P&G Targets the ‘Very Pre-Term’ Market Wall Street Journal
I. Revenue Potential
Deb’s team has constructed a spreadsheet, revenue simulation, in Case 5-1 pampers concept test.xls which links demographic factors to expected revenues in 2008. The logic behind the spreadsheet is explained below.
Logic behind the Revenue Spreadsheet
among those women:
birthst = women 15-44t x birthratet
The number of women of child- bearing age has been increasing and is expected to lie within the 62.1 to 62.6 million range in 2008.
Greater growth to 62.6 million is more likely, since immi- gration has been linked to faster growth.
Likewise, for value intent > .75, value trier = 1; otherwise value trier = 0.
The potential market for Pampers Preemies depends on several key demographic factors.
Births in a year are a product of women 15-44 who could have babies and the birthrate Deb’s team needs an estimate of revenue potential, plus additional information in four
CASE 5-1 Segmentation of the Market for Preemie Diapers 139
below the 2006 level of 62.2 million.
Medical advances and changing demo- graphics, including immigration, have led to an increasing birthrate among women of child- bearing age.
The birthrate is expected to lie within the 6.63% to 6.84%
range in 2008.
Greater growth (to 6.84%) is more likely.
Management expects the birthrate in 2008 is unlikely to be less than the 2006 birthrate of 6.68%.
The number of very preterm births in a year is the product of number of births and the chance that a newborn will be very preterm, (very preterm birthrate):
very preterm birthst=birthst x very preterm birthratet
Advances in infertility treat- ments have led to more births by older, high-risk mothers.
Immigration has led to more births by the youngest mothers, many with little infor- mation about prenatal care.
The percent of babies born very preterm has been increasing and is expected to be within the range 1.93% to 2.04% in 2008.
Management believes that the number of women of childbearing age is unlikely to fall
The number of surviving very preterm babies is the product of very preterm births and the survival rate, which is (1-preterm mortality rate):
surviving very preterm babiest=very preterm birthst x (1-preterm mortality ratet)
With the increase in high-risk pre- term births, the preterm mortality rate has been increasing and is expected to reach 6.52% to 7.01%
in 2008.
The preemie diaper market is a product of surviving very preterm babies, the average number of days a very preterm baby remains very preterm, approximately 30, and the average number of diapers used per day, approximately 9:
markett = 30x 9 x surviving very preterm babiest .
Procter & Gamble revenues depend on price, market share (which is expected to vary with price), and market size:
revenuet = price x market share x markett.
market sharet=.75 trial rate
To be a viable investment, revenue following commercialization of Pampers Preemies must be greater than $3 MM (million).
1. Estimate of target market segment proportions that are price responsive and not price responsive.
a. Infer the population proportions who are price responsive and not price responsive from changes in trial intention in the sample due to change in price from the premium price to the discounted, value price.
From past experience, Procter & Gamble managers have learned that 75% of the pro- portion of Likely Triers, the trial rate, become loyal customers in the first year.
CASE 5-1 Segmentation of the Market for Preemie Diapers 141
b. Using change in likely trial due to discount in the sample in Case 5-1 pampers concept test.xls, compare the expected population proportions
i. less likely to try (-1) who are Likely Triers at the premium price who become Unlikely Triers at the value price,
ii. equally likely to try (0) at premium and value prices,
iii. more likely to try (+1) who are Unlikely Triers at the premium price who become Likely Triers at the value price.
Illustrate the impact of a price discount with a pie chart of the expected population proportions, noting the conservative approximate margin of error in your estimates.
2. Find the chance that revenues will exceed $3MM at the premium price in 2008.
a. Infer the trial rate (proportion who are Likely Triers) in the population from the sample proportion who would try Pampers Preemies at the premium price (Premium Trier=1).
b. Find the standard error of proportion of Likely Triers, then calculate the approximate 90% margin of error by multiplying the standard error of the proportion by 1.64.
(Note that we are using a 90% confidence interval so that results can be used in Crystal Ball.)
Subtract and add the approximate margin of error from the expected trial proportion to find the upper 90% and lower 90% confidence bounds.
Trier proportion into the revenue simulation spreadsheet.
Run a simulation to find the chance of revenues greater than $3MM in 2008 at the premium price.
3. Find the chance of revenues greater than $3MM at the value price.
a. Infer the expected market share proportion of the population from the sample proportion who would try Pampers Preemies at the value price (Value Trier=1).
b. Find the standard error of the market share proportion, then calculate the approximate 90% margin of error by multiplying the standard error of the proportion by 1.64. Subtract and add the margin of error from the expected trial proportion to find the upper 90% and lower 90% confidence bounds.
c. In the spreadsheet, change the price to the value price, $.27, and change the lower 90%, expected, and upper 90% market share to reflect the value price.
run a simulation to find the chance of revenues greater than $3MM at the value price.
Illustrate the distributions of forecast revenues at premium and value prices with output from Crystal Ball.
c. Input the premium price, $.36, the lower 90%, expected, and upper 90% Likely