HOW TO IMPROVE PROFITABILITY & OUTPERFORM YOUR COMPETITION: THE GUIDE TO DATA-DRIVEN DECISION

MAKING

A.J. Riedel, Sr. Partner

The movie Moneyball depicts data-driven decision making in action.

The movie Moneyball tells the story of how Billy Beane and

his Harvard-educated quant whiz kid protégé Paul

DePodesta turned the Oakland Athletics into a team

that consistently made the playoffs over a number of

years. And they did it using data-driven decision

making.

The Athletics were near the very bottom of the league in

terms of their financial capacity to spend on acquiring

talent. Through detailed analysis of every imaginable

baseball statistic, the duo uncovered the true underlying

drivers of success for a baseball team. They

uncovered the massive inefficiency in how baseball

talent is priced and were able to exploit this inefficiency

to their advantage. Billy and Paul figured out how to

gauge and price the true worth of every ballplayer.

The morale of the Moneyball story is that data-driven

decisions result in significantly better outcomes than gut

feel, intuition, or conventional wisdom.

Researchers at the Wharton School of the University of Pennsylvania studied

179 large publicly-traded companies. They found that the companies that

adopted “data-driven decision making saw measurable improvement in

productivity and other performance measures.

Recent research proves that companies that rely heavily on data analysis are

likely to outperform others.

http://misrc.umn.edu/wise/papers/1a-1.pdf

If you do a Google search on the term, most of the

search results relate to the use of data-driven

decision making in education.

In the education world, data-driven decision making

is defined as “A process of making decisions

about curriculum and instruction based on the

analysis of classroom data and standardized

test data. It is based on the assumption that

scientific methods used to solve complex

problems in industry can effectively evaluate

educational policy, programs, and methods.” http://www.ncrel.org/sdrs/areas/misc/glossary.htm

The practice of data driven decision making in

education has exploded over the last five years

as educators have discovered how powerful

data can be when promoting school

improvement. Data driven decision making has

been credited with improving teacher quality,

improving curriculum, promoting parental

involvement, & narrowing the achievement gaps

amongst various student populations.

What is data-driven decision making?

The process of making product development

and marketing decisions based on the

analysis of consumer, marketplace, and

competitive data.

What is data-driven decision making in business?

Most housewares companies are using data-driven decision making of a sort – they are basing new product decisions on what their competitors are doing.

But most housewares companies are not collecting and analyzing consumer data.

“A recent Corporate Executive Board study of nearly 800 marketers at

Fortune 1000 companies found that the vast majority of marketers still

rely too much on intuition – while the few who do use data aggressively

do it badly.

On average, marketers depend on data for just 11% of all customer-related

decisions. In fact, when we asked marketers to think about the

information they used to make a recent decision, they said that more

than half of the information came from their previous experience or their

intuition about customers. They put data last on their list – trailing

conversations with manager and colleagues, expert advice and one-off

customers interactions.”

http://blogs.hbr.org/cs/2012/08/marketers_flunk_the_big_data_test.html

.

Marketers still rely too much on intuition.

Most decisions are made by HiPPO.

Many housewares companies use HiPPO-driven decision making (the “highest paid

person’s opinion”). HiPPO stands for “the highest paid person's opinion”. The term refers

to those people who have the final word on any design issue on the basis that they're

the highest paid person in the room.

Certainly, intuition grounded by years of in-market experience should always be listened

to carefully, but it pays to augment even the best intuition with data.

In today’s volatile business environment, judgment built from past experience is

increasingly unreliable. With consumer behaviors in flux, once-valid assumptions can

quickly become outdated.

Housewares manufacturers have an average new product failure rate of more

than 50%.

0 10 20 30 40 50 60 70

Less than 25%

Between 25 and 50%

More than 50%

Percent of Respondents

What Percent of the Products Developed by Your Company is the Last Five Years Met Your Company's

Success Criteria?

If you are a typical housewares company, somewhere between 25 and 50% of the new

products your company introduced in the past five years met the company’s success

criteria.

What’s more, you are probably wasting 50% or more of your new product development

budget developing marginal products that have a low probability of marketplace success.

Here are the top six reasons you should adopt data-driven decision making.

1. By changing the way you make decisions you'll outperform your

competitors.

3. You’ll reduce your risk of making costly marketing & product mistakes.

2. You’ll reduce the number of suboptimal decisions being made by

your managers.

4. You’ll save money by weeding out the marginal products that have a

low probability of success before you’ve invested in tooling.

5. A larger percent of your new products will be marketplace successes.

6. You’ll get a better return on your new product investment.

Adopting data-driven decision making does not require a multi-million dollar budget for

retail store tracking data, data-mining, analytics software, or huge quantitative

research studies.

And unlike Billy Beane and his team, you don’t necessarily have to plow through every

imaginable statistic stored in your company’s databases. The Athletics used

mounds of baseball statistics to figure out how to gauge and price the true worth of

every ballplayer.

For housewares manufacturers, the answers to your most pressing product and

marketing decisions won’t be found in statistics. The answers will be found by

talking with and understanding the people who buy and use your products.

Data-driven decision making does not mean you need a multi-million dollar

budget.

To get started using consumer data to make product & marketing decisions,

you need a few simple data collection tools.

Online survey software Market Research Online

Community (MROC)

A "dedicated online community for qualitative

market research purposes”, otherwise known

as a Market Research Online Community or

MROC. You can build and manage your own

in-house panel, have a company like

Communispace build and manage your panel

for you, or use a third party panel such as my

company’s HomeTrend Influentials Panel.

And people with analytical, creative, and outside the box thinking skills.

Even more important than the data collection tools is the brain power to analyze

and make sense out of the data. If you don’t have people in your organization

who have strong analytical, creative, and outside the box thinking skills, you

should find an outside resource who does.

THE QUESTION: WHAT FEATURES SHOULD OUR NEW

PRODUCT HAVE?

Manufacturers tend to want to cram as many KPD into their new products as possible.

Most housewares manufacturers think “more is better”. They believe that the more

features they put into a product, the more customers will like it. Or they want to be

able to claim to their retail customers that their new product has the highest KPD

(Knobs per Dollar) in the category.

What features should the new product have? That is one of the first questions that the

product development and marketing people have to answer when they are starting to

define a new product concept.

But consumers don’t buy products because of KPD.

They buy products they think will solve a problem better than what they are currently

using. They buy products that they believe will be easier to use or easier to clean.

They buy products that will make their lives easier or save them time.

Start by understanding your consumer.

A manufacturer of small kitchen electrics decided that they wanted to get into the

countertop microwave market. They contacted me for help in figuring out what functions

and features they should put on their new microwave oven that would really set it apart

from all the microwave ovens on the market today. They expected that I would

recommend that we do a comprehensive analysis of all of the competitive microwave

ovens. Instead, I recommended a consumer needs assessment.

To develop products that are significant improvements over the products that are currently

on the market, you have to thoroughly understand the people who are buying and using

those products. You must understand what problems consumers are having with the

products that are currently on the market so that you can come up with ideas that solve

those problems. You must understand where current products fall short so that you can

develop products that consumers will like better.

Type of research study: consumer needs assessment.

•I started with questions about their microwave oven. Questions like how long they’ve

owned it, how much they paid for it, what brand they own.

•The next set of questions addressed how satisfied they were with their microwave oven.

.

•Next, I asked what they cook in their microwave oven, and how often they cook

different types of foods in their microwave oven.

•I asked questions about what cooking functions and features they would want if they if

they were buying a new microwave.

The first and largest group is

people who use their microwaves

mostly for melting and reheating.

The second group is the people

who use their microwave mostly

to heat up leftovers.

The third group is the people who

use their microwave mostly to

heat up frozen foods.

The fourth group is people who

use their microwave to prepare

whole meals.

The research revealed that there are four distinct segments of microwave oven

users.

0% 20% 40% 60% 80% 100%

Defrost

Reheat

Keep Warm/Simmer

Convection

Are these cooking functions: functions that you absolutely must have, functions

that would be nice to have but are not necessary, or functions that you don't

need or want?

I don’t need or want this function

This function would be nice to have but is not necessary

I absolutely must have this function

The functions and features people want depends on what they use their

microwave oven for.

0% 20% 40% 60% 80% 100%

Carousel turntable

Timer

Interior oven light

Sensor

Shortcut keys

Popcorn button

One-touch cooking categories

Instant On Controls

Convection

Speed cook

Multi-stage cooking options

Racks for bi-level cooking

Delay start

Child lock

Control lockout

Are these features that you absolutely must have, features that would be nice to

have but are not necessary, or features that you don't need or want?

I don’t need or want this feature

This feature would be nice to have but is not necessary

I absolutely must have this feature

Decisions made based on consumer needs assessment

Based on the research findings, my client decided to

target the two smaller segments of microwave oven

users -- the people who use their microwave oven mostly

to heat up frozen food and the people who use their

microwave to prepare whole meals.

Their microwave ovens would address a common

complaint of these two segments of microwave oven

user – that they couldn’t just put a food into the

microwave and walk away. Their microwave oven would

take the guesswork out of microwave cooking and would

have features and functions such as auto reheat and

defrost, sensors, One Touch Express Cook for common

frozen food categories, Multi-stage cooking options, and

Racks for bi-level cooking.

THE QUESTION: SHOULD WE INVEST IN TOOLING FOR

ALL OF THE ITEMS IN THE LINE?

Type of research: Product Screening Test

A kitchenware manufacturer developed a line of 19 innovative new kitchen gadgets a

couple of years ago. Before they invested in tooling, they wanted to find out how

interested consumers would be in each of the items.

Respondents were shown an illustration and a brief description of each item in the line

and asked to read a description of the product. They were asked how interested they

would be in purchasing the product.

Purchase likelihood ranged from 42% for Concept C to 7% for Concept S.

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Competitive #1

Concept A

Concept C

Concept E

Concept G

Concept I

Concept K

Concept M

Concept O

Concept Q

Concept S

If this product was already available at your favorite store, how likely would you be to purchase it?

Very likely Completely likely

Purchase likelihood ranged from from a low of 7% to a high of 42%.

A purchase likelihood score of 7% means that 7% of the survey respondents said that

they would be “very” or “completely” likely to purchase the product at the given price.

A strong correlation between purchase likelihood scores and how well the product

met company expectations. TOP TWO BOX

PURCHASE LIKELIHOOD

Failed to meet

sales

expectations

Met sales

expectations

Exceeded

sales

expectations

WATER PITCHER 60% X

FRUIT & VEG

SLICER 48% X

PASTA SCOOP 41% X

VEGETABLE PEELER 38% X

TOOL HOLDER 36% X

ZESTER 32% X

ICE CREAM SCOOP 27% X

BUTTER SPREADER 26% X

AVOCADO TOOL 25% X

TEA INFUSER 25% X

SERVING TOOL SET 24% X

CHEESE GRATER 18% X

SUGAR SHAKER 18% X

SALT SHAKER 14% X

All of the products with top two box purchase likelihood scores of 30% or more met or

exceeded company expectations. All the products with purchase likelihood scores of 24%

or below failed to meet expectations. Products with purchase likelihood scores in the

range of 20% to 29% fell into the gray area: three failed to meet expectations and two

exceeded expectations.

Decisions made based on product screening test

Based on the results of the concept test, the client dropped the five items with less

than 15% purchase likelihood from the line, saving them an estimated $17,000 in

tooling costs.

But then the client fell back into decision-making by HiPPO. I had recommended

that the client introduce the five products that had purchase likelihood scores of 25%

or more. They chose to go ahead and introduce 9 products that scored less than

25% on purchase likelihood.

Two years later, I conducted a study to compare how well each product did in the

marketplace to their purchase likelihood scores.

WHAT IS THE LIKELIHOOD OF MARKETPLACE SUCCESS FOR THIS

PRODUCT?

Type of research: Product Concept Test

This case study illustrates how product concept testing can be used to determine if there is

a big enough market for a new product.. I seriously wondered how much demand there is

going to be for a specialty single-use small kitchen electric appliance that automates jam &

jelly making, especially when it is priced at almost $100. So, I conducted a product concept

test on a product that was already in market. Ideally, this type of research is done early in

the development process before much money has been invested in development and

tooling.

Yes 30%

No 70%

Are you thinking about starting to make jam and/or jelly?

There is considerable interest in jam and jelly making.

Yes 35%

No 65%

Do you make your own jam and/or jelly?

The research revealed that jam and jelly making is a pretty popular activity. 35% of survey

respondents make their own jam and jelly. The majority of them have been making jam

and jelly for a number of years.

The research also revealed that there is a considerable increase in interest in jam and jelly

making. 30% of survey respondents say they are thinking about starting to make their

own jam and jelly.

But interest in jam and jelly making does not translate into interest in the jam and

jelly making appliance.

0 10 20 30 40 50 60 70

Definitely or probably would not

Might or might not

Definitely or probably would

Assume for a moment that you are planning to do some canning this year. If this product were sold at one of your favorite stores for $99,99, how likely would you be to buy it for your own household or as a gift in the next 12

months?

23% of respondents said they probably or definitely would purchase the Jam & Jelly

Maker at the suggested retail price of $99.99.

Many respondents are not interested in the product because of the $99 price tag.

“I can't afford something that expensive to use

Only once or twice a year. If I did make jellies

more often I'd make the investment.”

“Seems expensive since this would be a new activity for

me and I don't yet know if I would like it and stick with it.”

“It is so cheap to make jelly and I'm betting that most

people who are making it themselves are doing it

partly to be thrifty. A $100 price tag seems ridiculous.”

“The price is very high for a product that wouldn't

be used on a daily or even weekly basis.”

Highest positive purchase likelihood among the people who already make

their own jam and jelly.

0% 5% 10% 15% 20% 25% 30% 35% 40%

Among the total sample

Among respondents who make thier own jam and/or jelly

Among respondents who are thinking about starting to make jam and/or jelly

If this product were sold at one of your favorite stores for $99,99, how likely would you be to buy it for your own household or as a gift in the

next 12 months?

Probably would Definitely would

Respondents who already make jam and jelly appreciate the time and money saving benefits of the appliance.

“It's worth it to not have to manually stir constantly. I can in large batches,

so this would be extremely helpful..”

“If it would save me time, I'm all for it.”

“It would make my life so much easier!.”

“Because every year I spend about that much

or more and with a ton more work..”

“I think it would save me money in the long run!”.”

Implications of Product Concept Test

When I first saw the jam and jelly maker, I seriously wondered how much demand there is

going to be for a specialty single-use small kitchen electric appliance that automates

jam and jelly making, especially one that is priced at almost $100.

What I found that there is strong purchase interest among people who make their own jam

and jelly.

What’s more, the segment of the population that makes jam and jelly is large enough that

this could turn out to be a nice niche product.

WHICH PACKAGE DESIGN SHOULD WE USE?

Type of Research: Package Test

The manufacturer handheld household cleaning tool had come up with several different

versions of the package. The question they needed to answer was: which design is going

to catch consumers’ attention at retail and provide enough information to convince them that

the product really works?

Respondents were shown three different versions of the front panel and asked three

questions.

Next, respondents were shown a list of six different product benefits and asked which was

most important to them and why.

Finally, respondents were shown two versions of a side panel and asked which design did a

better job of selling them on buying the product and why.

Package B was the best of the three front panel options.

0% 10% 20% 30% 40% 50%

Package A

Package B

Package C

None of them

Which of these three packages would be most likely to grab your attention and make you want

to take a closer look if you saw it in a store?

0% 10% 20% 30% 40% 50% 60% 70%

Package A

Package B

Package C

None of them

Which of these three packages is best at communicating what the product does?

0% 10% 20% 30% 40% 50%

Package A

Package B

Package C

None of them

Which of these three packages is best at making you want to buy the product?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Faster than sprays and wipes

No chemicals or residue

Kills germs, viruses, and odors

Safe chemical-free sanitizing

Eliminates 99.9% of germs, viruses, bacteria, and allergens

Which product benefits are most important to you?

One product benefit – the very specific claim of what the product eliminates -- was far more important than the other

five. Side panel A was the best of the two side panel options.

0% 10% 20% 30% 40% 50% 60% 70%

Side Panel A

Side Panel B

Neither

Which of these two side panel alternatives does a

better job of selling you on buying the product?

The package did not answer some of the questions that prospective purchasers

had about the product.

“How long does it take to sanitize an area? ”

“How long does it work? How often do you need to use it?

Can it be used on fabrics? How do you know it's working?”

“Does it clean as well as removing allergens and microbes?”

“How long do I need to hold it above the surface? How much area

is covered by the light? do I need to move the wand over every inch

of counterspace slowly and in a particular manner?”

Decisions made based on package test

Use front panel version B but use the more specific

product claim.

Add more information about how the product works to

the back panel.

Use the layout of side panel version A but add scientific

proof that the product really does work.

WHAT IS THE OPTIMAL PRICE POINT?

Type of Research: Pricing Test

This manufacturer had developed an innovative new type of utensil tray. The most

profitable price would be $19.95 but they were concerned that consumers would not be

willing to pay that much of a premium in a category where the average utensil tray cost

about $10.

We did an online concept test but instead of one purchase likelihood question, we asked a

series of three questions.

Of the three prices tested, the $14.95 price point is the price point that will

generate the most volume.

Assume for a moment that you are in the market for a utensil tray. If this product were sold at

one of your favorite stores, how likely would you be to buy it for your own household or as a

gift in the next 12 months?

$19.95 $17.95 $14.95

Definitely would not 12% 16% 15%

Probably would not 21% 26% 21%

Might or might not 37% 55% 43%

Probably would 20% 3% 21%

Definitely would 9% 0% 1%

•29% of the respondents said they probably or definitely would buy the product at $19.95.

•At $17.95, an additional 2% said they probably or definitely would buy the product. At

$19.95, these respondents were fence sitters; they might or might not buy.

•At $14.95, an additional 22% said they probably or definitely would buy the product. At

$19.95 and $17.95, these respondents were fence sitters.

WHY ISN’T THE PRODUCT SELLING AS WELL AS WE THOUGHT IT

WOULD?

Type of Research: Diagnostic Test

A manufacturer of high-end small kitchen appliances recently introduced a new convection

toaster oven that had a number of features not found on other high-end convection toaster

ovens, including a new heating technology that promised better cooking performance. They

were confident that consumers would be willing to pay $249.99 for such a well-featured

toaster oven, even though the best selling competitive toaster ovens cost $50 to $75 less.

But the product was not selling as well as they thought it would. So I conducted a

diagnostic test to help them figure out why the product wasn’t selling. A diagnostic test uses

the same battery of questions that are used in a product concept test.

Convection

Toaster

Oven A

Convection

Toaster

Oven B

Convection

Toaster

Oven C

Price $249.95 $179.95 $149.95

Desirability 72% 71% 72%

Believability 74% 83% 75%

Uniqueness 56% 61% 59%

The product was comparable to the competitive products on desirability,

believability, and uniqueness. But fell far short on purchase likelihood.

6%

21%

24%

2%

12%

8%

0% 5% 10% 15% 20% 25% 30% 35%

Countetop Oven A at $249.95

Countetop Oven B at $179.95

Countetop Oven C at $149.95

How likely would you be to buy this countertop oven for your own household

or as a gift in the next 12 months?

“I’m not sure that the extra functions of the oven would

Justify spending so much more than I would for a

regular toasting oven.”

I don't see any feature worth the premium price. You can

get a good toaster oven for the $100 price range that can

cook a frozen pizza... All the fancy "store in memory"

sounds like a gimmick.”

The added features weren’t worth paying more than $200 for, especially in a

product category where a good quality machine could be purchased for much

less money.

Implications of Diagnostic Test

The reason the product was not selling through well was

because the unique features were not perceived by

consumers as delivering enough benefit to justify paying

such a high price.

SUMMARY

Data-driven decision making is the process of making

product development and marketing decisions based on

the analysis of consumer, marketplace, and competitive

data.

Data-driven decisions result in significantly better

outcomes than gut feel and intuition.

Product and marketing decisions require consumer

data.

You don’t have to have a multi-million dollar budget to

get started using data-driven decision making.

Much of the consumer data collection can be done

using online survey software and a Market Research

Online Community.

About the HomeTrend Influentials Panel

HomeTrend Influentials pick up on new home-related trends and embrace new home

goods much sooner than the rest of the U.S. population. (For example, as of June

2011, 76% of HIPsters own smart phones compared to an estimated 38% of the total

population.)

If HIPsters embrace a new product, very likely it is going to be embraced by

mainstream Americans within a couple of years. If HIPsters reject a new product, very

likely the product is not going to be embraced by mainstream Americans either.

HomeTrend Influentials are home owners who like their homes to look up-to-date and

like to keep their fingers on the pulse of what is new for the home. They are

constantly redecorating and making improvements to their homes. They enjoy talking

with their family, friends, and co-workers about what’s new for the home and they are

sought out by friends and family for advice on what to buy for their homes and what to

do to their homes. They are very active in community, civic, and political

activities. They readily try new food, household cleaning, laundry, and housewares

products that they see advertised or in stores and they eagerly recommend the

products that they really like to others.

HomeTrend Influentials are well educated, articulate, insightful, and eager to share

their opinions with manufacturers. They are savvy consumers.

HomeTrend Influentials participate in a variety of different research studies ranging

from e-mail surveys to in-home interviews to home-use tests to online click-through

surveys to focus groups, both traditional in-person and online.

http://www.4rmg.com/research-data-collection-and-analysis/hometrend-influentials-panel/

About Riedel Marketing Group In business since 1991, Riedel Marketing Group (RMG) is a trusted provider of

authoritative market and consumer intelligence on the U.S. home goods and

housewares industries.

RMG helps housewares and home goods manufacturers make informed product and

marketing decisions that will lead to new product success.

RMG is the only market research company that specializes exclusively in the

housewares industry.

We have expertise in data collection and analysis.

– We have extensive experience with product concept tests, concept screening, market and

competitive assessments, home-use tests, and Internet-based research.

We tell you what the data means and what to do as a result.

– We answer not just the “what” questions but also the “so what” (what are the ramifications of

the data) and “now what” (what do we do as a result of this study) questions.

We have our own proprietary consumer panel.

– Our Market Research Online Community, the HomeTrend Influentials Panel, is a good

sample population because they are the bellwether for the mainstream population.

We have a proven track record and satisfied clients.

– We been providing outstanding service to housewares manufacturers, industrial design

firms, inventors, and industry trade associations for over 22 years.

About A.J. Riedel A highly regarded marketing authority in the housewares industry, the top forecaster

of housewares trends, and an advisor to many housewares companies.

AJ founded Riedel Marketing Group in 1991 to help housewares manufacturers

solve marketing problems and develop strategies and plans to grow their business.

With over 25 years of marketing and market research experience in total, A.J. has

specialized in the housewares and home goods industry for more than 20 years. Her

knowledge and understanding of the housewares industry encompasses market

dynamics, channels of distribution, consumer behavior, and consumer trends.

After earning her MBA at UCLA, A.J. spent the early years of her marketing career in

the consumer package goods industry. She helped jump start Wheaties cereal sales

at General Mills, increased Grey Poupon sales at RJR Nabisco, and revitalized the

air cleaner business at Norelco/N.V. Philips.

Because of her extensive background marketing consumer products as a manager

for General Mills, RJR Nabisco, and Reebok, she is able to bring the tools and

disciplines of consumer package goods marketing to bear on the housewares

industry.

A.J. has spoken at numerous industry functions and meetings and is the medias'

"GO TO" person for trends and insights in the housewares industry. She is

frequently quoted in national newspapers and magazines including the Chicago

Tribune, the Los Angeles Times, the Washington Post, the Boston Globe, the

Philadelphia Inquirer, the Wall Street Journal, and industry trade publications.

A.J. lives in Phoenix Arizona with her husband and son.

A.J. Riedel Sr. Partner, Riedel Marketing Group

(602)840-4948

ajr@4rmg.com

www.4rmg.com

www.twitter.com/AJRat4RMG

http://www.linkedin.com/in/ajriedel