New products are launched every week but there is no such thing as guaranteed success. It makes no difference whether the innovation is from a big company or a start-up: with only one in seven new products likely to succeed, launches are a risky venture.
New research by Information Resources (IRI) looks at the success of product launches across Europe, identifying national characteristics that can help marketers to understand how a product might perform in a given country.
IRI analysed the launches of 484 new products, from household cleaners to margarine, over two years, in the UK, France, Germany, Spain, Italy and the Netherlands. The study did not include relaunches, product replacements or new variants of old products, unless they offered functional or perceived innovation. Brand extensions and new formats were included. Sales were tracked for 18 months from launch, using IRI’s InfoScan retail tracking service. Distribution, sales value, sales volume, pricing and promotional support were recorded.
According to the research, sales tend to follow one of five patterns – early peakers, late peakers, growers, flatties or droppers. These patterns are determined by the effects of distribution, rates of sale, pricing and promotions on a new product’s sales, as well as by the product’s inherent attributes.
Variations in trade structures across Europe are so strong that dominant sales patterns differ from country to country according to the local trading infrastructure and practices. For instance, in countries such as the UK and the Netherlands, it is critical to gain very high distribution within the first eight weeks, while in others – such as Spain and Italy – this is very difficult to achieve and has little impact on the long-term success or failure of a product.
IRI suggests that, by measuring the sales of a newly launched product in the light of national launch characteristics, one can gain an early indication of whether a product is going to be successful in the long term.
The study reveals very distinct national differences in sales patterns. In the UK and the Netherlands, new products are most commonly “early peakers”, reaching an early sales peak and then settling. In contrast, most product launches in France fall into the “flatties” category, sales tending to grow more slowly and then level off. In Spain, new products are predominantly “growers”, gaining distribution and sales gradually.
Germany and Italy are harder to call – in these countries there is no dominant pattern for product launches, although it is worth noting that 33 per cent of launches in the German market either fail within one year or suffer from steadily falling sales.
Distribution levels after one year also vary enormously across the six countries in the study. This factor, critical to the progress of product launches, is largely a function of variations in retail infrastructure between countries.
For example, the British retail trade is highly concentrated and well-organised, with a small number of retailers accounting for the majority of sales. Providing a few major agreements are in place, a new product can be stocked by a majority of the trade in just a few weeks.
In contrast, the Italian retail sector is very fragmented. This means that distribution is slow to build – on average, even after 18 months, it is no higher than the 80 per cent of relevant stores that new products attain in the UK after just 12 weeks.
In Germany, distribution also builds slowly, and one-third of new products exhibit the “dropper” profile or disappear within a year. The research finds that products which fail to achieve distribution to more than 35 per cent of relevant stores by the 20th week after launch are unlikely to survive, such is the ruthless nature of some German retailers.
Having gained a good level of distribution, a new product has to work to maintain or build that level over time. It is clear from this study that this is difficult for some brands, and that this difficulty correlates with a poor sales performance either in terms of sales or growth. Products that are not performing will typically begin to lose distribution nine to 12 months after launch, presumably to be replaced by the next round of new products.
A trend towards launching products at a premium price was seen across all six countries. The price is then likely to fall gradually over the first year, although this effect is less marked in Spain, Germany and the Netherlands.
Manufacturers have always sought to exploit niches in the market and to introduce innovative products at a profit. However, the shift towards premium pricing could also be a response to retailer pressure and the difficulty that manufacturers have in increasing the prices of established products. Premium new product development is one way of increasing the category price, but the higher the price, the greater the risk that sales will be depressed.
When setting targets for new products or making assessments of performance, IRI believes it is essential that marketers are aware of local differences. What is the best strategy for one country may not work at all in another. Good distribution, the right proposition and the right price are critical to success in all markets, however.
Factfile is edited by Caroline Parry. Information Resources industry insights director Tim Eales contributed