This international beauty products company has been the leading direct-to-consumer marketer for over 100 years. From humble beginnings, it reaches over 80 markets and has thousands of products.
As a result of rapid expansion into new geographic markets and adjacent product markets from the 1990s to the early 2000s, the company’s portfolio of products was wide-ranging with no true visibility on the profitability of products or product categories. The client wanted to develop a framework and structured approach that would help it optimize its portfolio while releasing resources to sustain growth.
We recommended the client select a sample geographic market as a pilot so that the framework and approach would be robust enough to handle the other markets. It could then be rolled out across another 13 markets. After a country with over 1600 products was selected, a framework was designed that encompassed both regression and incrementality analysis. The initial goals were:
Isolate the products that are clearly generating profits well-above target level
Isolate the products that appear to be generating losses
Limit product mix offerings to increase exposure of high performing products
By using this cluster approach, the hypothesis was that key factors could be identified for both groups. ”Winning” factors could then be recycled to enrich the new product development process. The “losing” factors would be further reviewed to validate these factors as causes of underperformance, e.g. fragmented consumer demand across supply chains, and determine whether its financial profile could be upgraded or whether reallocating resources would be wiser. In addition, these factors could then be refined to better sift through the products that had indistinguishable performance and evaluate whether these products should be kept in the country’s product portfolio.
This approach yielded surprising results for the client as about 40% of the products were in the “winning” cluster but 15% were in the “losing” cluster. Overall the recommendation was to reduce the line by 10% or about 300 products for maximum exposure of highly profitable items.
The company decided to remove most of the products in the “losing” cluster from the country’s product portfolio, which resulted in over $28 million in savings. The client then shifted these savings to both new products to reinvigorate the market and existing products that helped the client to sustain growth. The client then used this methodology with the other markets allowing it to maintain its growth trajectory at with a stronger product offering for consumers at a more optimized cost structure.