Sept. 11, 2011
The future holds good news for retailers both large and small: the product innovation game is changing. Tracking new product innovation from its development to eventual launch, there are now resources available that have the potential to change this entire process and evaluate its impact more precisely. Most retail executives and their manufacturer vendors would agree that until now there has been little emphasis or new solutions that help both parties achieve long-term innovation sustainability.
For many years, the process of predicting the success of innovation was understood as at best "hit or miss" and remained often unchallenged — until now. Today, data assets and associated insight into shopper behavior that didn't exist ten years ago are changing the innovation game. And, their potential has even yet to be harnessed to its fullest within the retail footprint.
For the consumer packaged goods manufacturer, an emphasis on product innovation is commonly deemed as the solution to grow categories and brands. Virtually all CPG organizations cite innovation as a critical growth-driver and area of investment. While billions of dollars are invested annually in the creation and deployment of innovation to the marketplace, the challenges remain consistent:
- Upwards of 90 percent of all product innovations "fail"
- It is unlikely for a household to bring more than a handful of new products into their shopping basket each year
- Most CPGs will admit that innovation is not delivering a unique value proposition nor meeting the needs of their consumers
For decades, consumer packaged goods organizations evaluated with the retailer the success of a new product appointment based on the following criteria:
- Has space increased for the brand at shelf?
- Is the new item placed at eye-level and adjacent to the "target brand"?
- Were more items accepted than lost in the process?
- Was the requested pricing and display plan agreed to and well executed?
Today, these criteria are beginning to change dramatically and will become more ancient sales history than future innovation reality. Meanwhile, for the retailer, the associated impact of product innovation on their operational costs is often not in the consideration set or part of the discussion. Working within the limitations of a compressed footprint, new products continue to be introduced and retailers struggle to accommodate the needs of their vendors. Reconfiguring shelves and tagging systems overlaid with margin investments required to support the launch plans is becoming increasingly scrutinized by the retailer's merchandising community.
While the challenges of both retail and marketers remain more alike today than yesterday, there is an emergence of a new dialect – the shopper. The retailer is beginning to understand their shoppers better than the brand owners. As such, the shopper is increasingly serving as the foundation of discussions and business decisions while brand marketers are playing catch-up. In essence, retailers are becoming savvier. Their data assets that capture shopper behavior with more precision than ever imagined can isolate levels of category engagement, predict potential unmet consumer needs and offer strategies to improve programs for additional gain. Essentially, knowledge has always been an advantage and marketers are struggling to become more relevant to their merchants.
What does the future hold for marketers?
The four "P's" (pricing, promotion, products and placement) will remain the mainstay of traditional marketing principles, as it should. In fact, the success criteria of ten years ago may remain a report card for the sales functions within CPG organizations for quite some time to come. However, if all the innovation brought into a category held up to the brand "promise" of incrementality, virtually all categories and brands would be growing without the need for margin and trade spending investment (both of which are currently at an all-time high with no indication of subsiding anytime soon). The bottom line is that winning in this challenging economic environment requires marketers to challenge traditional standards of thinking, and product innovation is certainly on the docket for debate.
Today, the customer is king and merchants are no longer accepting at face value the category growth story of yesterday. The pre-packaged presentation for all retailers speaking to their customers via mass couponing and media impressions will hold less merit. There is a proven recognition that:
- Increasingly, customers choose to make their brand choice (more often than not) at shelf.
- Brand loyalty and the connection to retail loyalty will become the basis of choice.
- Shopping behavior can and will begin to shape white space opportunities. Retailers that harness these insights will be first-to-market.
- Traditonal demographic launch plans are a proven path to failure and as such a soon to be extinct language.
- The notion of renting buyers is a thing of the past. Aggressive pricing to entice switching only creates an unsustainable and artificial incremental volume.
What does the future hold for retailers?
Conversations surrounding innovation plans are beginning to include questions never-before heard from retailers and category buyers. The customer is becoming the benchmark for measuring success and allocating resources and those that can align the marketing arm of the CPG organization to that of the retailer is more likely to win. When the shopper becomes embedded upstream in the innovation planning process, the language convergence will deliver even greater results for both the retailer and brands.
Innovation should seek to answer these questions:
- Employing a data-driven understanding of my shopper segments, which segments will the item reach?
- How does your consumer target match up to that of my shopper segmentations?
- Is it an unmet consumer need not being fulfilled today that your product will now meet?
- How many new category buyers do you expect to bring and from where will this volume be sourced?
- Will the promotion plan only rent buyers and ultimately attract shoppers that aren't the target the innovation was intended?
- How will you communicate to my best customers the value proposition of your innovation let alone reward them for trying your new item?
- Are you earning the trust of my shoppers by holding true to the brand promise communicated in your marketing messages?
Retailers are now more often seeking to "test and learn," placing greater emphasis on the impact of product innovation on their shoppers. Early insights will indicate what is working much sooner than in year's past, driving the request to modify launch plans much earlier. Once a product is launched, retailers can collaborate with their vendor partners to close the feedback loop, sharing insights related to the performance of each new product innovation against the above criteria. This can be a powerful tool to:
- Decipher between complementary products and those with a high degree of substitutability.
- Measure the success of promotions and their impact on customer engagement.
- Understand SKU optimization and establish a relevant assortment with the products and categories important to a retailer's best customers.
Expectations will be that brand owners will already be harnessing shopper insight and with this foresight be nimble enough to course correct based on early results.
The insights available to retailers today have the potential to rejuvenate product innovation, and engage their vendors in the process. By introducing "the shopper" at each stage of the innovation matrix, retailers can reorient investment towards strategies that help both parties embrace and cultivate their best customers. The challenge at hand is to prepare for and recognize the language convergence via a common knowledge of the shopper. Are we ready?
Lisa Kinney is senior vice president, Manufacturer Practice Client Leadership at dunnhumbyUSA, responsible for working collaboratively with the company's consumer packaged goods partners, in order to provide recommendations on sustainable business growth strategies for their brands and at retail.
(Photo by David Thompson.)