Greg Stephens, RD, & Jim Dorsch, Windrose Partners04.01.14
Nutraceutical markets—functional foods, dietary supplements and cosmeceuticals—are maturing. That means while market growth exists, there is strong competition.
In maturing markets, there are two macro business strategies that are always appropriate. The first is to maximize the current business, leveraging both the current product portfolio and operating capabilities. The second is to minimize the cost associated with the current business. Excellent implementation of these two strategies should yield both volume and profit growth.
The third macro strategy can be called “new things.” The New Things strategy can involve either bringing current products into new markets or creating new products entirely. When focus on the current business begins to yield diminishing marginal returns, the search for growth and profit will turn to other products and markets. Exploring new territory often requires knowledge and capabilities beyond the current organization. This reality increases risk. Thus, the strategy of seeking growth and profit from new products must be implemented in a way that both delivers new product success most of the time and also mitigates the financial downside of inevitable new product failures.
Maximizing Your Current Business
Sounds straightforward. So how do you leverage the current product portfolio? First, an internal analysis is needed. One helpful internal view can be generated from current product sales and share level trends. This data is used to generate a matrix created by Boston Consulting Group (see Figure 1). The matrix is a great discussion guide for determining which investment decisions are likely to maximize the current product portfolio.
Second, an external analysis or “market assessment” of your current products and competitive products is needed. A competent market assessment has an end user view and a key customer view. Many different market research tools can be used for assessment projects. The emergence of relatively inexpensive Internet-based market research has enabled smaller companies to gain great insights usually reserved for bigger corporate brethren.
Many end user market assessments require a description of competitive items: brands, product types, category benefits, communications used, how purchased and price. A list of “benefits delivered” by the products in a given market space should be both totally inclusive for the category and mutually exclusive to the extent possible. Every market space has its own benefit set. For example, there are five basic benefits delivered in the food/beverage market: taste, nutrition, convenience, value and image. With these elements ready, a typical market assessment identifies the relative satisfaction being delivered to end users by your current products relative to competitive products, and what factors drive end user satisfaction.
The key customer part of the market assessment is designed first to define the benefits desired from customers in the supply chain. The importance of customer benefits are rated and then each competitive product is rated on those metrics. The end user and key customer information identifies strengths that can be built upon and opportunities for improvement. Often, the discipline required to get ready to undertake a market assessment project generates positive insights.
Most organizations regularly practice cost containment, so it will not be addressed here except for two insights. First, the most productive cost minimization programs start with an understanding of the investment strategy that will maximize the market potential of the current portfolio as just described. Second, competitive operating practices and spending on both the supply chain and market sides of the business will impact the range of cost minimization possible.
One helpful way to put this together is to list the potential category containment options. Then this list can be prioritized. One simple prioritization scheme is the red-yellow-green designation for each item where red is a “stop,” yellow is “caution” and green means “go.” The more information gathered from market assessment work, the better able a company is to make red-yellow-green judgments.
Navigating New Territory
The New Things strategy can be demystified because the same disciplines used to understand current markets can and should be used to understand new products and markets. First, a market assessment of the same type completed for your current business should be completed for new markets. The inputs and algorithms are the same. It just may be more difficult to gather the required input. Qualitative input from both end users and distribution channels is likely a good first step in understanding a new marketplace. When quantification time comes, the Internet can generate market insights for minimal investment—an investment that should be made or one might question an organization’s ability to implement a new product strategy successfully.
The New Things strategy with the highest upside is innovation against an unmet need. This strategy demands that the product equation—an X (product or service) that Ys (provides benefits to) your Z (world)—is turned around so that we start with your Z (world). One helpful approach is to identify the problems in a particular Z space—their importance and frequency to those impacted or potential target market. Once these problems are identified and quantified, Xs and Ys that best solve those problems (unmet needs) can be developed.
Here are some New Things strategy truths. First, setting business goals and aligning them with resources applied to new products is critical. What kind of new business does the organization desire? What are the criteria for a business that the organization can successfully manage? It is important for an organization to know what it is, and then be it. New business size and stability usually require meaningful, sustainable competitive advantage. In most businesses, meaningful, sustainable competitive advantage is difficult to find or develop. Differentiation often requires basic research, upfront investment and/or patience.
Second, speed is always of the essence. Speed requires both focus on the new effort and clear, crisp communication among all program stakeholders. Being first into a new market or segment usually delivers a huge market position advantage. Although the more sustainable advantage or differentiation is built into a proposition, the more time exists before an idea is copied; underestimating competition is never wise.
Third, investment in new products inherently carries more risk than investing in a base business. Therefore, a new product program should be designed to identify winners and losers quickly, spending as little as possible to get to that decision point. An organization should be prepared to succeed and fail. It must be nimble enough to cut losers quickly and leverage winners to the hilt. A part of commercializing a business “winner” is understanding and making the investment required to launch and sustain it in the market successfully—to turn it into a “base business.”
This is the Windrose macro view we use whenever possible. Consultants are used when current staff need extra resources (usually time) to accomplish desired tasks or when some special knowledge is required. Regardless of the consultant used, the best clients work as a team with their consultants. The best clients have clear goals and deliverable expectations of consultants. They provide all possible information and clear, regular communication. It is axiomatic that the best clients get the best results from consultants.
Greg Stephens, RD, is president of Windrose Partners, a company serving clients in the the dietary supplement, functional food and natural product industries. Formerly vice president of strategic consulting with The Natural Marketing Institute (NMI) and vice president of sales and marketing for Nurture, Inc (OatVantage), he has 25 years of specialized expertise in the nutritional and pharmaceutical industries. He can be reached at 215-860-5186; E-mail: gregstephens@windrosepartners.com.
Jim Dorsch has 30 years of management experience with Fortune 100 companies. Highlights include developing and launching over $700 million in new products. He created business systems and marketing innovation across the globe as Campbell’s Soup International CMO. Mr. Dorsch consulted for major companies on functional foods and ingredients. He co-founded NutraBrand Innovations, LLC, which developed and launched MegaMilk.
In maturing markets, there are two macro business strategies that are always appropriate. The first is to maximize the current business, leveraging both the current product portfolio and operating capabilities. The second is to minimize the cost associated with the current business. Excellent implementation of these two strategies should yield both volume and profit growth.
The third macro strategy can be called “new things.” The New Things strategy can involve either bringing current products into new markets or creating new products entirely. When focus on the current business begins to yield diminishing marginal returns, the search for growth and profit will turn to other products and markets. Exploring new territory often requires knowledge and capabilities beyond the current organization. This reality increases risk. Thus, the strategy of seeking growth and profit from new products must be implemented in a way that both delivers new product success most of the time and also mitigates the financial downside of inevitable new product failures.
Maximizing Your Current Business
Sounds straightforward. So how do you leverage the current product portfolio? First, an internal analysis is needed. One helpful internal view can be generated from current product sales and share level trends. This data is used to generate a matrix created by Boston Consulting Group (see Figure 1). The matrix is a great discussion guide for determining which investment decisions are likely to maximize the current product portfolio.
Many end user market assessments require a description of competitive items: brands, product types, category benefits, communications used, how purchased and price. A list of “benefits delivered” by the products in a given market space should be both totally inclusive for the category and mutually exclusive to the extent possible. Every market space has its own benefit set. For example, there are five basic benefits delivered in the food/beverage market: taste, nutrition, convenience, value and image. With these elements ready, a typical market assessment identifies the relative satisfaction being delivered to end users by your current products relative to competitive products, and what factors drive end user satisfaction.
The key customer part of the market assessment is designed first to define the benefits desired from customers in the supply chain. The importance of customer benefits are rated and then each competitive product is rated on those metrics. The end user and key customer information identifies strengths that can be built upon and opportunities for improvement. Often, the discipline required to get ready to undertake a market assessment project generates positive insights.
Most organizations regularly practice cost containment, so it will not be addressed here except for two insights. First, the most productive cost minimization programs start with an understanding of the investment strategy that will maximize the market potential of the current portfolio as just described. Second, competitive operating practices and spending on both the supply chain and market sides of the business will impact the range of cost minimization possible.
One helpful way to put this together is to list the potential category containment options. Then this list can be prioritized. One simple prioritization scheme is the red-yellow-green designation for each item where red is a “stop,” yellow is “caution” and green means “go.” The more information gathered from market assessment work, the better able a company is to make red-yellow-green judgments.
Navigating New Territory
The New Things strategy can be demystified because the same disciplines used to understand current markets can and should be used to understand new products and markets. First, a market assessment of the same type completed for your current business should be completed for new markets. The inputs and algorithms are the same. It just may be more difficult to gather the required input. Qualitative input from both end users and distribution channels is likely a good first step in understanding a new marketplace. When quantification time comes, the Internet can generate market insights for minimal investment—an investment that should be made or one might question an organization’s ability to implement a new product strategy successfully.
The New Things strategy with the highest upside is innovation against an unmet need. This strategy demands that the product equation—an X (product or service) that Ys (provides benefits to) your Z (world)—is turned around so that we start with your Z (world). One helpful approach is to identify the problems in a particular Z space—their importance and frequency to those impacted or potential target market. Once these problems are identified and quantified, Xs and Ys that best solve those problems (unmet needs) can be developed.
Here are some New Things strategy truths. First, setting business goals and aligning them with resources applied to new products is critical. What kind of new business does the organization desire? What are the criteria for a business that the organization can successfully manage? It is important for an organization to know what it is, and then be it. New business size and stability usually require meaningful, sustainable competitive advantage. In most businesses, meaningful, sustainable competitive advantage is difficult to find or develop. Differentiation often requires basic research, upfront investment and/or patience.
Second, speed is always of the essence. Speed requires both focus on the new effort and clear, crisp communication among all program stakeholders. Being first into a new market or segment usually delivers a huge market position advantage. Although the more sustainable advantage or differentiation is built into a proposition, the more time exists before an idea is copied; underestimating competition is never wise.
Third, investment in new products inherently carries more risk than investing in a base business. Therefore, a new product program should be designed to identify winners and losers quickly, spending as little as possible to get to that decision point. An organization should be prepared to succeed and fail. It must be nimble enough to cut losers quickly and leverage winners to the hilt. A part of commercializing a business “winner” is understanding and making the investment required to launch and sustain it in the market successfully—to turn it into a “base business.”
This is the Windrose macro view we use whenever possible. Consultants are used when current staff need extra resources (usually time) to accomplish desired tasks or when some special knowledge is required. Regardless of the consultant used, the best clients work as a team with their consultants. The best clients have clear goals and deliverable expectations of consultants. They provide all possible information and clear, regular communication. It is axiomatic that the best clients get the best results from consultants.
Greg Stephens, RD, is president of Windrose Partners, a company serving clients in the the dietary supplement, functional food and natural product industries. Formerly vice president of strategic consulting with The Natural Marketing Institute (NMI) and vice president of sales and marketing for Nurture, Inc (OatVantage), he has 25 years of specialized expertise in the nutritional and pharmaceutical industries. He can be reached at 215-860-5186; E-mail: gregstephens@windrosepartners.com.
Jim Dorsch has 30 years of management experience with Fortune 100 companies. Highlights include developing and launching over $700 million in new products. He created business systems and marketing innovation across the globe as Campbell’s Soup International CMO. Mr. Dorsch consulted for major companies on functional foods and ingredients. He co-founded NutraBrand Innovations, LLC, which developed and launched MegaMilk.
