New brand failure rate points to npd deficiencies

Remember that a few years ago, everyone was banging on about how crucial innovation was for growth? New research from Information Resources, the consumer goods research company, puts these theories in an intriguing, and rather worrying light.

Comparing the new product introductions in the UK three years ago to last year, the trends don’t look encouraging. The rate of introduction of new brands and brand extensions has fallen by 21 per cent, and their success rate has fallen from one in six to one in seven. The window of opportunity for success is also getting narrower new launches are peaking earlier.

Perhaps even more disturbing is the way line extensions are proving more successful than new brands. Only six per cent of new grocery brands reached Information Resources’ success criteria of either two per cent share or annualised sales of over 1m. However, 15 per cent of line extensions cleared the same hurdle.

Results like these have the unmistakable look of sclerosis about them. Barriers to success in terms of research and marketing costs plus difficulties in gaining good distribution seem to be rising inexorably. And, as a result, the excitement generated by genuinely New! Improved! products and brands is giving way to cautious, low risk, unimaginative line extensions.

As Information Resources researcher Tim Eales notes, rather sadly, in today’s cluttered grocery environment “having a range extension gives you something new to say so that the consumer can see you for a while”.

Does this mean that all the hype about innovation was just hot air? Not necessarily. There will always be examples of break-through products, even in categories which appear to be saturated. Just look at Procter & Gamble’s Sunny Delight, for example. And companies will always find opportunities to turn sectors upside down. P&G’s new home dry-cleaning product Dryel will almost certainly do that.

Nevertheless, diminishing returns do appear to be setting in. An npd rethink is overdue. Leaving aside the usual bugbears, such as media costs, the single biggest barrier to real innovation nowadays is companies’ natural and understandable instinct to focus their innovation efforts on leveraging existing assets and expertise in areas where they have most control, and therefore are exposed to least risk.

This instinct isn’t as helpful as it once was. Put crudely, grocery companies have built their expertise, and their brands, by exploiting the technological revolution that created the washing machine, dishwasher, microwave oven, fridge, freezer and the chilled supply chain. Now, however, the real hot spots of scientific and technical innovation are moving elsewhere, to arenas such as life sciences, IT and communications. These new technological revolutions are not so easy to harness.

There may be massive long-term opportunities in areas such as genetically modified and good-for-you functional foods, for example. But equally massive short-term regulatory, ethical and pressure group minefields stand in the way.

Meanwhile, the communications revolution is shifting the focus of innovation away from products per se to new ways of going to market.

As Dell Computers chief executive Michael Dell commented recently, in mature industries pure product differentiation is becoming harder to achieve, and “will give way to process innovation as the fundamental source of competitive advantage”.

Dell’s direct model is a good example, of course. In addition, manufacturers’ and, to a lesser extent retailers’ focus on products and product innovation doesn’t necessarily chime with consumer trends.

As Tesco chief executive Terry Leahy said in his Chartered Institute of Marketing annual lecture last week, the best advice is always to “follow the money: just watch where people are spending their time and cash”. Anyone who does so will find themselves in “experience” markets, such as leisure, sports and entertainment, and not groceries.

Yet one thing people invariably do at leisure and entertainment venues whether outside the home or watching TV indoors is eat and drink. As Leahy pointed out, the pizza parlour and its counterparts now account for over 30p in every pound spent on food in the UK.

In other words, the biggest innovation in food has not been in food products, but in food service. Strategy guru Gary Hamel observes: “Competition is not between products nowadays, it’s between business models.”

One answer is: If you can’t beat ’em, join ’em. Many major branded goods manufacturers are now, rightly, experimenting with food service what took them so long?

Others are focusing on old brand development, often by linking up with sports and leisure destinations. For example, in Europe, Kraft Jacobs Suchard has worked wonders for its Milka brand through joint marketing exercises with ski resorts, events and equipment suppliers.

Closer to home, npd itself needs developing. One critical area, highlighted by Eales’ research, is that the quality of the relationship between supplier and retailer is becoming almost as important as the quality of the new product itself.

For a successful launch the two sides need to work together, to ensure good distribution from day one, organise the trade promotion within the first four weeks of the launch and so on. In other words, excellent npd is as much about processes and relationships as internally-generated marketing insight and technical expertise.

Another challenge is to refine npd strategy, which seems to be evolving down two very different paths, each with its own very different approach and skill set.

The first the P&G approach is to research, develop and test a concept to death, and to give megabucks backing only to those few properties with real global potential. This is the high investment, high reward route.

The second is, for want of a better word, “fashionisation”. Be responsive to shifting trends and fads, move fast, with minimum budgets. Then, hopefully, you can ride one short-term wave after another. Large parts of the health and beauty, and food and drinks markets seem to be moving in this direction.

Companies which fail to specialise in either route risk either being outgunned by heavyweight resource or being outmanoeuvred by speed-to-market merchants. Either way, don’t expect that six out of seven failure rate to improve soon.

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