Category Life Cycle. Implications for Marketing. Bob Clark VP, Marketing Herr Foods Inc. June 12, 2015

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1 Category Life Cycle Implications for Marketing Bob Clark VP, Marketing Herr Foods Inc. June 12, 2015

2 Who Is This Guy? Consumer Product Marketing o Food and household products - CPG o Brand planning, communications, new products, global VP Marketing, Herr Foods Inc. Adjunct Professor, Drexel University MBA program

3 What s the Difference Between These Products? Launched 3 weeks ago 0% share of category $0 lifetime sales 0% of households Launched in % share of category $20B lifetime sales 22% of households (2012) Rapid innovation Huge marketing investment Launched in % share of category $20B lifetime sales 93% of households Innovation squeeze bottle 2002 Little marketing investment Consider: What category they are in Growth rate of category Market leadership Competition Life cycle Marketing Approach

4 The Category Lifecycle What is it? How do you use it How to match the marketing mix to the category life cycle Innovation Product Range Communication Pricing Examples of how to win by using category life cycle

5 Category Life Cycle INTRODUCTION GROWTH MATURITY DECLINE +++ % + % +/- % -- %

6 Category Life Cycle INTRODUCTION GROWTH MATURITY DECLINE GROWTH RATE COMPETITION MARKET LEADERS MARKETING GOALS PRICING STRATEGY PRODUCT RANGE INNOVATION

7 Category Life Cycle INTRODUCTION GROWTH MATURITY DECLINE GROWTH RATE ACCELERATING VERY HIGH SLOWING TO FLAT NEGATIVE COMPETITION FIRST MOVER MULTIPLE ENTRIES SHAKE OUT RATIONALISING MARKET LEADERS FIRST MOVER CONTINUOUS CHANGE TOP PLAYERS LAST ONE STANDING MARKETING GOALS PRICING STRATEGY PRODUCT RANGE INNOVATION

8 Category Life Cycle INTRODUCTION GROWTH MATURITY DECLINE GROWTH RATE ACCELERATING VERY HIGH SLOWING TO FLAT NEGATIVE COMPETITION FIRST MOVER MULTIPLE ENTRIES SHAKE OUT RATIONALISING MARKET LEADERSHIP FIRST MOVER CONTINUOUS CHANGE TOP PLAYERS LAST ONE STANDING MARKETING GOALS AWARENESS AND TRIAL DIFFERENTIATION AND SHARE SHARE LEADERSHIP SURVIVE AND HARVEST PRICING STRATEGY COST OR VALUE BASED AGGRESSIVE PROMO DEALING MARGIN ENHANCEMENT PROFIT MAINTENANCE PRODUCT RANGE LIMITED EXPANDING WIDE REDUCING INNOVATION FIRST IDEA EVOLVE AND DIFFERENTIATE VARIANTS TO CLOSE WHITE SPACE HOLD SALES EQUITY EXTENSTIONS

9 Category Life Cycle Marketers tend to operate their own brands as if they were a growth category INTRODUCTION GROWTH MATURITY DECLINE GROWTH RATE ACCELERATING VERY HIGH SLOWING TO FLAT NEGATIVE COMPETITION FIRST MOVER MULTIPLE ENTRIES SHAKE OUT RATIONALISING MARKET LEADERSHIP FIRST MOVER CONTINUOUS CHANGE TOP PLAYERS LAST ONE STANDING MARKETING GOALS AWARENESS AND TRIAL DIFFERENTIATION AND SHARE SHARE LEADERSHIP SURVIVE AND HARVEST PRICING STRATEGY COST OR VALUE BASED AGGRESSIVE PROMO DEALING MARGIN ENHANCEMENT PROFIT MAINTENANCE PRODUCT RANGE LIMITED EXPANDING WIDE PROGRESSIVELY REDUCING INNOVATION FIRST IDEA EVOLVE AND DIFFERENTIATE VARIANTS TO CLOSE WHITE SPACE HOLD SALES EQUITY EXTENSTIONS

10 How About Your Business What category do you compete in? What stage of growth is that category? What is your brand or business unit s share? Relative Market Share Intro (New) Growth (+10 % ++) Maturity (+5% -5%) Decline (-5%---) High Share Medium Share Low Share

11 Profit-Sustaining Market Share Position in the Category Lifecycle Life-Stage of the Category (based on growth) Your Relative Market Share versus Competitors Introductory (New) Growth (+10 % ++) Maturity (+5% -5%) Decline (-5%---) Higher Share About Equal Share Lower Share

12 What Category Are We In? What changed? New Game New Environment New Competition New Capabilities Needed

13 Innovation Growth Cycle Key to Success Grow Quickly and Build Market Share Introduction Get in solve a broad consumer problem and create an identity Growth Evolve the offering with new, differentiated upgrades

14 Innovation Mature And Decline Cycles Key to Success Profit Replacement Maturity Fill all remaining needs Decline Keep the bucket from draining out while you find the next big thing

15 Where is the Next Big Idea? Combining Market Needs and Macro Trends Market/ Need Market/ Need Market/ Need Market/ Need (size) (Size) (Size) (Size) Trend 1 Broad Application New Trend 2 Narrow White Space New Application Trend 3 White Space New Expanding 15

16 Traditional Breakfast Category Declining 16

17 Occasion What s For Breakfast? Emotional Need Adults 18+ Enhance / Heal Me 5% Perform 8% Healthy Me 16% Good Mom 23% Big Day / Good Start 15% Fill me Up 33% Morning / Home 45% Morning / Travelling 35% Weekend 20% Example Data Only 17

18 Baby Boomers and Young Adults (Millennials) Account For Most Forecasted Population Growth US population growth will be strongest among aging Baby Boomers and younger families. Snack category should focus on youth and young parent market Youth market growing Younger parents growing Mid-life parents shrinking Elderly Growing 18

19 Hispanic is the Fastest Growing Component of Population Total market expansion and youth market will be largely driven by Hispanic demographic. Longer term focus for the category must cater to this demographic Percent of US Population by Ethnicity 2012 to 2060 White alone 78% 69% Non-Hispanic White Alone 43% 63% Hispanic 17% 31% Black 13% 15% Asian 5% 8% Two or more 2% 6% 0% 50% 100% Source: US Census

20 Heavy Users Versus Light Users Kellogg s Pop-tarts growing a brand considered kid s food Consumer Insight - users I love breakfast food that is fun and tasty. It just makes me smile to eat pop-tarts. I mean my kids, of course Consumer insight - non users Pop-tarts are what is wrong with the American diet Heavy Users Light Users Lapsed Users Non-Users 0% 50% 100%

21 Innovation for Heavy Users and Light Users Kellogg s Pop-tarts growing a brand Heavy Users Light Users Lapsed Users Non-Users 0% 50% 100%

22 Pricing Introduction and Growth Key to Success Pricing at Cost of Goods plus margin requirements Introduction Cost of Goods Plus margin future model - may not be profitable now Growth Cost of goods with some margin

23 Pricing Maturity Key to Success Maintain Highest Margin Possible While Beating Competition Maturity Marked by high awareness of pricing, one or two big players and discounting. Win the share battle seasonally, but keep margins high

24 Pricing Decline Key to Success Maintain Highest Margin Possible Decline Declining perception of price as purchase frequency declines and fewer competitors. Price more aggressively to consumer belief keep growing the dollars while sales decline NPD for gain Pricing to break even

25 A Pricing Case Study Category dynamics Declining Category needed infusion of growth Strong number one player in each category segment Category not driven on price Important to the retailer but not exciting

26 A Pricing Puzzle. Effect on Profit of: 10% Retail Price Increase? (Retail margin 50%) (Net margin 20%) +50% How much lower volume will still break even?? -35%

27 Case Examples Growth Electronics Mature Coffee, apparel Decline Household products

28 The High Risks of the Growth Category Tivo Fast evolving category household penetration at 40% Consumer insight View the programs I want, when I want them Product Range / Innovation Stayed close to box technology Lost market share to cable TV who stole technology and share Lost the dominant position Many models coming and going Netflix, HD streaming, mobile viewing, etc. Pricing/Profitability Lost pricing power Losing money Source: TV by the Numbers Source: Ycharts.com

29 The Opportunity / Risks of the Growth Category Challenging the Growth Curve New Tech?? iphone and ipad Clean out Source: Ycharts.com

30 Winning in a Mature Category Keurig Coffee Goal to innovate and quickly gain share in single serve coffee Consumer Insight I want a single cup of fresh brewed coffee Innovation / Communication Enter from outside channel Quickly dominate space and continue to upgrade machine Introduce branded coffee pods Product Range Introduce branded coffee pods K-cups Build high, medium, low machine price points Pricing Ahead of category High charge on cups proprietary shape

31 Winning in a Mature Category Carhartt Expand target appeal and market share by leveraging deep heritage and roots Consumer Insight I want stuff in my life that says I am a proud American worker Communication Workers tell their stories about worst weather working conditions and gear Use modern tools facebook, videos contests to reach Product placement Product Range Carefully expand catalogue - add kids, women, lifestyle items. Pricing Ahead of category Discounting and sales

32 Winning in a Mature Category Building a Strong Community

33 Winning in a Declining Category Kingsford Charcoal The only name in Charcoal Consumer Insight I know authentic grilling, and I want to get together with my closest friends Innovation / Communication Best performance on core range close in innovation only Live the life be authentic and communicate in consumer channel. Light on advertising, heavy on PR, blogging, events Product Range Reduce, rationalize and trade up to higher price points License and find a new market to grow Pricing Consistent increases to keep the category relevant to the retailer

34 Winning in a Declining Category Where s the Kingsford Charcoal?

35 Every Company is Different Look at the category life cycle stage Know the true consumer Insight Choose the strategies to win in that lifecycle

36 Thank You!! Bob Clark robertclark11 Copyright 2014