Many years back, Treetop, a
juice drink in tetra packs was launched into the Indian market. It was a
novelty at that time, and sales in the first year were so good that the manufacturer
substantially expanded production capacity. But sales plummeted soon after and
never recovered.
More recently, in a major offensive, a food
conglomerate set up a business division to launch nutritional bars into Asia.
Initially the growth was exceptional as the brand entered one market after
another. However, distress signals began to emerge about 8 to 12 months after
launch. Another year or two later the business division was closed down.
What went wrong? In the case of Treetop, while the initial
product trial showed promise, the juice drink failed to generate repeat
purchases from most consumers after their first few tries. The company was reading
retail sales, which looked very strong in the first year of launch. However,
what the sales data did not reveal was the repeat purchase rate, which for
Treetop was low. In the second example, while the nutritional bars were filling
the distribution pipeline and going on the shelf, not many were going off the
shelves. The regional team, for some time, continued to post good aggregate
primary sales as they kept entering new territories, expanding their
distribution and stretching the pipeline.
Primary sales and retail sales tell us how the
product is performing at that time, but as can be gauged from the above
examples, they are not a good prediction for the future. On the other hand,
consumer panels are particularly good in predicting sales, and should be used
for this purpose.
Products that underperform can result in financial and
opportunity losses, as well as harm the corporate reputation and dilute
brand equity if corrective measures are not taken promptly. It is crucial
to identify such products soon after launch and either improve them or
discontinue them before they adversely impact the company’s business and
reputation with stakeholders such as consumers and retailers.
Given the high failure rate, it is essential to conduct
diagnostic and predictive research even after the product has been
launched. Being able to anticipate the expected market share of a new
product in the future gives management the confidence to make timely
decisions. This enables them to invest further in successful products and
cut their losses with underperforming products.