So how do we get the positioning statement and the value
proposition to resonate with customers?
The latest audio book that I listened to on my long commute is Jonah
Berger’s “Contagious: Why Things Catch On.”
Jonah mentions that a number of books have provided great stories about things
that have caught on, but they don’t really explain the “science” behind why
things catch on. He specifically
mentions Malcolm Gladwell’s “The Tipping Point” and the Heath brothers’ “Made
to Stick.” However, I’m sure both could
provide arguments that their work does discuss the “science.” Jonah uses the acronym STEPPS, which
represents 6 steps to make any product or idea go viral. The 6 steps are social
currency, triggers, emotion, public, practical value, and stories. Social currency is obtained by sharing things
that make us look good. Triggers are
easily remembered information that remains at the top of the mind and the tip
of the tongue. Emotion is involved
because when we care, we share. The
information or message has to be public; built to show, built to grow. The information or message has to have
practical value. And, finally, people
are storytellers, so great brands learn to tell stories which contain
information about their product under the guise of idle chatter (free
advertising). Things that go viral don’t
necessarily have to have all 6 steps involved, but these are common among those
that do.
Comparing “Contagious” to other works, Gladwell describes
the “three rules of epidemics” in “The Tipping Point.;” The Law of the Few, The
Stickiness Factor and The Power of Context.
The Law of the Few includes connectors, mavens (information
specialists), and salesmen, which Gladwell suggests are the key to the
dissemination of information. Regarding
The Power of Context, Gladwell says “Epidemics are sensitive to the conditions
and circumstances of the times and places in which they occur.” The Stickiness Factor is expanded by Chip and
Dan Heath in “Made to Stick: Why Some Ideas Survive and Others Die.” This book follows another acronym “SUCCES”
and can easily be compared to “Contagious.”
They explain that the characteristics that can help make an idea
“sticky” are Simple (find the core of any idea), Unexpected (grab people’s
attention by surprising them), Concrete (make sure the idea can be grasped and
remembered later), Credible (give the idea believability), Emotional (help
people see the importance of the idea), and, again, Stories (empower people to
use the idea through a story).
Of course, no amount of stickiness really matters if you don’t
know or understand the size of the market you are getting in to. For PharmaSim this week, we were asked to
estimate the market demand and the market value of each of the line extensions
considered. The line extensions are a
children’s 4 hour cold liquid, a 12 hour multi capsule and a 4 hour cough
liquid. Figuring market demand really
depends on how you define your market.
Some could argue that the 12 hour multi capsule could span into all four
categories (cold, cough, allergy, and nasal); therefore, the existing market
units purchased is 541.9 million units purchased as shown on the brands
purchased report and the industry growth rate is currently 2.6% and forecast to
be higher as shown in the industry outlook report. So a conservative estimate for market demand would
be 541.9 million times 1.026, or 556 million units sold. Manufacturers’ sales as also shown on the
manufacturer sales report totaled $1,899.5 million for the current period for
an average of $3.505 per unit. The
market update report shows an average increase in price of 2.6% compare to an
inflation rate of 6.4% and the forecast inflation rate is 7.0% as shown on the
industry outlook report. Conservatively
assuming the same 2.6% increase in price would mean an average of $3.596 per
unit, so the market demand of 556 million units would be estimated to have a
value of $1,999.6 million. Since the 12
hour multi capsule would be targeting the same market, there would be some product
cannibalism. However, the 12 hour multi
capsule cost $1.03 per unit compared to the $1.37 per unit for our current
product as shown on the pricing decision report.
For the 4 hour cough option, the brands purchased survey
shows cough medications to be 13.9% of the current 541.9 million market units
purchased, or a market demand of 75.3 million units. However, the manufacturer sales report shows
that the growth in the cough market was negative 7.4%. It’s difficult to say whether that is a true
representation, since that report limits itself to brands specifically listed
as cough medications. People may simply
be buying multi brands due to the limited number of choices of strictly cough
medications (just Coughcure and End) and their relatively high cost. Although cough medications represent 13.9% of
units sold, the $379.6 million in manufacturer sales represents 20% of the
total $1,899.5 million market. I would
still use the 2.6% expected sales increase but 2.6% price increase over the
average total and estimate a market of 77.3 million units with $277.8 million
market value. There would be some product
cannibalism, since a fair amount of Allround is already sold in the cough
market, but the new cough liquid capsule cost $1.27 per unit compared to the
$1.37 per unit for our current product as shown on the pricing decision report.
For the 4 hour children’s cold medicine, the brands
purchased survey shows cough medications to be 75% of the current 541.9 million
market units purchased, or a cold market demand of 406.4 million units. This has to be broken down further to see who
would be specifically interested in children’s dosages. There is currently only one brand that is
purely a 4 hour children’s cold medication (Coldcure) and they sold 45.3
million units. It would be easy to
assume that they were selling exclusively to young families, but the brand
purchased survey shows that 28.9% of the units of Coldcure sold were actually
to mature families. This could be
because grandparents are buying for their grandchildren or the mature families
are just looking for smaller doses.
Young families make up 26.7% of the OTC medication market and mature
families make up 29.8%. Coldcure
currently captures 28.4% of the young families with cold market (compared to
21.7% for Allround) and 10.5% of the mature families with cold market (compared
to 22.7% for Allround) for a cross section total of 19% of both. So what is a good estimate of how much of the
cold market would actually be in the children’s cold market if there was more
direct competition? It is difficult to
say, but I’ll guess about half of the young families demand plus a tenth of
mature families demand could be dedicated to children’s medication. So about 16.33% of the 406.4 million units
represent 66.4 million current market demand for children’s cold liquid. I would still use the 2.6% expected sales
increase but 2.6% price increase over the average total and estimate a market
of 68.1 million units with $244.9 million market value. There would be some product cannibalism,
since a fair amount of Allround is already sold in the children’s cold market,
but the new children’s liquid capsule cost $1.25 per unit compared to the $1.37
per unit for our current product as shown on the pricing decision report.
So what did Drucker mean by “charging what the market will
bear” as one of the deadly sins? I think
he meant that if you charge too much, but what the market bears, that will
invite competition to steal customers away from you a lot quicker than they
would have if you had a more reasonable price.
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