|One of the simplest but most powerful frameworks in the Strategy Dynamics method is the structure that drives sales growth. An example shows how this works …|
A well-known over-the-counter drug had a high market share, and although more people were buying the product each year, its sales were steadily falling.
So what was going on? … and what could the product manager do about it?
Well, if customer numbers were rising, they must have been winning new customers faster than they were losing existing customers.
You might expect that a mature product like this would lose, maybe, 5% of customers each year? But no – it was actually losing 14%/year! So the win-rate must have been really high – their heavy advertising was certainly effective at that task!
|So, if customer numbers were rising but sales were falling, the average customer’s purchase rate must have been falling. So how could that happen? |
It turned out that the new customers were young adults, with a low need for the product, while the lost customers were older, with a higher need, often buying for the family. And where were they being lost to? – to supermarket own-brand products.
So those are the 3 mechanisms driving sales growth
– the customer win-rate,
– the customer loss-rate, and
– customers’ average purchase rate.
What to do in this case?
There is more about this case in our courses, but basically, they needed to create and promote a ‘value’ version of the product for the heavy consumers – to cut the loss rate. Not work harder to win new consumers, and not work harder to get consumers to buy more. Retaining heavy users meant that average sales per customer increased, simply because consumers bought more as they aged.
|Some companies are very clear about these 3 distinct mechanisms, but many are not. Yes, this may seem “obvious”, even trivial. |
But if you don’t ask the questions about those 3 mechanisms, you will never know the answers, or what to do. Even Coca-Cola discovered they didn’t know those answers until expert friends of mine showed them why they mattered!
Next, of course, we need to know what distinct factors that drive each of the 3 mechanisms – price, product benefits, service quality, sales effort, promotions (same for competitors) … And the influence of each factor on each mechanism will differ.
This structure, and the model that makes it operational, are covered in class 2 of our core online course on digital-twin business models