In an economic climate that sees businesses paralysed with the fear of failure, Marketing investigates the new product development process, kicking off a four-part series by looking into the current state of innovation in Australian marketing.
In 1879, Thomas Edison made one of the greatest breakthroughs of the era: he invented the light bulb. The bulb was, at the time, unusable to the rest of society – electricity as we know it today did not yet exist. But Edison’s foresight was not limited to his ability to understand carbon filament. His genius also lay in his ability to envisage how people would want to use what he made and what was required to make it scalable, desirable and accessible to a mass market.
He went on to create an electricity distribution system that powered American homes into the 21st century and became known for his shrewd business sense, as well as his ability to maximise profits through mass production and intellectual property rights.
What Edison was able to do was take an unmet need in people’s lives, develop a solution to it and engineer a product that was packaged, marketed, sold and supported in a manner that consumers desired. It’s an approach that design firm IDEO’s CEO Tim Brown calls ‘design thinking’ – a human-centred approach to innovation that integrates the needs of people, the possibilities of technology and the requirements for business success. And it’s an approach that organisations attempt to follow by putting consumers at the heart of their search for new opportunities. But, in a competitive market and an environment driven by commercial imperatives, human-centred innovation is achieved with mixed success.
The term ‘innovation’ is one of the most abused and overused words in our language. Adopted across countless industries and no longer merely limited to products or new inventions, ‘innovation’ encompasses new processes, services, forms of entertainment, modes of communication and styles of collaboration.
The marketing community most commonly uses it to refer to new product development (NPD). The marketing heartland of product innovation is made up of the FMCG and technology verticals, which we will focus on in a four-part feature on the innovation and NPD space.
One percent inspiration, 99 percent perspiration
Back to Edison. It was the man dubbed ‘The Wizard of Menlo Park’, New Jersey, who coined the phrase, “Genius is one percent inspiration, 99 percent perspiration”. Edison was incredibly successful, but he wasn’t shy about his failures. He believed they were merely endeavours that were yet to arrive at success and applied an iterative approach of endless trial and error to his work.
It is often said in the context of new consumer product development that the road to innovation is littered with failure. Researchers quote statistics of around nine in 10 products launched ending in demise. According to Nielsen, FMCG companies spend an average of $15 million per product per year guiding some 30,000 concepts to the shelf. With so much at stake, failure is a commercial reality (and, as we’ll see, a necessity).
Edison’s sentiments are increasingly echoed by marketers working in the space. Paul Bennett, chief creative officer at IDEO, looks at failure from a middle ground – valuable from a learnings perspective, but undesirable from a commercial point of view. He concedes that a lot of innovation being done is wasteful, but advises brands not to see botched attempts as failure, but rather as an opportunity to refine what’s already been done.
The concept of failure being part of the process is also starting to filter into the innovation ethos of some brands. Marketing director at Arnott’s, Susan Massasso, says her team embraces that not all innovation is going to be successful. “We don’t necessarily see that it’s not successful if things don’t work,” she says, adding that some products aren’t meant to stay in the market forever. “We are actively bringing things and breathing life into the category, and they are meant to be for a limited time only. They create a bit of interest and a bit of delight, but they’re not intended to be there forever.”
The researchers come to the party with ‘modulated’ and ‘calibrated’ techniques to prevent products from failing, ascertain potential yield, analyse ‘incrementality’ in order to understand cannibalisation and track product health post-launch to pick up areas where improvements are required. Their rhetoric is the most risk averse of any of the voices in the innovation debate – they provide the insights to maximise success and are employed by brands to stamp out chinks in any new product’s armour.
While there are many different perspectives on failure, the point on which each of them agrees is that there is much to be learned from a less-than-perfect result. Failure is becoming seen as less of an evil and more of a constructive stepping stone.
An innovation midset
The impediments to successful innovation are many and varied. It’s often said the number one cause of new product failure is inadequate market analysis, or incomplete understanding and response to unmet consumer needs. The urge to innovate can lead to a compacted process that skips necessary steps in the innovation pipeline, propelling innovators to leap from high-level ideas to the market prematurely.
Innovation for innovation’s sake
With commercial imperatives driving much of the innovation conducted by brands, there is a real danger of forcing innovation out for the sake of making profits, rather than making something of genuine value to the consumer. For Lisa McKee, Kimberly-Clark’s marketing manager, VIVA towel and cleaning products, manufacturing-led innovation rather than consumer insight-led innovation rates as one of the top causes of failure. The VIVA cleaning products range was developed to address an unmet consumer need – making high frustration cleaning tasks quicker and easier – with cleaning a category in which Kimberly-Clark did not have established competencies or supply chains.
“Our core competency is paper manufacturing,” McKee explains. “Extending into the broader cleaning category and sourcing uniquely different innovation, like TV and computer wipes, from blue sky concepts, required a very different supply chain model than what we were used to.” But rather than using manufacturing competencies as the spark for innovation, Kimberly-Clark kept consumer needs at the heart of what it did and captured 6.5% of the bathroom cleaning market within a year of launch – incremental value of $1 million in sales for the brand.
Think with your eyes
Consumer insight reports, concept tests and market analysis are all vital parts of the new product development process, but nothing beats seeing it with your own eyes. This is the first piece of advice Bennett gives clients and a key part of human-centred design thinking. “Designers think with their eyes,” Bennett says.
“Half the time we take our clients into the world and just say, ‘Say nothing. Watch.’ Use your eyes and ears, don’t use the numbers. Go out in the world with a small team and look and listen and be open, and don’t walk out thinking you know the answer; walk out having the great question and then learn the answer together.”
Flatness over hierarchy
Bennett also encourages flatness in the client organisations with which he works. “Hierarchy breeds fear,” he says. “Ideas have to be able to come from anywhere, and you can’t be shot down for having a bad one. I have 500 bad ideas a day – that’s part of my job. But I’ve seen thousands of examples where people have just been mute because they’re terrified that some person three steps above them in the chain will hear they had a dumb idea and fire them.”
Hierarchy also gets in the way of speed, another factor key to successful innovation in today’s competitive market.
Build for speed
The need for speed is becoming more pronounced, as is the need for the agility to evolve on the run. Some organisations have embraced this and some haven’t. But more and more, brands are seeing speed and iteration as being the new product development cycle.
Traditionally, product development cycles have been protracted, often 18-month long, expensive affairs. Bennett believes they can no longer be drawn out, cumbersome and expensive. “The word agile is now a real word in our lexicon these days. Clients need to look at an agility, they need to be comfortable with the notion of beta, they need to be comfortable getting stuff out to market quickly and asking for feedback.
The days of the big idea are over… they’re massively overrated because they’re cumbersome and they can’t be consumed inside an organisation. Nokia, for example, simply can’t get something to market fast enough.”
A face only a mother could love
For many, an innovation takes on greater meaning – it becomes the child they gave birth to, nurtured and loved. It’s a phenomenon that Bennett calls the ‘dinosaur baby’. “A dinosaur baby is something so ugly that only a dinosaur’s mother would love it,” he explains. “Some people spend enormous amounts of time incubating something privately inside their organisation, never letting anybody see it, loving it to death because they’ve done it, not because it’s good.”
To avoid giving birth to baby dinosaurs, Bennett advises bringing as diverse a group as possible into the process as early as possible, making the journey a collaborative endeavour instead of an isolated experience. Bring friends, colleagues and potential end-consumers in to look, ask, brainstorm and create together, and be sure to really listen to feedback. He also advises introducing prototyping into the process, again as early as possible, to make the concept tangible, realistic and something that can be looked at in the flesh.
Never waste a crisis
While Australia never really bore the full brunt of the global financial crisis, the economic turmoil of 2008 affected how brands approach innovation and how consumers respond to it. There was a change to what consumers looked for in new products and, from a manufacturer standpoint, an acceleration of a trend that had already been evident for a few years: the move away from new brand innovation to line extensions.
Research firm TNS’ database containing thousands of concept tests showed new brand creation slumped dramatically between 2008 and 2010, with only 1% of the ideas and products evaluated being for new brands, whereas line extensions increased to 95% of the tests. In 2012, there has been a slight resurgence in new brand creation in Australia – out of 300 concepts tested so far, 5% are for new brands, TNS found. While true ‘breakthrough’ innovation does not necessarily require a new brand name, the findings are indicative of the level of innovation work being carried out.
Sarah Connelly, who has run the Product of the Year Awards for FMCG goods over the past four years, can’t remember seeing a new brand come through. “Launching a new product involves taking quite a lot of risk and what we’ve seen, unfortunately, is a lot more lower-risk innovations coming through every year,” Connelly says. While observers may note a flurry of activity in the FMCG NPD space, it is being dominated by lower-risk line extensions – new flavours, sizes or formats. “As a result of that, we’re faced with a lot more ‘me too’ type products that don’t inspire and excite people.”
Regional director of innovation and product development, Asia Pacific, at TNS, Ray Crook, cautions brands against relying on, and being hoodwinked by, the lower-risk line extension approach. Estimating that line extensions cost half of what new brands cost to bring to market, he sees many clients take a bet on line extensions without doing their due diligence, comforted by having less at stake. The research agency’s database shows that, on average, new brands launched have a 27% higher purchase intent score on average than line extensions launched, illustrating a willingness to take a bet on lower-risk activity where it sometimes isn’t warranted. Crook also points out the strain that continual reliance on the mother brand can cause: “If a line extension fails, you’re now changing the perception that consumers have of the mother brand as well.”
The challenge for brands is finding the right mix of ‘renovation’ versus innovation, and finding line extensions that possess high incremental value. “We see that line extensions tend to be very similar to what the company is currently producing,” Crook adds. “So you’re seeing cannibalisation of upwards of about 50%, depending on what the category is.” New brands can access new occasions, new niche states and move away from traditional volume area. They can position in a different space, potentially unlocking premium price points, as Kimberly-Clark has done with its VIVA range, introduced to bring convenience to high frustration tasks.
Massasso takes a blended approach at Arnott’s, depending on the brand, portfolio strategy and consumption opportunities. “There’s a role to play for what we would call sustaining innovation or what some may call line extensions. But the things that really continue to freshen, cultivate and nurture the heartland of the brand are the breakthrough opportunities. We don’t intentionally only focus on one or the other.”
Bennett’s observations tell him that most brands have a healthy mix of evolutionary and disruptive innovation, as well as shortand longer-term approaches, but there are some that focus on line extensions too heavily. “There are certain places where, to keep the brand fresh, it’s fine to introduce a flavour for summer, but if all you ever do with your brand is introduce flavour variations, you’re diluting it. I look at something like Absolut, and I think where did Absolut vodka go? I don’t need marshmallow flavour.
Vodka is about purity… they’ve forgotten the core of their DNA is something very powerful and they’ve gone for the easy money.”
So, are new product developers being too cautious in the face of uncertainty? “Unfortunately, there is a lot of fear out there,” Connelly says. “Companies are increasingly reticent to invest in research and development, particularly the middle players… the current climate is definitely not lending itself to encouraging innovation, or it’s encouraging low-risk, more strategic type stuff, rather than brands really stepping out of their comfort zone and coming up with some really new and exciting innovations.”
Playing it safe in uncertain times is the knee-jerk reaction that researchers and innovation agencies counsel against. “Never waste a crisis,” Bennett insists, alluding to the Inuit proverb ‘the storm is the time to fish’. Based in Singapore, Bennett’s picture of Australia is of a nation keen to get on with things and use the changing times as an opportunity. “One of the things that I’m most excited about in Australia is we’re seeing less of that [cautious] behaviour and more of the desire to be home grown and local… I got a strong sense that the attitude was ‘we’re going to innovate our way through this’.”
This kind of attitude can deliver great success. As Edison also said, “Discontent is the first necessity of progress. Show me a thoroughly satisfied man and I’ll show you a failure.”
As consumer behaviour changes and technology advances, the opportunities to continually revive the growth of brands are not lost on the marketing community. Google and MTV were created in recession, BMG and Tesco experienced some of their biggest growth spurts during troubled times. With Kantar Worldpanel forecasting that 75% of consumer product companies’ growth will come from new developments in the next 10 years, brands know that innovation is required to continue to thrive, regardless of the state of the economy. While necessity was the mother of innovation in Edison’s time, survival and future prosperity is the mother of innovation for brands today.
In Part Two, as well as a case study from KimberlyClark we’ll share Air New Zealand’s introduction of reconfigurable economy class seats, plus other examples to step you through the challenges of different stages of the innovation pipeline.