At the moment’s shopper packaged items (CPG) corporations confront a wierd market paradox: continued demand for brand new merchandise however diminished shelf area in shops. Organizations have lengthy used innovation as a device to satisfy the shifting wants of customers and to drive progress. In actual fact, of their 2020 annual studies, all ten of the highest-grossing publicly traded international CPG corporations highlighted innovation as a key progress lever.
Product improvement is a extremely capital- and labor-intensive course of, and left unchecked, ends in a questionable return on funding.
However the area to show this proliferation of recent merchandise is shrinking as retailers weigh prices and shopper expertise, specializing in smaller storefronts with hyperlocal choices and a much less overwhelming array of selections. At wholesaler BJ’s, for instance, smaller, new-build shops home 16% fewer SKUs than common shops. Equally, British grocery store chain Asda just lately revealed plans to chop SKUs by as much as 40% because it shifts to a less complicated low cost mannequin for its shops. One more reason retailers are lowering shelf area is to keep away from being overstocked as customers do extra on-line procuring. In PwC’s June 2021 World Client Insights Pulse Survey, greater than half of worldwide customers surveyed stated they turned extra digital even in simply the six-month interval from October 2020 to March 2021.
The hazard for a corporation within the paradox of extra merchandise and fewer area is that almost all new merchandise don’t even final within the market for greater than a 12 months. So corporations depend on new merchandise to interchange a portion of their core quantity, feeding an organizational “innovation habit.” Product improvement is a extremely capital- and labor-intensive course of, and left unchecked, ends in a questionable return on funding. Market analysis agency Nielsen estimates that every 12 months, US CPG corporations introduce a median of 30,000 new merchandise. In 2019, lower than 0.1% of these merchandise contributed to the lion’s share of income from innovation income. The worldwide tempo of innovation is comparable; Nielsen studies 40,000 improvements yearly in 5 euro markets (France, Germany, Italy, Spain, and the UK).
The excellent news is that there are methods to curb hyperactive innovation and concentrate on long-term return on funding. Now we have recognized three innovation traps, one in every stage of product improvement, and recommend pragmatic methods to keep away from them.
Stage 1: Ideation
The entice: “new information” is one of the best information. The foil: be choosy. Retailers reinforce CPG corporations’ innovation habit, agitating for “new information” that can excite customers, drive site visitors to shops, and supply incremental gross sales. The outcome generally is a vicious innovation cycle that taxes organizational sources.
In case you’re a CPG enterprise chief and you end up approaching this entice:
• Overview your portfolio strategically. You need to outline the position innovation will play for every model in your portfolio. For instance, it would make sense to keep away from funding in new product launches for low-growth manufacturers in stagnant classes and make investments as an alternative in medium-growth manufacturers in rising classes.
• Create a transparent prioritization framework. An goal technique for evaluating innovation concepts can assist you assess their high quality, utilizing components equivalent to business feasibility and manufacturing functionality to find out the place you’re prone to see probably the most return on funding. You can even use your framework to determine which improvements present one of the best match throughout manufacturers and channels.
• Use different progress levers. Innovation isn’t the one approach to develop. Different instruments, equivalent to value changes or distribution will increase, will be equally efficient (and less expensive).
Stage 2: Improvement
The entice: one course of matches all. The foil: tailor the event course of. After corporations choose concepts to put money into, improvement processes start to rework these concepts into actuality. However many corporations assume that each one improvements require the identical processes, timelines, cross-functional help, and granularity of planning and execution. R&D leaders typically imagine their firm ought to develop a brand new product line in the identical method as it might a serious line extension or a packaging change. This mindset can encumber easier initiatives and end in inadequate sources being given to extra advanced initiatives.
If you end up approaching this entice:
• Consider initiatives’ complexity. Audit your innovation pipeline to know what varieties of initiatives are flowing by means of the system. Take account of merchandise’ complexity drivers, equivalent to the necessity for brand new substances or new suppliers, or merchandise making new claims.
• Create tailor-made processes. Develop versatile improvement processes that make it straightforward to regulate timelines, stage deliverables in several methods, and assign cross-functional sources. For instance, a change to the graphics on packaging would possibly be capable to transfer by means of a streamlined approval course of, lowering time-to-market and limiting the sources required.
• Boldly function. Belief your new processes, timelines, and necessities. Many innovation pipelines turn out to be tunnels as an alternative of funnels, as innovation initiatives proceed alongside improvement paths no matter efficiency. Don’t be afraid to hit the accelerator when wanted—or cancel initiatives when their gross sales forecasts not meet thresholds.
Stage 3: Put up-launch
The entice: innovation fatigue. The foil: prioritize long-term success. As soon as a product is launched and on retailers’ cabinets, many CPG corporations view the job as full and transfer on to the following innovation. All too typically, entrepreneurs who lead the cost on innovation are incentivized for short-term innovation efficiency and don’t have a simple approach to monitor product efficiency over the long run and make changes as wanted. Failure to adequately help improvements post-launch, mixed with a bent to concentrate on the brand new shiny object, ends in poor monetary efficiency after a product’s first 12 months—and its subsequent elimination from the market.
If you end up approaching this entice:
• Create sturdy, long-term launch plans. Design launch plans—together with distribution, promoting and advertising, and provide chain and stock forecasts—to make sure that sources are in place to help the initiative post-launch.
• Make use of long-term monitoring. Monitor innovation metrics (each monetary and nonfinancial) intently for at the very least two to a few years post-launch and develop a strong system for flagging and responding to efficiency deviations. Tie incentives to assembly or exceeding these metrics to foster accountability and powerful possession amongst these accountable for the launch.
Extra targeted innovation helps long-term success
With out innovating, an organization would possibly shortly fall into the annals of enterprise historical past. However by the identical token, unfocused, unprofitable innovation may also result in failure. Avoiding innovation traps at every part of the innovation course of can assist you make sure that sources are allotted to these improvements finest positioned to help the objectives of the enterprise.
- Sharon Kao advises purchasers in shopper markets for Technique&, PwC’s technique consulting enterprise. She focuses on large-scale progress and value transformation methods for business and operations capabilities. Based mostly in San Francisco, she is a director with PwC US.
- Nicholas Hilgeman focuses on innovation, progress, and large-scale transformation in shopper markets for Technique&. Based mostly in Washington, DC, he’s a supervisor with PwC US.
- PwC US principals Ed Landry, Emre Sucu, and Ok.B. Clausen, PwC US senior affiliate Emily Glazer, and PwC US affiliate Patricia Tang additionally contributed to this text.