![]() Second, because each kind of risk demands a different kind of risk management response, it allows better, more constructive recommendations to be made to the brand teams. First, it helps the leadership team to see the important risks among the not so important. ![]() This habit of focusing on different risks at different stages of the product category life cycle is valuable for two reasons. Finally, in very mature, perhaps declining, product categories, the primary threat is that the profit margin may not be all that is hoped for (ie profit risk) and, accordingly, leaders focus on that risk. ![]() This is less of a concern when operating in a mature, established product category, when effective leadership teams then focus on the risk that the brand plan may not deliver the market share it promises (ie share risk). So, with a new, first-in-class product, they worry more that the market size may not be as predicted (ie market risk). Wise leadership teams seem to have learned that these risks vary according to the life cycle of a product category. (See figure 1.)įigure 1: The components of business risk It is simply not possible to assess rigorously and take action on every possible threat to the plan's success, so the more effective leadership teams learn where to focus their critical gaze on one of the three principal sources of business risk. There are, as will be discussed, numerous reasons why the plan may not deliver on either its top line or bottom line promises and in this myriad of threats lies the challenge that only good companies overcome. ![]() Given a risk-adjusted ROI approach to assessing brand plans, the challenge is to identify, quantify and manage the business risk inherent in any plan. This may sound like a subtle and unimportant difference, but the reality is that it differentiates those firms who create shareholder value from those that do not. In those few companies who take the more thoughtful risk-adjusted ROI approach, the emphasis is less on stretching and cutting and more on understanding and managing the probability of the plan delivering on its promises. As a result, the risk-adjusted ROI is often less after the review than before the exact opposite of the desired result. In most companies, stretching the targets and pruning the spend results in a plan with a better nominal ROI but which has a lower probability of delivering on its promises. By contrast, the exemplary few look to improve the risk-adjusted return on investment ratio and those two little words make a huge practical difference. They therefore look for ways that the brand plan's promised sales can be increased while, at the same time, trimming the expenses. In most companies, the reviewing leaders focus on the return on investment (ROI) ratio. The first difference between valuable and wasteful brand plan reviews is one of intent. A few, rare companies make the annual review valuable and these exemplars differ from their rivals in just four small, but vital, ways. Further, those tweaks may destroy, rather than create, shareholder value. Is this annual sacrament worth the effort? Does it create more value than it consumes? Research indicates that, in many cases, it does not.Ī review process that should result in a much stronger plan all too often delivers nothing more than a few minor tweaks at a huge cost in time. Typically, the brand team emerges a couple of hours later with a revised plan that is tasked with achieving rather more while spending rather less. Months of preparation lead to a finely-honed PowerPoint, which is presented to the leadership group like a tribute to the gods. If there is one constant across every pharma company, it is the ritual of the annual brand plan review.
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