminar Sufficient Media Raises the Odds of Success* 1. Introductory heavy-up lasting at least 2 purchase cycles or 13 weeks, whichever is longer 2. Introductory heavy-up at an 85 Reach and 400 TRP’s 3. Sustaining Presence * Line extension and flanker analysis. Success Principles

55. P & G Launching Successful Initiatives Seminar Meeting Media Delivery Principles Improves Odds of Success # Principles Met Odds of Success All 3 75% Met only 2 57% Met only 1 22% Met none33% Success Principles Based on Line Extensions and Flankers.

56. P & G Launching Successful Initiatives Seminar Strong Advertising Programs have Higher Odds Of Success! Ad Program Strength*Definition% OOS StrongAbove Normal Copy51% Sufficient Media AverageGood Copy &36% Sufficient Media WeakBelow Normal Copy 19% OR Insufficient Media * Based on line extensions and upgrades. Success Principles

57. P & G Launching Successful Initiatives Seminar STRONG PRODUCT AND ADVERTISING IS THE TARGET! # INITIATIVES Product and Met BelowOdds of Advertising StrengthObjectiveObjectiveSuccess Both Strong 16 4 80% One Strong & One Average 18 25 42% Any Weakness 23 103 18% Based on Line Extensions and Upgrades. Success Principles

58. P & G Launching Successful Initiatives Seminar % Weak Launches with Weakness In Past DecadePast 2 Years Insufficient Media 78% 79% Weak Copy* 34% 21% Inferior Product** 5% 4% * Below normal copy ** Blind test loss Note: some initiatives had multiple weaknesses

59. P & G Launching Successful Initiatives Seminar Strong Initiatives Generate More Profit Average Per Initiative Success Rate Incremental Volume Incremental Profit (MMSU) ($MM A.T.) Strong Product and Advertising 80%2.89.9 Program 1 Strong and 42%1.03.9 1 Average Any Weakness 18%0.31.5

60. P & G Launching Successful Initiatives Seminar 6. Growing Base Brands Breed Successful Initiatives! (Line Extensions & Flankers) Base Brand Share(% OOS) Growing45% Stable28% Declining 0% When we upgrade declining brands, we meet our objectives only 6% of the time. Success Principles

61. P & G Launching Successful Initiatives Seminar Key Principles for Success (Recap) 1.Clear understanding of Category & Consumer Dynamics is the foundation. 2. Strong concepts raise odds of success. 3.Strategic consistency of product benefits with the Brand’s equity is a must. 4.Superior product performance and/or meaningful new features to the category raise odds of success. 5.Strong advertising programs raise odds of success. 6. Growing base brands are much more likely to produce successful initiatives. Success Principles

62. P & G Launching Successful Initiatives Seminar HABC Europe Initiative Analysis -- Same Success Drivers! HABC Europe initiative results confirm the universal relevance of key success drivers: Copy, Sufficient Media, Superior Product, Value, and Pre-Launch Qualification. Concept/CopyMSA/MediaSuperior ProductValuePre-Qualified Successes PanteneYesYesYesYesYes Teen Skin MoisturizerYesYesYesYesYes VeneziaYesYesYes -- -- DaymedYesYesYes No -- TD GumsYesYesYesYes No Failures BC-18KYesYesYes No No Hair Care Pump/Spray No NoYes No No Vidal Sassoon RestageYes No No No -- Teen Skin Pads/Gel/Stick No NoYes No No Cover GirlYes -- No No No Vaposyrup (U.K.) --Yes No No -- Yes = Factor worked positively in our favor. No - Not in our favor. Success Principles

63. P & G Launching Successful Initiatives Seminar Non-P&G Learnings -- Key Success Factors Success Principles 1.A Superior Product That Delivers Unique Benefits To The User 2.A Well-Defined Concept 3.Core Competency in Technology 4.Quality Product Development and Production 5.Quality Pre-Market Assessment 6.Quality Execution of Marketing Activities 7.Market Attractiveness (High Growth, High Need For Product) 8.Top Management Support 9.Competitive Activity Source: R. G. Cooper Winning at New Products *Success vs. Unsuccessful (544) (327) (253) (215) (172) (139) (126) (242) (276) Index *

64. P & G Launching Successful Initiatives Seminar Customer/ECR Considerations Recent Efficient Product Introduction (EPI) work has led to: 1. Addition of customer focused go/no go criteria to Success Criteria Template. 2. Development of a benchmark based distribution estimation CBA to ensure initiative decisions are based on rigorous, data based distribution projections. 3. Development of an “external scorecard” for customer use in initiative decisions.

65. P & G Launching Successful Initiatives Seminar Customer Acceptance Success Criteria: Measure: $ Sales/Sku Ranking Objective: All SKU’s rank in top 1/2 of category*. Minimum: All SKU’s rank in top 2/3’s of category*. * Key to leveraging this criteria is objectively ranking proposed new SKU’s versus the relevant, in-market competitive line-up (e.g. - category definition, outlet considerations, average customer SKU list vs. All IRI SKU list).

66. P & G Launching Successful Initiatives Seminar Rationale for $Sales/SKU Customer Acceptance Criteria: Consistent with efficient assortment CBA, focuses P&G resources on top performing SKU’s. Should result in better customer support for P&G initiatives as we introduce fewer non-viable SKU’s. Minimizes cost and complexity -- for both P&G and our customers -- associated with churn. Only Success Criteria which looks at by-SKU viability. This should help optimize line-ups. Criteria is highly actionable. Validated to “weed out” non- viable SKU’s. For example, if 6 of 8 SKU’s in a proposed line-up meet minimum criteria, the line-up can be modified to eliminate the 2 non-viable SKU’s.

67. P & G Launching Successful Initiatives Seminar Distribution Estimation CBA: Determining status of an initiative versus the Customer Acceptance Criteria requires by-SKU volume forecasts, which requires by-SKU distribution estimates. Historically, we have not done a very good job of estimating “any presence” distribution, never mind by-SKU distribution. A new tool, the “Distribution Estimation CBA” has been developed by MRD, Sales, Advertising to help develop realistic “any presence” and by-SKU distribution estimates. This CBA has the potential to improve the accuracy of this key input to the MRD model from the current 20-30% overstatement to within 5% of actual.

68. P & G Launching Successful Initiatives Seminar External Customer “Scorecard”: Concept: P&G to lead Customer thinking on how to evaluate initiatives when making distribution, shelving, merchandising, pricing, etc. decisions. Current Status: Scorecard related to our internal Success Criteria template has been developed. Adds category and vendor considerations. Validation work and customer discussions underway.

69. P & G Launching Successful Initiatives Seminar BLEND - A - GUM CASE

70. P & G Launching Successful Initiatives Seminar Marketing Plan Principles Marketing Plans

71. P & G Launching Successful Initiatives Seminar Optimize Copy Length · Use shortest length necessary to convey your copy message · Consider testing alternate copy lengths · Recognize that you may need longer length copy if you have a complicated message · No example of successful initiatives with :15 copy Marketing Plans

72. P & G Launching Successful Initiatives Seminar Successful Initiatives Tend to Borrow Media $ From the Parent · Can borrow up to 100% of parent brand media for up to 6 months if: –Strategically consistent line extension –Parent brand is healthy with high awareness · Test media scenarios in BASES to determine best options Marketing Plans

73. P & G Launching Successful Initiatives Seminar When Launching Concurrent Initiatives on Same Brand Make Sure Both Have Adequate Strengths High failure rate - of 32 concurrently launched initiatives only 3 met commitments (9%) Nearly all (92%) had significant weakness Biggest weakness was inadequate media

74. P & G Launching Successful Initiatives Seminar Initiatives That Justify Premium Pricing Make More Profit! A.T. Profit Increase per Successful Initiative PREMIUM PRICEDPARITY PRICED $12 mm $4 mm BUT...? Marketing Plans

75. P & G Launching Successful Initiatives Seminar Low Value Scores are a Quick Road to Failure! BASES After-Use Value Rating %OOS Top/Middle Tertile 43% Bottom Tertile 8% Marketing Plans

76. P & G Launching Successful Initiatives Seminar Should We Size Down On Premium Priced Initiatives? MET BELOWODDS OF OBJECTIVESOBJECTIVESSUCCESS 5 8 38% 2 7 22% Size Down to Hold Price Price Up in Same Size Marketing Plans

77. P & G Launching Successful Initiatives Seminar MAXIMIZING TRIAL

78. P & G Launching Successful Initiatives Seminar Advertising + Sampling Drives Highest Trial Strong Copy/Media Sampling Trial Yes Yes 46% Yes No 22% No Yes 21% No No 12% Marketing Plans

79. P & G Launching Successful Initiatives Seminar On “Major Initiatives” over the past decade, have we optimized our trial programs?

80. P & G Launching Successful Initiatives Seminar Even on “Major Initiatives” we are under-utilizing sampling to drive trial:  Initiatives which sample achieve on average double the trial vs. initiatives which do not sample (33% vs. 17%).  In the 1970’s, 63% of New Brand initiatives sampled versus only 28% of past decade “Major Initiatives”.  In the 1970’s, sampling coverage in the 35MM- 50MM range was common; We haven’t even simulated sampling coverage above 30MM on most recent initiatives.

81. P & G Launching Successful Initiatives Seminar Geographic comparisons support importance of Sampling: Deep coverage generally produced higher share levels on Pert Plus. Avg. % HH’s Sampled Avg. Share UAE Singapore Australia 71% 13% Kuwait Thailand Taiwan UK Canada 30% 8% United States

82. P & G Launching Successful Initiatives Seminar 1. Insufficient Product Strength · Need noticeable product superiority Met Volume/Profit Objectives Blind Test Wins Blind Test Parity Sampled 75% 25% Not Sampled 56% 26% · Only half of initiatives were blind test winners Why aren’t we sampling?

83. P & G Launching Successful Initiatives Seminar Key reasons for reduction in sampling: “Short-term profit pressure”  Only about half of blind test winning products sampled  Key reason given for not sampling blind test winning product is “short term profit pressure” (regardless of payout, don’t want to invest money “this fiscal”). “Other” reasons given:  Inability to pay-out sampling  Optimized marketing plans do not include sampling  Practical/Feasibility considerations

84. P & G Launching Successful Initiatives Seminar Opportunities to make sampling more “affordable”: 1. Develop highly efficient sampling executions. 2. On initiatives with significant product/copy strengths, consider premium pricing and investing some of the increased revenue in sampling. 3. Reduce “Other” MSA to fund Sampling.

85. P & G Launching Successful Initiatives Seminar Direct To Consumer Copy –Use to target consumer groups and/or increase persuasiveness/depth of sale –Use with Sample to enhance conversion »Olay Body Wash –Use alone to drive trial at lower cost

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87. Packaging Versioning Principles 1. Preserve brand equity 2. Highlight the difference 3. Position the “difference” near the logo 4. Identify and use category “visual language” 5. Make sure resulting design is consistent with the brands character and strategy Marketing Plans

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90. Public Relations Marketing Plans - Generate Awareness & Trial - Eliminate and/or Manage Issues

91. P & G Launching Successful Initiatives Seminar Should My Marketing Plan Include PR? 1. Can PR help build awareness among my target? 2. Can PR build credibility? 3. Can PR help me reach thoughtleaders and educate consumers? 4. Can PR eliminate or manage a vulnerability? Marketing Plans

92. P & G Launching Successful Initiatives Seminar To Ensure Success: Identify experience & learnings from prior launches Have strong, relevant news Create a “hot” story angle Fully integrate your PR activities Build alliances prior to launch Develop a solid understanding of PR strategies and tools Marketing Plans

93. P & G Launching Successful Initiatives Seminar AdvertisingPublic Relations BoughtEarned Brand Speaks3rd Party Speaks Complete ControlLimited Control Higher CPMLower CPM Message SentMessage Sought Asset: ControlledAsset: Credibility Message Marketing Plans

94. P & G Launching Successful Initiatives Seminar Avoid Holiday Timing! JUNE-SEPTOCT-JAN*FEB-MAY Odds of 39% 16% 33% Success * Specific Holiday times may vary by region. Oct-Jan is based on U. S. Thanksgiving/Christmas period. Marketing Plans

95. P & G Launching Successful Initiatives Seminar Marketing Plan Principles - Recap 1. Optimize Copy Length 2. Price for Premium Profits 3. Sample Superior Products 4. Package so consumer makes right choice 5. Leverage Public Relations 6. Avoid Holiday Timing Marketing Plans

96. P & G Launching Successful Initiatives Seminar Era Case

97. P & G Launching Successful Initiatives Seminar Pitfalls to Failure Pitfalls To Failure

98. P & G Launching Successful Initiatives Seminar “We must go forward on fastest possible timing. Competition is on the verge of introducing...!” Pitfalls To Failure

99. P & G Launching Successful Initiatives Seminar “We have a great concept... it scored two bazillion above average! There’s no way to lose” Pitfalls To Failure

100. P & G Launching Successful Initiatives Seminar “PDD thinks this will be a big win!” “The brand and agency judge the copy is excellent” Pitfalls To Failure

101. P & G Launching Successful Initiatives Seminar Testing Should Not Be Optional Odds of Success- % Increase (Tested vs. Non Tested) Product ImprovementsPremium Priced L.E. Product Test+10%+32% Copy Test+16%+41% Both Product & Copy+24%+41% Test Market+35%+35%

102. P & G Launching Successful Initiatives Seminar “Based on the most likely costs, this initiative will deliver...!” Pitfalls To Failure

103. P & G Launching Successful Initiatives Seminar “This looks like a huge idea. Let’s go ahead and purchase the capital so we can accelerate national expansion!” Pitfalls To Failure

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105. “We’d like to invest in more trial, but... !” Pitfalls To Failure

106. P & G Launching Successful Initiatives Seminar “I’m not sure about the volume forecast assumptions... !” Pitfalls To Failure

107. P & G Launching Successful Initiatives Seminar “Yes, the competition does have Direct-Store-Delivery, but they won’t be able to compete with us on Advertising and Product”

108. P & G Launching Successful Initiatives Seminar Competitive Response Modeling: Competitive Response Modeling: a structured framework for collecting and organizing data on how competition will react to a P&G initiative. Often leads to modifications to the initiative to increase the probability of success. P&G Corporate Competitive Analysis group offers in-house, multi-functional Competitive Response Modeling sessions (Kevin Wise).

109. P & G Launching Successful Initiatives Seminar Competitive Response Modeling Considerations:  Competitive strengths and weaknesses –Cost Positions –Sources of value-added –Technology –Other  How important to competition is the business we’re threatening?  What is the absolute worst thing we could think of doing if we were in competitions’ shoes?  Areas of sustainable competitive advantage (for P&G and for competition)

110. P & G Launching Successful Initiatives Seminar Pitfalls to Failure 1.Rushing to Market with insufficient strengths 2. Failing to execute winning concept in copy 3.Overreliance on judgment 4. Not doing scenario analysis 5. Letting spending get ahead of learning 6. Starving our stars 7.Not developing databased volume forecast assumptions 8. Underestimating competition Pitfalls To Failure

111. P & G Launching Successful Initiatives Seminar Key Diagnostic Tools: - MRD Volume Forecast

112. P & G Launching Successful Initiatives Seminar Volume = Trial Volume + Repeat Volume Trial Volume = # HH x % Trial* x Trial Transaction Size Repeat Volume = # of Triers x % Measured Repeat* x Average repeats per repeater x Repeat transaction size * “Trial” is defined as first purchase; “Measured repeat” is defined as the % of triers making a second purchase by the end of year one.

113. P & G Launching Successful Initiatives Seminar Trial Volume = # HH x % Trying x Trial Transaction Size Target Audience Sizes Offered Size Preferences Distribution of Sizes Marketing Support (Media, Sampling) Awareness/Incentives To Try Purchase Cycle Concept/Copy Appeal Distribution

114. P & G Launching Successful Initiatives Seminar % Measured Repeat x Repeats per repeater x Repeat Transaction Size Product Performance/Value Purchase Cycle Repeat Decay Sizes Offered Size Preferences On-going Distribution by Size

115. P & G Launching Successful Initiatives Seminar High “Turn” Categories have Potential to Produce Large Volume Brands Lots of household buying Reflect areas of considerable need Quality of Life Enhancing - dirt & stain removal, cavities, skin softening Global Reapplication Frequently Re-purchased - High Turn Items Non-discretionary - soap, laundry detergent, paper towels, diapers Can evaluate promptly Advertising more efficient Bigger volume / Higher profit

116. P & G Launching Successful Initiatives Seminar There are new learnings on “Early Predictors” for nationally expanded line extensions: »If not met year I share objective by month 3 or 4 post SOA, virtually never meet targets; When on track early, about 2/3’s succeed. 3 of 4 test markets overstate expansion results (average overstatement is +58%). » Why? Don’t expand what we test (e.g. - cut MSA) Can’t achieve what we test (e.g. - can’t micro-manage nat’l) Early Predictors

117. P & G Launching Successful Initiatives Seminar KEY DIAGNOSTIC TOOLS: –NPV Model

118. P & G Launching Successful Initiatives Seminar NPV MODEL Principles: The current CBA for evaluating the financial attractiveness of an initiative is incremental cash return. We no longer evaluate initiatives based on profit alone. Cash returns from a project are “discounted” to “today’s” dollars at the average return required by P&G investors and “netted” against the discounted value of project investments to yield a Net Present Value (NPV): Net Present Value represents shareholder value.

119. P & G Launching Successful Initiatives Seminar NPV MODEL Example: Line Extension (Project “Phantom”) P&G invests $15MM to develop a new cleaning technology: The new technology is expected to reduce costs and increase volume. The annual savings and volume build are worth $5MM/Year. Question Would you have made this investment?

120. P & G Launching Successful Initiatives Seminar NPV MODEL Cash Flows Project “Phantom” Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr.5 P&G Investment ($15MM) Savings & Vol. Build $ 5MM $5MM $5MM $5MM $5MM Net Cash Flow(Year End) ($10MM) $5MM $5MM $5MM $5MM

121. P & G Launching Successful Initiatives Seminar NPV MODEL Discounted Cash Flows Project “Phantom” Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr.5 Net Cash Flow(Year End) ($10MM) $5MM $5MM $5MM $5MM Discount Factor (1+7%) 1 (1+7%) 2 (1+7%) 3 (1+7%) 4 (1+7%) 5 Discounted Value ($9.3MM) $4.4 MM $4.1 MM $3.8 MM $3.6 MM Net Present Value= $6.5MM

122. P & G Launching Successful Initiatives Seminar NPV MODEL Considerations: Project life. Do you have better investment opportunities (Category team issue)? What are your chances of success? Can you further optimize this project for a higher NPV?

123. P & G Launching Successful Initiatives Seminar NPV MODEL - BENCHMARKING The benchmark database is a powerful tool that leads to insightful discussion by Category teams and project teams about success criteria and results in ownership of the project targets. –Used for Project Team NPV Objective Setting –Project teams select from benchmark database relevant projects of similar scale –Project teams strive to create “best in class” initiatives that are robust enough to attract resources ($ + people) –Stretching expectations lead teams to change their paradigms –Avoids rework because objectives are clarified early between General Manager and Project Team

124. P & G Launching Successful Initiatives Seminar NPV MODEL - BENCHMARKING INITIATIVE DATABASE PrimaryPrice Measure Change Project (Date Launched)DescriptionNPV @ 7%$/SU Category W Project 1Product Upgrade46.5 Project 2Line Extension14.2+25% vs. Base Project 3New Size10.0 Other Benchmark Elements Gross Volume (MMSU)Capital $MM Incr. Volume (MMSU)PDD Resources FTEs Profit $MM A.T.Above Going MSA $MM B.T. TDC Change $/SUProject Life Years

125. P & G Launching Successful Initiatives Seminar NPV MODEL - PROBABILITY EVALUATION Project “Phantom” Line Extension FOR EACH KEY CASH FLOW INPUT (In Order) Define most optimistic outcome. Define most pessimistic outcome. Define most likely outcome. Use @Risk to calculate probable set of outcomes.

126. P & G Launching Successful Initiatives Seminar “Cost-Benefit” chart used for project evaluation. Cash flow inputs are presented as Risk/NPV ranges (dotted lines) which sum to the total project NPV (solid line). Allows project teams to focus resources on key leverage points for NPV improvement rather than premature weeding due to low NPV. NPV MODEL - PROJECT OPTIMIZATION Cost-Benefit Analysis Project “Phantom” Line Extension

127. P & G Launching Successful Initiatives Seminar Success Criteria What is it -Why use it -How use it  Principles  Template

128. P & G Launching Successful Initiatives Seminar Success Criteria - What is it? A contract between a project team and management on deliverables, resources, and basis for future decisions.  necessary and sufficient results on all critical success factors  resources needed to deliver results within given time frame  decisions to be made if criteria are met  management commitment to resources/decision plan

129. P & G Launching Successful Initiatives Seminar Success Criteria - Why use it? Benefits for General Management  Greater confidence in the quality and value of initiatives  Opportunity to proactively influence innovation at initiative start  Less time wasted “fixing” initiatives Benefits for Initiative Teams  Confidence initiatives will be approved if they deliver  Less rework due to changing criteria  Less time wasted getting resources approved  Less time lost arguing criteria across functional boundaries at low levels Benefits for Company  Increased initiative success rate, sales growth, and profitability  Improved productivity from multifunctional innovation system

130. P & G Launching Successful Initiatives Seminar Success Criteria - How use it? 1.GM’s use success criteria as basis for up front expectation setting and decision making. 2.Multi-functional alignment and sign-off is essential. 3.Team leader is accountable for delivering criteria. 4.Success criteria should be defined for all brand initiatives using clear, quantifiable measures. 5.Objectives = Targets Minimums = Go/No go decision basis 6.Focus on critical few criteria which will drive success on project.

131. P & G Launching Successful Initiatives Seminar Initiative Success Criteria Template

132. P & G Launching Successful Initiatives Seminar Recommended Training for Initiative Teams Product Initiative Seminar - This course! – Course # C159 SIMPL Training -- 1/2 Day – Course # C157 Team Effectiveness -- 2 Days – Course # C155 (Team Leaders) – Course #C156 (Team Members)

133. P & G Launching Successful Initiatives Seminar APPLICATION TO YOUR BUSINESS