How a Tool Company Eliminated Portfolio Infighting and Boosted Profits

After months of heated infighting, the Republican portfolio of presidential candidates has finally produced a nominee in Mitt Romney. The bruising nomination process included as many as 10 candidates and 20 official debates all in a fight for the same voters in order to win the same job. While the process may or may not have been good for the Republican brand (we'll find out in November), our experience with other brands has been clear: When your portfolio of offers fights with itself over the same consumer for the same job, you are almost certain to lose.

Despite this, brand portfolios often end up fighting with themselves. Typically this is the unintended consequence of organizational siloes and "mission creep" over time as brands or offers expand their respective roles and begin to overlap. As a result, one of the fastest, lowest risk opportunities to drive profitable growth is to reassess and realign your portfolio of brands and offers within brands. We've found that making these portfolio improvements also pays dividends in terms of more successful new product launches. The starting point for creating a portfolio that works together rather than fighting itself is to understand the demand of different consumer segments and the distinct jobs they hire brands to fill.

Our experience with a company in the hand tools category is typical of what we've found across categories as diverse as consumer packaged goods, personal care, office products and consumer electronics. Without clear "swim lanes" defined by consumer segments and jobs, the offers within the portfolio were fighting with themselves for the same consumers and jobs, which ultimately sub-optimizes overall results.

Think of the last time you bought a hand tool like a screwdriver, wrench or drill. Just within the screwdrivers category, our clients in the hand tools business offered a wide range of products including standard screwdrivers, ratcheted ones, power models (corded and cordless) and even specialty screwdrivers that flex to reach awkward spaces. The problem they faced was that their top-of-the-line power screwdrivers, which offered the highest profit margins, were not selling. The situation had gotten so bad that their retail partners threatened to stop carrying these slow-moving, expensive-to-stock products altogether. Profits for the hand tool company would take a significant hit if the team could not turn the situation around.

One of the major issues that kept consumers from trading up to the top of the line power offers was the lack of a clear "good, better, best" trade-up architecture both across product lines and within product lines. Over time, as each brand pursued its own growth agenda, the portfolio had developed overlapping price points between the best of the mid-tier ratcheted offers and the entry-level of the highest-tier power screwdrivers. For most consumers, the best ratcheted screwdrivers offered enough benefits (such as several interchangeable flat-head and Phillips tips) to keep them from ever evaluating the power offers. Further, given relative price points, the ratcheted screwdrivers offered more compelling value than the entry-level power offers. This dynamic blocked trade-up as consumers focused on the ratcheted offers without exploring any of the other power offers.

This company also suffered from a lack of compelling point of sale merchandising providing consumers with strong reasons to trade up. While this is important for successfully driving trade up in any category, it is particularly important for categories that are purchased infrequently or only seasonally (e.g. tools, consumer electronics, sports equipment, camping gear, etc.). The best merchandising at point of sale not only resonates with target consumers' demands but also guides these consumers to exactly the right offer for the job they have in mind. Done correctly, the approach drives trade-up, improves consumer satisfaction with the product purchased, and makes for a better shopping experience. Importantly, these attractive benefits accrue to both manufacturer and retailer.

In their search for growth, the team had also introduced a flurry of new screwdrivers. Most of these new offers were aimed at closing key price gaps within their existing portfolio. It is true that price gaps of 10% - 15% will often invite competitors to jump in with offers at those price points. However, in their zeal to preclude competitive entry, the team introduced new offers that addressed price gaps but had little or no connection to actual consumer demand. As a result, the new offers simply added to an already cluttered and confusing shelf that further inhibited trade-up in much the way Barry Schwartz points out in his book, The Paradox of Choice.

Aligning the portfolio of hand tools with the demand of critical consumer segments and the jobs they were trying to solve for drove immediate profitable growth. Once these consumers and their jobs were understood, the shelf was reorganized in a manner that reflected a more logical trade-up architecture and the way consumers actually shop the category. To get retailers to buy-in to the changes, our client tested the new shelf in several pilot stores for each of its major retail partners. Pilot stores saw immediate double-digit gains in category sales. The most dramatic jumps were for the top of the line power products that had previously posted such weak sales that several key retailers were planning to stop selling them.

Finally, reconstructing the portfolio also helped improve the success rate for new product launches. To start, new products that had recently been introduced but had struggled because they were not aligned with a key consumer segment and an important job were dropped. For the remainder of the new products, the combination of a clear trade-up approach, improved point of sale materials, and less clutter overall helped drive new levels of success. In the longer-term, new products were only introduced based on the new understanding of consumer segments and their critical jobs. In other words, every new product introduced had to fulfill a key job for a distinct consumer segment. And, by assigning each new product a unique role, or an open "swim lane", in the improved portfolio, internal infighting was eliminated and new product success rates increased.

While it remains to be seen if infighting among a portfolio of choices helps or hurts in the political arena, our experience across categories makes it clear that carefully constructing and managing a product portfolio can create significant growth opportunities while maximizing returns on innovation.