How Companies can Select Winning Ideas and Forecast Sales Before Launching New Products Presented...
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Transcript of How Companies can Select Winning Ideas and Forecast Sales Before Launching New Products Presented...
How Companies can Select Winning Ideas and Forecast Sales Before Launching New Products
Presented to:
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
What is innovation? What does it mean to you? Can you think of any examples?
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
New product forecasting
• Simulated Test Marketing (STM) Overview
• STMs Explained: Inside the “black box”
•What really drives new product success?
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
What is Nielsen BASES? What do we do?
Nielsen BASES Objective is optimizing our clients’ high potential initiatives, and minimizing the risk of launching failures.
Nielsen BASES Mission is to help our clients grow through successful innovation on their brands.
Nielsen BASES Philosophy is building strong and lasting relationships with our clients.
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
is part of the family
As part of
BASES Has Developed
Unparalleled Access
To Insights, Experts,
our Clients Succeed
The Nielsen Company,
And Data, To Help
through Successful
Innovation
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Here is a snapshot of some of the clients that we work with:
Simulated Test Marketing Overview
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Typical new product development process for consumer packaged goods
Market DefinitionMarket Definition
Idea Generation and ScreeningIdea Generation and Screening
Concept Testing / OptimizationConcept Testing / Optimization
Product Development and Evaluation
Product Development and Evaluation
Commercialization and LaunchCommercialization and Launch
Prove Business CaseProve Business Case
Cost of Failure:• Year 1 Advertising / Promotion: $5-
30MM• Manufacturing Costs: $5MM+• Opportunity Costs: good products
not launched• Brand Equity: negative halo of failed
product (consumer and trade)• Job Security
Product Forecasting Methods:•Best Guess•Secondary Data Comparables•Qualitative (focus groups)•Live Test Markets•Simulated Test Marketing
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
70s: STMs:•Concept Evaluation/ In-Home Product Test•Statistical Sampling•Many advantages...
A history of product testing from the US
1930 1940 1950 1960 1970 1980
70s: Controlled Store Testing:•Product Stocked at Controlled Store•Smaller Markets than TM… Less Expensive•Custom ads delivered to homes
40s: Rise of National Brands:•Launching Expensive•Success Unpredictable
50s: Test Markets:•“Little America” •Representative Cities -> “Will it play in Peoria?”
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Advantages and caveats for STMs
• Improved accuracy• Identify product weaknesses to fix• Identify source of volume• Weed out losers before test market• Shorter “reading” time• Enhance concept / product security• Perform quick competitive forecast• Reduced product requirement• Eliminate final packaging need
• Marketing elements assumed:– distribution levels and builds– media spending - timing and
execution• Major competitive or economic
changes prior to launch impact forecast• Deviation of tested versus
launched concept / product impact estimates
STMs Applied: Consumer Data
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Consumers contactedConsumers contacted
Our methodology ensures data consistency and reliability
CONCEPT(Pre-Trial)CONCEPT(Pre-Trial)
AFTER-USE(Post-Trial)AFTER-USE(Post-Trial)
Exposure to Concept Stimulus
Exposure to Concept Stimulus Evaluation of ConceptEvaluation of Concept
Consumers Re-Contacted after
usage period
Consumers Re-Contacted after
usage periodEvaluation of ProductEvaluation of ProductEligible Consumers
Placed with ProductEligible Consumers Placed with Product
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
A new product with strong consumer interest pre-trial will drive significantly higher sales
270
852
0
100
200
300
400
500
600
700
800
900
Weak concept Strong concept
+315%
BASES Food Example – A comparison of the best and the worse initiative in BASES Database
Vol
ume
pote
ntia
l
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Example of pre-use consumer measures
(Total Consumers) (250)
Purchase Intent (%)
Definitely would buy 59
Probably would buy 26
Definitely or probably would buy 85
Might/might not buy 8
Probably would not buy 1
Definitely would not buy 6
Mean Liking Rating (6-point scale) 4.5
Mean Value Rating (5-point scale) 3.0
Mean Uniqueness Rating (5-point scale) 3.7
(Favorable Consumers) (212)
Mean Claimed Units at Trial Purchase 1.8
Mean Claimed Annual Purchase Frequency 23.1
AdeS Chocolate
(Total Consumers) (250)
Purchase Intent (%)
Definitely would buy 59
Probably would buy 26
Definitely or probably would buy 85
Might/might not buy 8
Probably would not buy 1
Definitely would not buy 6
Mean Liking Rating (6-point scale) 4.5
Mean Value Rating (5-point scale) 3.0
Mean Uniqueness Rating (5-point scale) 3.7
(Favorable Consumers) (212)
Mean Claimed Units at Trial Purchase 1.8
Mean Claimed Annual Purchase Frequency 23.1
Is this a good concept?
Without some benchmark, it is almost
impossible to know if the scores are good or not.
BASES has developed extensive databases that provide a robust context for evaluating
initiatives.
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
BASES’ cornerstone assumption
• Strong correlation between consumers’ claimed future purchase behaviour and actual purchasing.
•Consumers, however, tend to overstate their intended purchase behavior (albeit with great consistency). The level of overstatement varies by country, by culture, and by key demographics.
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Germany UK France Russia Spain Italy
Can you guess which countries have high overstatement?
Purchase intent claims by country
Germany UK France Russia Spain Italy
Germany UK France Russia Spain Italy
Germany UK France Russia Spain Italy
Germany UK France Russia Spain Italy
Germany UK France Russia Spain Italy
Germany UK France Russia Spain Italy
Germany UK France Russia Spain Italy
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
For example, consumers overstate their transaction size, but it correlates to actual behaviour
Trial Units
Co
nce
pt
Cla
imed
Un
its
(Fav
)
1:1 Line1:1 Line
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Similarly, their claimed frequency of purchase lines up with actual purchase cycle
After-Use Claimed Frequency
Pu
rch
ase
Cyc
le
Low High
Sho
rtLo
ng
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
When can you reasonably forecast a really new product’s sales?1. When you can accurately predict its market share2. When you can predict share and market growth3. It is often not possible to predict sales using market share4. This looks like a trick question and I’m not answering
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
When can you reasonably forecast any new product’s sales?
3. It is often not possible to predict sales using market share alone4. This looks like a trick question and I’m not answering
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Forecasting really new products: Two questions
1) Can consumers make reliable judgments about their future purchase behaviour for “really new” products with no competitive set or frame of reference?
2) What unique problems do “really new products” pose for pre-market sales forecasting?
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Why is purchase cycle important innew product forecasting?
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Purchase cycle drives repeat rate (and repeats per repeater as well)
High
Low
Rep
eat
Rat
e (P
anel
)
Short LongPurchase Cycle (Panel)
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Answer to Question #1
Can consumers make reliable judgments about their future purchase behaviour for “really new” products with no competitive set or frame of reference?
Yes, because consumers’ claims regarding “really new products” are no more overstated than their claims for common, everyday new products.
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
What unique problems do “really new products” pose for pre-market sales forecasting?
A) Calculating market share alone may not work
– Share of what?– What competitive shelf-set?
B) Using “comparables” for estimates also can cause problems– Category comparables may be misleading or worse.– What if there is no category to pull a purchase cycle from?
Answer to Question #2
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Validations indicate our methodology works
10
20
30
40
50
60
70
80
90
100
91% of Cases
87% of Cases
Within 20% of Actual Sales
All Initiatives
Unique Initiatives
Source: The Nielsen Company
STMs Explained: Inside the “Black Box”
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Volume is calculated by combining together consumer responses with planned marketing
Remove consumer bias factors
What consumers actually do
Distribution
Adjust for OverstatementAdjust for Overstatement
Awareness
Consumer ClaimsConsumer Claims
Interested UniverseInterested Universe
Promotion/in-store activity
Volume EstimateVolume Estimate
What consumers say they will do
Adjust for what marketers do to influence consumers
Total Addressable
Market
Measure Consume
r Perceptio
n
Impact of Marketing Support
Volume Forecast
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Looking at consumer claims alone will be misleading
Determine Consumer InterestDetermine Consumer Interest
+ Adjustment for Overstatement + Adjustment for Overstatement
= Interested Universe = Interested Universe
% of consumers becoming aware% of consumers becoming aware
% of consumers find the product where they shop
% of consumers find the product where they shop
+ other activities (e.g. promotions)+ other activities (e.g. promotions)
Trial RateTrial Rate
50% Purchase Intent
BASES Model
Marketing Plan +
BASES Model
20% Interested Universe
5% Trial Rate
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Volume is calculated by adding together trial and repeat
Trial Volume
Trial Volume
RepeatVolumeRepeatVolume
+
=
TotalVolume
TotalVolume
55 million
10%
1.1
6.1 million
Households
Trial Rate
Number of Packages / Purchase
Trial Volume
Example
5.5 million
40%
1.2
3.0
7.9 million
Triers
Repeat Rate
Number of Packages / Purchase
Repeats / Repeater
Repeat Volume
14 million
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
The relationship between trial and volume is almost linear
R2 = 0.84
Year I Trial Rate
Un
it V
olu
me P
er
100 H
ou
seh
old
s
Low High
High
Low
Source: The Nielsen Company
32
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
True or False?1. Awareness alone strongly predicts trial
True2. Advertising strongly predicts awareness
True3. Internet advertising generates high awareness
???
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Low High
Hig
hL
ow
Awareness is critical for new products’ success
R2 = 0.56
Maximum % Awareness
Yea
r I
Tria
l R
ate
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Tracked Awareness
Year I Trial Rate
Total Unit Volume
Example: Four Products (Same Category)
Brand A
20%
4.5%
9.3MM
Brand B
44%
9.0%
17.4MM
Brand C
48%
8.0%
17.5MM
Brand D
78%
14.3%
31.4MM
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Product category affects awareness generationA
war
enes
s
GRPs
Food Personal Care Health Care
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Media drives awareness
GRPs
To
tal A
war
enes
sL
ow
Hig
h
Low High
Higher Impact GRPs (higher recall)
Lower Impact GRPs(lower recall)
Even without any advertising there will be some awareness, from distribution.
Even without any advertising there will be some awareness, from distribution.
Source: The Nielsen Company
37
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Innovative ideas are more likely to be remembered
Commercial Related Recall
• Related recall scores from copy testing show an advantage for innovative products.
0
10
20
30
40
Me-Too Products Innovative NewProducts
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
What is the value of memorable advertising?
GRPs
Recall
Persuasion
Awareness
Trial Rate
Sales Index
2,000
20%
9%
35%
8.5%
1.00
2,000
30%
9%
45%
11.2%
1.35
Me-Too Innovative
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Advertising timing has an impact on volume
Time in 4 Week Periods
TrialRate
0123456789
10
Early Flighting
Spread-out Flighting
5.3%
4.9%
0 1 2 3 4 5 6 7 8 9 10 11 12 13
40
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Distribution has an even stronger impact on volume and its importance cannot be underestimated
R2 = 0.83
Distribution
Tri
al
Ra
te
Source: The Nielsen Company
41
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Median Year 1 distribution build - Russia vs. Europe
0
10
20
30
40
50
60
70
80
1 2 3 4 5 6 7 8 9 10 11 12 13Year 1 periods
Ave
rage
wei
ghte
d di
strib
utio
n
RUSSIA*
France
UK
Italy
Spain
Germany
One of the challenges for launching new products in Russia is distribution
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
VolumesInfluence on volumes
= 40%
Month 12
B
A
Month 12
Trial rate
Influence on trial
= 26%Fast: A
Slow : B
Dist Construction
Month 12
More time for trialMore time for repeat
Higher volume!
Distribution timing is also important
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Media plans typically used for new product launches might not work well in Russia ... Case Study: Coffee in 4 countries including Russia
Shifting the advertising start by five periods to align with distribution increases volume potential by ~10%
+ 9%+ 9%
100
109
Actual GRPs
Shifted GRPs
Vol
ume
Inde
x
Periods
Actual GRPs
(400)
(300)
(400)
(300)
Shifted GRPs
0
10
20
30
40
50
60
70
80
1 2 3 4 5 6 7 8 9 10 11 12 13
•Russia •France •Uk •Poland
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
1000
1378 1377
1109
888954
907
Original BASESForecast
Actual Distribution Actual GRPs Copy Test Results Delayed Launch ofTrial Pack
Actual Sampling Revising Pricing
Influence of actual in-market execution on performance of the initiative
-19%
-20% -5%
0%
+38%+7%
Comparison Between the Original BASES Forecast and Expected Performance based on the Launch Execution Plan
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Quick Quiz
True or False?
There is little correlation between the number of:triers who repeat a first time, and repeaters repeating a second time.
False -STMs would not be possible without this strong correlation
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
1st vs. 2nd Repeat Rate
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80
1st Repeat Rate
2n
d R
ep
ea
t R
ate
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
2nd vs. 3rd Repeat Rate
0
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100
2nd Repeat Rate
3rd
Re
pe
at
Ra
te
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
3rd vs. 4th Repeat Rate
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
3rd Repeat Rate
4th
Re
pe
at
Ra
te
Source: The Nielsen Company
49
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Nu
mb
er o
f H
ou
seh
old
s
Number of Repeat Purchases
Trial
First Repeat
Stabilization
1 2 3 4 5 6 7 8
Strong Product
Weak Product
Buyers can be ‘lost’ – if you have a bad product they will be lost more quickly
50
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Incremental trial is important to replace lost buyers• Marketing efforts influence a
brand's ability to grow in Year 2.• For brands that decline, ad
support is generally cut significantly versus Year 1 support.• Ideally, a new product should be
thought of as “new” for two years rather than one.
Year II to Year I Ad Spend Ratio
1.06
0.49
Up/ Stable Brands Declining Brands
Source: The Nielsen Company
51
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
The accuracy of the BASES Model has been validated over 1,700 times, with the average forecast within 10% of actual sales
1700
971532
100
85
26
1,714
Source: The Nielsen Company
52
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Summary
• STMs work because of the predictable relationships between (among others):–Consumer claims and consumer actions–Advertising and awareness– Initial and subsequent repeat purchases
• STMs and other marketing models fail when:–Marketing inputs incorrect (probably too optimistic)–Category dynamics change after test but before launch–Products aren’t launched as tested
What Really Drives New Product Success?
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
"Success" defined by distribution trends
This chart, based on actual in-market data, shows the average % distributionbuilds (and declines) for Successful, Marginal and Failed initiatives over three years
0
10
20
30
40
50
60
70
80
90
100
% A
CV
Dis
trib
uti
on
Success
Marginal
Failed
Year 1 Year 2 Year 3
Successful, Marginal, and Failed Products
55
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Activity: From all of BASES Key Measures, pick the
most predictive measures of in-market sustainability(and list them in order of importance)
1. ________________
2. ________________
3. ________________
Pre-Use Purchase Intent
Pre-Use Liking
Pre-Use Value
Pre-Use Uniqueness
Pre-Use Claimed Units
Pre-Use Frequency
Post-Use Purchase Intent
Post-Use Liking
Post-Use Value
Post-Use Uniqueness
Post-Use Claimed Units
Post-Use Frequency
Performance vs. Expectations
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Which is more likely to succeed?1. A good concept with an average product 2. An average concept with a good product.
Quick Quiz
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Which is more likely to succeed?1. A good concept with an average product 2. An average concept with a good product.
Quick Quiz
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Which is more likely to succeed?1. A good concept with an average product 2. An average concept with a good product.
How much does high uniqueness contribute to a concept’s success?1. A lot (more than 100%)2. Not much (less than 50%)
Quick Quiz
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Which is more likely to succeed?1. A good concept with an average product 2. An average concept with a good product.
How much does high uniqueness contribute to a concept’s success?1. A lot (more than 100%)2. Not much (less than 50%)
Quick Quiz
60
Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
0
10
20
30
40
50
60
70
80
<20 20-39 40-59 60-79 80+
~2x~2x
Overall Concept Purchase IntentA
vera
ge
In
-Mar
ket
Su
rviv
al R
ate
BASES Database Ranking
Bottom Average Top
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
0
10
20
30
40
50
60
70
80
<20 20-39 40-59 60-79 80+
~15x~15x
Overall After-Use Purchase IntentA
vera
ge
In
-Mar
ket
Su
rviv
al R
ate
BASES Database Ranking
Bottom Average Top
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
Survival rates vs. Nielsen BASES’ database
0
10
20
30
40
50
60
70
80
<20 20-39 40-59 60-79 80+
~2x~2x
Ave
rag
e I
n-M
arke
t S
urv
ival
Rat
e
BASES Database Ranking
Bottom Average Top
After-Use Value Rating
Source: The Nielsen Company
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Copyright © 2011 The Nielsen Company. Confidential and proprietary.
0
10
20
30
40
50
60
70
80
<20 20-39 40-59 60-79 80+
Concept Uniqueness RatingA
vera
ge
In
-Mar
ket
Su
rviv
al R
ate
BASES Database Ranking
Bottom Average Top
Survival rates vs. Nielsen BASES’ database
Source: The Nielsen Company
Questions?Thank you!