10.4. Model Confidence Building Tests in Action: A Case Study in Fast-moving Consumer Goods
To illustrate confidence building tests, we examine a model developed with the management team of a company in fast-moving consumer goods. The modeling project was part of a doctoral thesis at London Business School (Kunc, 2005).[] For confidentiality reasons, the case is disguised as the UK personal care market involving soap products that readers know well. The fictitious name of the client firm is the 'Old English Bar Soap Company'. The purpose of the project was to help the management team think through the launch of a new liquid soap product that had been developed as an alternative to its popular traditional bar soap in a premium quality segment of the market. Although the real-life product was not soap at all, the strategic innovation was similar to a change from bar soap to liquid soap.
[] I am grateful to Martin Kunc for permission to adapt the case study in his PhD thesis for use in this chapter. Sections of the case text are based on Kunc and Morecroft 2007, ©John Wiley & Sons Limited. Reproduced with permission.
10.4.1. Soap Market Overview
Before the introduction of liquid soap, the personal cleansing market had been divided between bar soaps and shower gels. As Figure 10.5 shows, bar soap was the product leader with more than 70 per cent market share throughout the late 1980s and early 1990s. However, shower gels (which Old English did not make) had gained market share in the late 1990s pushed by aggressive marketing campaigns and changes in lifestyle. This substitution process was occurring in a market whose sales volume had been stable for many years due to high penetration of demographic segments and low population growth. Indeed, total market size was gradually declining throughout the 1990s as the dotted line in Figure 10.5 illustrates. Meanwhile, bar soap firms introduced variations on their traditional product in an attempt to increase sales value. These variations were stimulated by consumers' willingness to buy premium soaps (instead of cheaper alternatives) as well as demographic and lifestyle changes. In spite of these developments, the general trend was away from bar soap towards shower gels.
Figure 10.5. Total market volume and market share by product (1987–2001)
The prospect of stagnation and declining profitability in their traditional bar soap business prompted Old English to launch an entirely new premium product, liquid soap, intended to halt the erosion of soap sales and to boost the profitability of its core business in the mature soap market.
10.4.2. The Modelling Project
The study was undertaken about three years into the launch of liquid soap, at an early stage of market development. The modelling team consisted of two system dynamics professionals and an internal consultant of the company. The management team consisted of senior managers from marketing, sales and manufacturing. The project ran for one year with intermittent team meetings to extract and validate the information required for the model. The model was designed to answer the following questions for the management team. How can we grow and sustain the new liquid soap in the face of stiff competition? What set of policies can help us to avoid the revenue losses being incurred by the bar soap business? The project methodology followed the five steps outlined in Chapter 5 (see Figure 5.1 and also Figure 10.4), beginning with problem articulation and ending with policy formulation and evaluation.