‘Non-user segments as source of far-out revenue growth?’

Q: We’re in the  canned food industry and we’ve grown our revenues from almost continuous product innovations. We’ve been getting and continue to get new product ideas from answers that our consumers give to the MADI questions we asked and which we learned from our MBA market research class with you (the Senior MRx-er).

Some five years ago, your MADI questions gave us new product leads that when our product development translated into new or next generation products gave us more than 50 percent revenue increases.  Those happy days are now fast becoming history.  We still get new product ideas from asking your MADI questions but their new product leads now give us revenue growth averaging less than 20 percent only.

We recently learned that in your February 2013 industry briefing on the results of your nationwide survey on Consumer Coping Behavior, you said that it is now the non-user segments that are the sources of “far-out revenue growth.”  We heard that you were even speaking of as high as 100 percent to 200 percent revenue increases.  Unfortunately, we were abroad when you gave that survey presentation.  But could you please let us know in your Marketing Rx column how can non-user segments replace your MADI questions as sources of “far-out revenue growth”?

A: We’ll accommodate your request within the limited space that our Marketing Rx column will allow.  But first, some clarifications are in order.  Our Consumer Coping survey data are not a replacement for our MADI questions.  In fact, they complement each other.  We show below how this is the case.

For our readers unfamiliar with MADI, here’s what it’s about.  The Senior MRx-er’s 2010 book, Market Segmenting, Self-Segmenting and Desegmenting, points out that MADI is a convenient shorthand for questions asking current consumers if they find:  (1) anything missing, (2) something annoying, (3) disappointing, or (4) something irritating with a brand or product category that they now use.  Answers to these questions identify specific gaps in consumer satisfaction and therefore represent opportunities for product redevelopment, next generation product ideas and even totally new product leads.

However, it’s good to realize that as a brand or a product category continues to fill such gaps, succeeding MADI questions yield diminishing productivity in new product leads.  There are lesser and lesser new product ideas and with also diminishing innovative character.  It’s likely that this is what’s happening in your product innovation search via the MADI questions.

We now turn to our claim that the Consumer Coping Survey’s identification of the non-user segments is not a replacement of MADI’s product innovation yield.  The two are complementary.

To start with, the Consumer Coping Survey is a nationwide survey of the budgeting behavior of housewives for 159 products and services that were “recurring expenditure items” for the household.  In NCR, for example, housewives considered 46 percent of the 159 categories in the survey as definitely dispensable items.  To a housewife a definitely dispensable product or service category is one that she says: “I certainly and definitely can do without and live without.”  To most marketers, these are categories that they assume to be low revenue productive.  And yet our coping survey from one wave to the next shows that housewives regard your own category of processed food as recurring expenditure items that they certainly can do without and live without (in the specific case of “canned fish”).  But as you mentioned, your brand of processed food continues to grow in revenue over the past years.  This challenges many marketers’ assumption about definitely dispensable products as poor in revenue productivity.

Now, the coping survey revealed that for any definitely-dispensable, there are three coping segments of housewives:

(1) those who have maintained the item in the budget;

(2) those who have removed it; and

(3) those who have never included it in the budget or the “non-user segment.” In NCR, look at how big in population size (as percent of total NCR housewives) the non-user segment is for the canned fish category as a definitely-dispensable category.  It’s 61 percent of housewives.  So, the user segment is 39 percent ( = 100% – 61%).

Let’s assume that your canned fish brand has a 30 percent market share in that user segment.  This means your brand is serving 11.7 percent of NCR housewives ( = 39% x 30%).  To continue, assume further that you found an effective entry into the 61 percent non-user segment and targeted a 30 percent share there.  If you succeed in this kind of market entry, your brand will then be in the budget of 18.3 percent of NCR housewives ( = 61% x 30%).  That’s 1.56 times your brand’s presence in the user segment or at least a 150 percent revenue increase!  Here’s the reason why we say that successful entry in the non-user segment can gain for you “far-out” revenue growth.

And now for the stress test question: “How will your customer acquisition campaign succeed in entering the non-user segment?”  Basically, that depends largely on your uncovering the “driver,” the “motivator” for getting non-users to become users.  Here is where the MADI questions hold the key.

Find out first what the non-user is using to perform the job of your definitely-dispensable canned fish.  If they are asked, suppose those non-user housewives say that they’d rather resort to “tuyo” (dried fish).   Then ask the MADI questions on “tuyo.”  What’s missing, annoying, disappointing, and/or irritating about “tuyo” becomes the target for redeveloping your canned fish to fill in these unlocked product satisfaction gaps among these non-user housewives.

So there’s where the specific complementation between the revenue growing richness in non-user segments intersect with the revenue-raising new product innovations that the MADI questions can uncover.  When this complementation is effectively developed and executed,  it is easy to visualize the resulting synergy that follows.  It is this synergy that makes for the claimed and proven 100 percent to 200 percent revenue-growing productivity of non-user segments.  But it is a synergy that will happen only when there is that complementation.

Keep your questions coming.  Send them to us at [email protected] or [email protected]. God bless!