Fewer, Bigger, Bolder: How To Grow Through Hero Launches
How Less Items + Better Focus = More Sales!
*Publishers Note: This is the second in a three part series on assortment management. 1) Driving growth through line extensions and brand extensions, 2) Growth through hero item launches and 3) Case studies of these strategies in action. If you are new to the series, start here: Managing Your Assortment & The Case for Item Expansion
Introduction
In our last post, we wrote about how to grow your business through item expansion. We covered the classic CPG concepts of line extensions and brand extensions, and outlined a plan of how to bring those items to market. If you recall, the one thing both of the strategies have in common is that you are making multiple small bets that an item will gain traction with customers. Said another way, you need these items to be singles and double, not home runs. Pursuing a Hero Launch strategy is the polar opposite of this approach. You need these items to drive meaningful sales and make a sizable impact on your business..
What is a Hero Launch? It’s a big bet on bringing a product to market that will significantly change your sales trajectory. These launches need to be your home run items that add 30%, 40%, 50%+ volume to your sales.
More importantly, these items send a message on who you are as a brand. Your hero items will define you within the category — for Apple it’s the iPhone, for Fender it’s the Stratocaster. Think of these items as the foundation of your assortment and what will define the attributes customers use when they think of your brand. Not only that, but Hero items are what takes your brand from side-hustle WiFi Money to your full time job.
Introduction
Hero launches are what most people think of when they hear of a product launch. These are the launches that would make Don Draper light up a Lucky Strike and stare off into the distance. They are the items that are most closely associated with your brand and are the key drivers of profits and cash flows for your business.
Wonder what a true hero launch looks like? Let’s take a look at Goli’s Apple Cider Vinegar Gummy as an example…
This was the first item for the brand and they crushed their launch. What mad their launch so successful? They analyze the category opportunity to identifying the market size and supplies fragmentation. Then they turned their focused to developing a unique and differentiated product.
Category Analysis: What did Goli Find? Their analysis showed that Apple Cider Vinegar was a robust market. The category lacked a single dominant player, making it poised for disruption. These factors gave Goli enough confidence to launch their product in a big way.
Differentiation: Goli analyzed the market and found that customers hated the aftertaste. The brand found a unique delivery format to fix this problem and eliminate the aftertaste1. The launch was a success, resulting in best seller rankings and retail expansion.
Benefits of a Hero Launch
Opportunity to drive significant profits: Hero launches require brands to take a big swing within a large market. This means that if your product connect with customers you will have a chance to drive huge profits.
Defining your brand: Hero launches are what customers will associate with your brand. Doing a hero launch well can add attributes to your brand such as ‘innovative’, ‘high-end’, or ‘gourmet’.
Revenue diversification: Most brands build assortment one item at a time — if you are able to launch a second hero item this will lower the risk of your
Challenges of a Hero Launch
High risk profile: You can’t afford for your Hero launches not to drive sales and and bring in new customers.
Capital intensive: Hero launches need money across all aspects of the value chain. Hero product tend to have a higher cost, need a large marketing spend, and tie up working capital.
Opportunity cost: Launching a hero item requires you to say no to other initiatives. Want to redesign your A+ content of existing items or work on your DTC site? Those projects take a back seat until your launch is out of the gates and moving in the right direction.
Planning the Launch
Launching hero items comes down to 4 things…
Picking the right category: Pick a category that is large enough to drive revenue without a dominant provider.
Developing a differentiated product: You need to find a way for your item to stand out.
Finding the right keywords: Amazon functions on a foundation of keywords. Ranking for the right ones is the difference between a double and a home run.
Building a launch strategy: Develop a plan that drives awareness, generates reviews and converts customers.
Note: We are going to assume that we are selling in the Supplements category for the examples throughout this article.
Picking the Right Category
Identifying the right category for growth is critical to the success of your new launch. The two biggest thing you need to focus on are the total size of the market and market fragmentation. To get the market and fragmentation data, we recommend the tools at Jungle Scout and Helium10.
How to pick the right category…
The first step is to develop a hypothesis on why a target category makes sense and to start putting together a plan to validate your hypotheses. We would recommend to start your research with a competitive analysis, market research, and getting feedback directly from customers.
Based on your research, you think that quercetin is the perfect category for you next launch. To validate, we will use data from Jungle Scout to ensure the category meets our criteria.
First - How big is the market? We need to understand the size of the category to ensure that it is large enough to drive sales for our business. Look at the top 8-10 best selling (based on units) items in the category to get a sense of market size. Based on the top 8 items, quercetin is $2.9MM monthly market or a $35MM annualized opportunity. If we assume another ~20% of sales come from the long-tail of the category, this would make quercetin a $41MM market.
Second - Is there market fragmentation? Taking an item level view of the category, no single item earning more than 27% of the category share2.
Third - is the category big enough to matter? In a hero strategy the goal is to launch items that will drive 30%+ of our total revenue. Assume we can replace 5th best selling items in the category. This would mean that you would be able to generate $2.3M in annualized sales.
Under our Hero item guidelines a business would be between no larger than $5.4MM in annualized sales. How did we figure that out? Let’s do some math…
30% = Forecasted Sales / Total Sales - Since we have the minimum percentage of sales and a sales forecast, we can do some algebra to solve for the total sales numbers.
Forecasted Sales / 30% = Total Sales or $5.4MM
Developing a Differentiated Product
Product differentiation is the one true way to give you item saying power within a market. Any market with the ability to generate significant profit will see increase competition. Increase competition comes from new entrants bringing product commoditization and lower prices3.
The way to avoid commoditization is by developing something unique and proprietary. How do we find a problem solve? We look at reviews of the top selling items within the category. We will review to top 5 selling items in the category and analyze all their critical reviews.
By analyzing critical reviews for Amazing Formulas Quercetin,we identified a major issue. We found that 51 customers have complained about powder spilling out of the capsule. Solving that problem is going to be our differentiation with the category. Explaining how we solved the problem will be our value proposition when going to market.
Finding the Right Keywords
Amazon stands on a keyword model and ranking for the right terms is critical for a successful launch. We will determining which keywords matter based on data from Helium 10’s Cerebo4 tool.
We are going to need two key pieces data, Search Volume and CPR. Let’s first focus on search volume which is the estimated number of monthly searches for a keyword.
Let’s use the following assumptions…
10% Click-Thru Rate
15% Conversion Rate
$22 Average sale Price
Let’s compare the most popular keyword, quercetin to the less popular term of querectin 500mg. If you were to rank well for the first term, you could generate $18,085 / month, while the second term would generate $3,894 / month, a 4.6x difference in sales volume.
The next question is how to rank for target keywords. Ranking on Amazon is based on an item's conversion rate and number of orders for a given keyword.5Amazon rewards items that drive sales, full stop.
How do we know how the right number of orders? That’s where CPR values come it. CPR is Helium 10’s metric used to estimate the total number of orders needed over an 8 day period to rank on the top half of page one. If we targeted the term quercetin, we would need to sell 15 bottles a on that keyword to rank on top half of page 1. Compare that to the ~5 bottles of day we would need to sell for the term quercetin 500mg
You bring the strategy to life by developing a keyword map that starts on low search volume terms and over time migrate to higher velocity terms.
Building a Launch Strategy
Launching on Amazon comes down to a handful of things, and we have put together a checklist below to help you manage your next launch
Develop a Forecast: There needs to be a financial target set for performance. Be as specific and data-driven as possible6, but in a pinch you can use your opening buy as your target forecast.
Build Your Budget: You need to align on the amount of money you are willing to spend the get the item up and running. You can roll this into your everyday marketing budget, but that rarely works. What I recommend doing is allocating a percent of the item’s revenue to reinvest in marketing. A good number is 30% and I have seen situations where brands will reinvest all profits to support the launch over the first 6 months.
Channel Planning & Allocation: Now that you have a defined budget, you can start to allocate your spend across channel. If you don’t know where to start, here is a rough allocation to get you started.
PPC: 70%
Influencers: 15%
Content Development: 15%
Focus on Content: Amazon is a sea of sameness and your item needs to stand out from the crowd. This is where you product differentiation becomes critically important. You will need to focus on articulating your differentiation. Do not do the creative yourself -- use UpWork or Fiverr7 to have a designer create professional images. It is important to use all available content slots including "A+ Content" and 'From the Brand"-- customers use this information to make buying decisions so give them the information they need to be comfortable making a purchase.
Develop a Review Strategy: Generating 4 and 5 star reviews is critical to a successful launch. You can use a basic approach including Vine, friends & family and the request a review button. If you are more advanced you can use Helium 10 or Jungle Scout’s automation to scale the process. We do not recommend this, you can use black hat tactics such as ManyChat Messenger Ads or Stickered Bottles, to generate reviews
Determine a Launch Price: Determining a list is standard practice when developing a new item. What is unique to Amazon is starting with a low launch price and increasing your price over time. Customers hesitate to buy a new item until someone else does,8 so make it easier for customer to say yes to your item. The easiest way to do this is offering a lower price and perceived risk of buying the item. This is not a sale price, rather a lower list price that you will raise over time. If your list price is $22, your launch pricing could be $14 with the plan to raise $1 a month for the next 8 months to achieve to your target price and margin goals. Launching hero items need an investment to scale.
Conclusion: It’s all about Execution
A solid strategy is important, but success will come down to your ability to execute. Something will go wrong. — you won't generate enough reviews or customers aren’t converting on your listing. Whatever the case, there will be a time to pivot and your ability to execute and change direction will be the difference maker in ensuring a successful Hero launch.
Still has an aftertaste, TBH.
Note: Benchmarks for anti-trust flags (lack of fragmentation) start around 33% concentration.
This is referred to as The Law of conservation of attractive profits state that when modularity and commoditization cause attractive profits to disappear at one stage in the value chain, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage. *Clayton Christianson, The Innovator's Solution.
This is a simplification, but those are by far the largest two metrics.
Using data from previous launches, building a model based on ranking for keywords, etc.
If you are desperate, we’ve all been there.
The power of reviews.