Product Metrics

Concept check
 Process for administering Cusat survey
 Difference between MCA & Operational Excellence audit
 What is Critical Incident Analysis?

Sriram D 2
Your thoughts
How do you evaluate the performance of Zoho?
 Suggest product metrics to evaluate the business during its
launch phase
 Suggest metrics to evaluate the business in steady state

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Overview

Trial / Acq. Market Adj.

Repeat Rate
Rate Trial Rate

Brand
Growth Rates Cannibalization Development
Index

Category Line Extension

Product
Development / Category
Profitability
Index Profit

Brand
Extension &
Profits
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Session Objectives
By the end of the session, students will be able to learn:
Estimate volumes expected from new product launch (trial & repeat
purchase)
Understand how new product launch affects sale of existing products
(cannibalization)
Learn different growth metrics
Appreciate the concept of ‘Segment Profitability’
Synthesize learning through a case analysis

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Trial Rate
Metric used in evaluating propensity to purchase products / use
services which are newly launched
Trial Rate (%) =
First
time Triers = Target Population x Trial Rate (%)
Market Penetration (t) =

Market-wise aggregation depends on:

Product category
Distribution strength (Reach)
Product / Service Awareness
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 Trial Rate
 Amazon Prime Video has launched its services in India. There are an estimated
300 million internet users. Amazon followed a ‘freemium’ model to attract
customers. It conducted an online campaign for one month ‘free’ trial followed by
paid subscription. Calculate trial rate and no. of paid users in Year 1. This year
they expect 90% customer retention and intend to engage in an intense campaign
to add new customers. There are 500 million internet users today. Calculate the
total number of customers at the end of second campaign.
Smartphones Internet Tablets
Smartphones Internet Tablets
Users (in million) 150 100 30
Users (million) – Year 1 150 100 30
Awareness Campaign 1 30% 30% 20%
Awareness 30% 30% 20%
Adoption 20% 20% 20%
Adoption 20% 20% 20% Trial Rate 9.00 6.00 1.20
Trial Rate Paid subscription (end
Paid subscription (end M1) 60% 50% 80%
M1) 60% 50% 80% Paid users 5.40 3.00 0.96
Paid users Retention (90%) 4.86 2.70 0.864
Users (million) – Year 2 300 120 75 Awareness Campaign 2 30% 25% 10%
Year 2 - Awareness 30% 25% 10% Adoption / Subscrip. 50% / 20% 40% / 20% 40% / 20%
Adoption / Subscription 50% / 20% 40% / 20% 40% / 20% New Users 8.73 2.28 0.59
Sriram
New Users D Total Customers 13.59 4.98 1.454 7
Trial Rate & Repeat Volume

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Trial Rate – B2B
 Zoho One v2.0 was launched in 2018. Free upgrade was
provided to 40 mn existing users. Zoho used outbound, inbound
and mailer campaign for enhancing trial rate. 25 mn MMS and 5
mn website inventories were sent to potential customers.
Through webinars, 500K inbound enquiries were generated.
Qualification rates were 0.5% for MMS, 2% for website enquiries
and 10% for inbound. Qualification resulted in free trials.
Onboarding included USD 200 for annual subscription and USD
25 for online training. After a fortnight of free trial, 5% of MMS
based trials, 5% of website trials and 15% of inbound
converted? What is the total no. of customers and conversion
rate per channel? What is the annual revenue?
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Volume Estimation - Retail
Trial Rate for a new retail outlet depends on:
Catchment Area Potential (Location, Demographics / SEC)
Location Analysis (facilities, advantage / disadvantage)
Value Proposition (Positioning)
Novelty Factor (New, inducements)
Volume Estimation
Competition analysis (Trial Volume)
 Expected Market Effectiveness
 Match the market leader
 Volume share from other players
Estimate repeat purchase (Repeat Volume)

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Marketing Adjusted Trial Rate
Two marketing factors that affect trial rate
Awareness
ACV (All Commodity Value) =
Marketing Adjusted Trial Rate = Trial Rate (%) * Awareness(%) * ACV (%)
Trial Volume
Trial Volume = Target Population * Marketing Adjusted Trial Rate *
Units per purchase

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Trial Volume - Example
M/s NewSys has developed an application software, which will help
multiple industries. They recently participated in a technology fair
and demonstrated their solution. This generated significant interest
among consumers. After the fair, NewSys sent a series of
engagement mails to more than 25,000 firms. They also conducted a
survey whose results are provided below. From experience, the firm
knows the following:
50% chance that ‘Definitely would try’ will actually try
20% chance that ‘Probably would try’ will actually try
Find the expected trial rate (no. of firms buying the software)
% of customers responding
Trial Rate Definitely would try 20%
= 25000 * [ (0.5*0.2) + (0.2*0.4) ] Probably would try 40%
= 4500 firms May or May not try 30%
Definitely would not try 10%
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Repeat Volume
Repeat Buyers = Trial Population * Repeat Rate
Repeat Volume = Repeat Buyers * Repeat Unit Volume per
Customer * Repeat Occasion
From the previous example,
Customers subscribe to quarterly licence. Licence rate is Rs 18,000 per
quarter.
It is expected that customers may use their service 3 times.
Repeat rate after the initial trial is expected to be 70%
Calculate Repeat Buyers, Repeat volume and Total Revenue
Repeat Buyers = 4,500 * 0.7 = 3,150
Repeat Volume = 3,150 * 1 * 3 = 9,450 units
Repeat Revenue = 9450 * 18000 = Rs 170.1 mn
Trial Revenue = 4500 * 18000 = Rs 81.0 mn
Total Revenue = Trial Revenue + Repeat Revenue = Rs 251.1 mn

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Trial Volume
M/s Parle when they launched Milano, conducted marketing
research and results are given below. They launched in the top
10 cities in India. Calculate the trial rate and volume in the first
quarter after launch.
Total no. of households – 80 mn
Consumer Awareness – 10%
ACV – 60%
Repeat rate – 60% in month 1, 75% in subsequent months
Trial rate is based on MR results
MR result Response Probability
Definitely would buy 27% 80% will definitely buy
Probably would buy 45% 30% will definitely buy

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Trial & Repeat Volume
Trail Rate = (27% * 80%) + (45% * 30%) = 35.1%
 Marketing Adjusted Trial Rate = 35.1% * 10% * 60% = 2.11%
Trial Purchase = 80 mn * 2.11% = 1.69 mn units

Month 1 (mn) Month 2 (mn) Month 3 (mn) Total (mn)

Trial – M1 1.69 1.69
Trial – M2 1.69 1.69
Trial – M3 1.69 1.69
Repeat – M2 1.01 1.01 2.02
Repeat – M3 0.76 0.76
Total 1.69 2.70 3.46 7.85

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Total Volume & PLC
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12
Trial 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.69
Repeat 0.00 1.01 1.77 2.34 2.77 3.09 3.33 3.51 3.65 3.75 3.83 3.88
Total 1.69 2.70 3.97 5.24 6.51 7.77 9.04 10.31 11.58 12.84 14.11 15.38

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12

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Cannibalization Rate
Market phenomenon in which sales of one product is achieved
at the expense of a firm’s other products
Cannibalization Rate (%)
=
‘Maggi hot heads’ is a new variant of Maggi in the market. New
product sales was 1.6 million units (24 units to a carton) in the
first month after launch. Classic Maggi sales dropped to 470,000
cartons from 500,000 cartons. Calculate cannibalization rate.
= 30,000/66,667 = 45%

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Cannibalization Rate - Example
 Indian two wheeler industry sold 200 mn bikes during FY2018. 62% volume is motorcycles, of which
5% is premium bikes. TVS has a 12.122% market share in premium bike segment (> 150 cc). Flag ship
brand is Apache RTR 160/180 accounting for roughly 90% of premium bike sale of TVS. Recently, they
introduced Apache RR 310, 82000 units of which were sold during FY2018. They are planning to
introduce a 220 cc bike at an aggressive pricing of Rs 1.25 lakhs. They expect to sell 200k units during
FY2019. Cannibalization rates expected are 50% of RTR 160/180 sales and 20% of RR 310 sales,
when the new bike is launched. Is TVS Motors better off by introducing this product?
 Calculate model-wise volume break-up for FY 2019 (TVS is likely to maintain same overall volume as
FY2018)
 Calculate model-wise margin (Margins are 20% for 160/180 CC [Price – Rs 1 lakh]; 25% for 310 CC
[Price – Rs 2.30 lakhs] & 18% for new 220CC [Price – Rs 1.25 lakhs])
 Compare volumes and calculate overall margins – Existing products without 220CC vs Existing + 220
CC
FY 2017-18 FY 2018-19
Price & Margins
Margin / Margin Margin / Margin
RTR 160/180 – Rs 1.00 lakhs; Margin – 20% (20K) Units Units
Unit (Rs) (Rs Crs) Unit (Rs) (Rs Crs)
RR 310 – Rs 2.30 lakhs; Margin – 24% (57.5K)
New 220 cc – Rs 1.25 lakhs; Margin – 18% (22.5K) RTR160 669600 20000 1339.20 569600 20000 1139.20
RR310 82000 57500 471.50 42000 57500 241.50
Overall Volume – 200 mn * 0.62 * 0.05 * 0.12 New 220 200000 22500 450.00
= 0.744 mn premium bikes Total 751,600 1810.70 811,600 1830.70
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Segment Profitability
Areattractive segments profitable?
Can be evaluated based on three formulae
Net marketing contribution (Cnm)
Marketing Return on Sales (RoS)
Return on Investment (ROI)
Net Marketing Contribution
Cnm = {Ds * Ss * (Ppu * M)} – Em
Ds = Segment Demand
Ss = Segment Share
Ppu = Price per unit
M = Margin (%)
Em = Marketing Expense
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Segment Profitability
Marketing Return on Sales Cnm Baleno – Rs 517.40 crs
Cnm Ciaz – Rs 556.75 crs
RoS = * 100 [S = Sales]
RoS Baleno – 5.39%
RoS Ciaz – 7.42%
ROI = * 100
Segment Demand - Hatchback – 50%; Sedan – 24%; S(M)Uvs –
26%; TIV = 3.31 mn units; Maruti Sales – Dzire – 0.20 mn; Baleno –
0.12 mn; Ciaz – 0.06 mn; Sales Revenue – Rs 78,000 crores
It is expected that premium hatchbacks form 20% of hatchback
segment and Maruti has a market share of 36.4%.
Average Price ~ Baleno – 8 lakhs; Ciaz – Rs 12.50 lakhs
Gross Margin – Baleno – 7%; Ciaz – 10%
Advertisement budget – Rs 773 crores; Baleno – 20%, Ciaz – 25%,
Dzire – 15%
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Cnm = {Ds * Ss * (Ppu * M)} – Em 20
Growth Metrics
Year-on-Year Growth =
Compounded Aggregate Growth Rate (CAGR)
𝟏
𝑬𝒏𝒅𝒊𝒏𝒈 𝑽𝒂𝒍𝒖𝒆
[( )^(𝑵𝒐.𝒐𝒇 𝒚𝒆𝒂𝒓𝒔_𝟏)] –1
𝑺𝒕𝒂𝒓𝒕𝒊𝒏𝒈 𝑽𝒂𝒍𝒖𝒆
Calculate Y-o-Y – Y2 vs Y1; CAGR – Year 5 vs Year1
Year 1 2 3 4 5 6
Turnover
3.00 3.75 3.50 4.00 5.00 5.25
(Rs crores)

 Y-o-Y Growth – 25%

 CAGR - End of year 3 – 8.01%; End of year 5 – 13.62%

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Product Management Metrics
PRODUCT CUSTOMER PRODUCT P&L MARKET
Revenue Happiness Overall Revenue Market Share
Overall Retention Rate Gross Margin Penetration
Monthly Recurring Revenue Churn Rate Cost Competition
Acquisition Voice of Customer EBIT Benchmark
Sales Funnel Revenue per customer PLC
Win Rate Add-on Revenues Customer base
Deal Size Referrals Category Profit
Sales Cycle duration Acquisition Cost CLV
Product Retention Cost
Trials
Usage
Upgrade
Variants
Features Used
Quality Assessment
Warranty Cost
Failure Rate
Adoption Rate
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