KANTAR Worldpanel predicts that 75 per cent of growth for consumer goods companies in the next decade will come through new product development. However, such statistics disguise the fact that the benefits of innovation are very unevenly distributed among businesses, and the price of innovation failure can be high. Launching an unsuccessful product wastes marketing budget, undermines a brand’s credibility and reduces the potential to launch new products in the future.

Cannibalistic launches that bite into a company’s existing products run all these risks simply to shift revenue from one portfolio item to another. Worse, they help to condition previously loyal customers to start exploring other options on the shelf. A recent TNS assessment of over 3,000 launches found that 35 percent of new products actually decreased the parent company’s overall market share. Innovation can shake up your category, but that’s not always to your advantage. That’s a sobering thought for the many Asian businesses confidently predicting innovation-led growth of 15 per cent for the next three years.

TNS assesses close to 10,000 new products globally every year, with more than 4,000 in Asia alone. This gives us a unique perspective on the factors that need to be in place for products to deliver the growth companies are chasing.

It is essential that would-be innovators ask themselves searching questions about whether they are pursuing an approach that is right for them, given the risks and challenges involved.

Each company’s approach needs to be tailored to both its market and the nature of its business. For some, the greatest risk lies in being too late. Their business model calls for them to move products to market quickly, sometimes launching a good but suboptimal offer that they plan to improve later based on market reaction. For others, it is essential to get a new launch right the first time or they risk undermining brand credibility and crucial stakeholder relationships.

We recommended businesses looking at innovation ask themselves the following seven questions and answer them honestly.

Question 1:
Is there a financially viable opportunity in the market?

For companies focused on ensuring commercial growth, this first question is the most important. Oil companies don’t drill expensive wells just because somebody’s instincts tell them that there’s enough black stuff down there to justify the cost. Other businesses also need to take a scientific approach to sizing up opportunities before committing resources.

To maximize the chance of achieving growth, the innovation process must include a precise examination of the ideal needs of potential customers. It must take into account the emotional, functional and social benefits required to meet those needs, the size of the payback, the challenges of realizing the opportunity and the potential impact on a business’s existing portfolio once a new product is launched.

The problem that many innovators face is that data they use to predict the size of a potential market tends to be almost wholly retrospective. It tells you what the opportunity was rather than what the opportunity will be. Tracking data, trend data, usage and attitudes, and channel feedback reveal how existing products are delivering against yesterday’s needs. They are less effective in mapping the unmet needs that provide the greatest opportunities for growth.

Question 2:
Can my business deliver the benefits required to take advantage?

Just because a genuine opportunity exists does not necessarily mean that your business is able to fill it. In targeting an opportunity, a business needs to identify all the factors that are required to make it successful.

The key question for a business is whether it is prepared to invest in the new machinery or processes necessary to deliver an ideal solution. These are issues that need to be addressed before heading down the route of concept development.

Question 3:
Is the opportunity best served by an existing brand or must I create a new one?

Once an opportunity has been identified and the potential for the business to fill it has been confirmed, the key question is whether this is a job for a new or existing brand.

More than 85 percent of new product launches take the form of brand extensions, and there is a good reason for that. Leveraging the equity already established by the brand provides new launches with a vital leg-up in the market. However, businesses must first understand the precise nature of their brand’s functional and emotional appeal in order to assess whether and how it can stretch to new areas. Relying on superficial judgment alone can miss some opportunities whilst leading to overconfidence in others.

Bic, a famous maker of pens, razors and cigarette lighters, proved surprisingly successful when extending its brand to sailboards, which use similar construction materials. The company proved far less successful when trying its hand in the women’s hosiery space, where disposability was the only functional benefit it had to offer.

The importance of functional and emotional benefits varies among categories, but also changes during the lifecycle of a brand. Younger brands typically need to leverage their established functional benefits if they are to stretch successfully into new areas, whereas the emotional and social benefits of more established brands can provide them with greater range. Apple launched its iPod Classic with a strong emphasis on functional benefits but now leverages intangibles to support its latest extensions.

Just because a brand cannot leap into a new space in a single bound does not mean that it cannot take gradual steps over time to take advantage of an emerging opportunity. This longer-term approach has delivered considerable success for Nescafé in China. Smaller advances in the form of its Smoovlatte and Coffee Mix Milky brand extensions helped to stretch its positioning from a stimulation product to include the enjoyment-focused emotional benefits now associated with its Café Series line.

Question 4:
Will taking advantage of the opportunity generate incremental revenue for my business?

Innovators cannot afford not to ask where their sales are really going to come from.

The importance of brand extensions to so many launches makes it essential for businesses to address the issue of growth potential. Put simply, it is not enough for a new launch to generate a high volume of sales for a business. It needs to ensure that enough of those new sales are incremental to the sales its existing brands would have delivered anyway. If they are not, then the business is focusing time, money and resource on a launch that offers no real commercial advantage, or worse, might actually weaken the position of its more established and more profitable products.

The fact that incremental growth is rarely considered in the early planning stages of innovations helps explain why so many new products are line extensions, such as a new flavor. These ideas often promise high sales volumes, yet closer analysis reveals that far too many of those sales come from the brand’s existing products. In many cases, alternative ideas that promise fewer absolute sales but far more incremental ones would deliver greater benefits to the business bottom line.

An additional factor is the potential of brand extensions to erode overall sales by reducing the prominence of established brands already on the shelf and encouraging consumers to experiment with alternatives. Nor is cannibalization solely a threat for extensions that are close in nature to the parent brand. Breakthrough innovations can also have a negative impact on the portfolio as a whole.

Analysis of the TNS and Kantar Worldpanel database of new product launches reveals that basing the choice of which ideas to develop on incrementality would have resulted in a better launch decisions being made in 44 percent of occasions.

Question 5:
Is my business geared up to innovate and can it support a new product?

Although an innovation-friendly culture is a great start, it needs the support of the right systems and structures if it is to translate into success.

Anybody can talk a good innovation game, but in order to walk the walk, a business needs to be properly equipped and properly committed.

To be truly ready to innovate, a business must have a culture that is reasonably comfortable with taking risks and aligned with the particular risks required by the innovation opportunity. It must be able to operate with clarity, supported by strong leadership and accountability, and it must have the commitment to stick with an innovation program rather than abandoning it and writing off the investment when times are tough and corners need to be cut.

An innovation-friendly culture needs employees in the right roles, with the right skills. It requires a clearly defined process for generating, developing and launching ideas, and the necessary level of financial support.

The requirement for committed investment isn’t limited to the development process. New products tend to require heavyweight marketing campaigns if they are to establish themselves in the market, and many apparent shortcuts compromise the potential of a launch. The advertising spending for the first year of a new brand is typically double that for a line extension. However, advertising for line extensions is noticeably less effective. Millward Brown data show that ads are wrongly attributed to the parent brand one-third of the time and that leads to a 35 percent drop in effectiveness.

Whatever brand strategy is chosen for a new product, the business must be prepared to put its money where its mouth is. It’s here that many innovative strategies tend to fall down. In over 75 percent of cases, the amount of media support anticipated for a launch was not achieved in reality.

Question 6:
Do I have enough time?

Businesses must ask whether the time exists to develop a product effectively before the window of opportunity closes.

Innovation opportunities tend to be time-sensitive in two related ways: a product must reach the market before the needs it addresses are taken care of by others, and it must deliver results within the period that the trade and its owner expect.

Successful products can be developed rapidly, but this is achieved only when the business knows what is required to make the product a success, is willing to take calculated risks and is fully geared up to deliver it.

The key to survival is often to get sales and get them quickly, with a focus on attracting early adopters that can deliver the immediate revenues the new launch requires. When it comes to broader communications across the category, brands need to focus on building levels of excitement that can persuade occasional buyers to bring purchases of the new product forward.

Question 7:
Will people keep buying the product once it is launched?

It is one thing to launch a product successfully. Maintaining its position in the market for a long-term return on investment is a different matter.

In order to achieve sustainable success after the initial launch period, the new product must deliver against the expectations that consumers have when first buying it.

Products do not need to be premium quality in order to be successful. The key to success is clear synergy between the promise and the actual product experience. Overselling a product and masking its deficiencies through marketing can only delay failure; it cannot avert it. If a sufficiently good product cannot be delivered in the time available or be quickly optimized after launch, then positive answers to all the other questions are irrelevant. A business is still likely to see its innovation investment going to waste and its brand equity and trade reputation potentially compromised.

There is some considerable market evidence that deliberately avoiding overselling the product benefits delivers better prospects for long-term growth than promising benefits that the experience cannot deliver. Smaller numbers of consumers who try a product and become loyal customers add up to considerably more value than large numbers who try and then reject it. Repeat purchases of a product that aligned perfectly with consumers’ expectations and reasons for buying can bring larger volumes over time.

If a business can answer each of the foregoing seven questions positively, then it should innovate. The opportunity is there, the time is right and all elements are in place to take advantage of it.

If it cannot answer all the questions in the affirmative, then more investigation needs to be done. This is not to say that the business cannot find a way to develop its new product, but that process requires changes, either within its organization or within the market. That is also not to say that a business cannot innovate more effectively at some future time, but it may be better served by waiting for the right moment. It is essential for each business to understand its own relationship to innovation, the rapid changes in markets and the levels of acceptable risk.