Well-executed innovation is still the key to retail

With the media crying foul against the control of the big supermarkets and the ACCC asking some tough questions, it would be too easy to get caught up in the everyday pressures of battling over trade terms.

The question is, can marketers actually work with the retailers and in doing so move from the day-to-day to a longer-term view? The key is in finding common ground around the decisions manufacturers and retailers have to make. These fall into three broad buckets: those that mitigate risk, those that increase growth and those that increase margins. These aren’t necessarily disconnected, but highlights where this common ground is likely to be.

Retailers look at mitigating risk and margin through the control of suppliers. This is achieved through dictating trade terms and rationalising SKUs to simplify supply chains and at the same time creating ‘me too’ products at lower price points. We’ve seen that, according to some, they have had too much leeway in this regard. The common ground is in how to increase growth – which is directly linked to manufacturers’ ability to innovate, and this is still the most fruitful conversation with the retailer.

Although many manufacturers have identified this as the conversation to have, the need to get a jump on the competition and having news to talk with the retailer about, has added pressure to innovation pipelines. This has resulted in small incremental change rather than major growth that both the manufacturers and retailers want. As a result there are constant conversations with retailers along the lines of ‘one product in, one product out’.

Consumers are also getting fed up with new and improved sameness, and without marketing support many of these innovations disappear into grocery purgatory. Category growth is more than adding the banana loganberry flavour to the current 24 flavours and sitting back to watch the stampede of customers.

The brand-loyal, middle-of-the-road buyer of brands has been replaced with the ‘value consumer’ for whom buying private labels isn’t just about making do, but about being as good as what the brands offer.

At the other end of the spectrum there’s the ‘craft connoisseur’, who wants more than a few extra chocolate chips for their dollar. They want to be delighted with a superior product experience. A2 Milk in Australia and Cravendale in the UK are two companies showing that in even the most commoditised of product areas, great product experiences and brands win over customers.

It all leads to having innovation pipelines that recognise what consumers are seeking and are congruent with the brand. Brands can hope for game-changing innovation, but if there’s not a process in place to find it, they can’t hope to succeed. The innovation process has to start with the consumer, identifying the needs and benefits they require or issues that they wrestle with. From here, proper sizing of any opportunity space can be achieved before moving into the costly business of producing products.

Even worse is failure at the end of the process when a great idea is killed off by poor execution. It is the understanding of the tried and tested mechanics of price, product, place, promotion and packaging of brands that enables companies to win hands down every time in retail environments and increase margins. Shopper marketing has been in vogue, but has skirted over getting these basics right. Instead it has described shoppers and their behaviour, instead of influencing it. Having the right information on how to ensure we succeed in store ensures that good innovation work doesn’t go to waste.

These two areas aren’t divorced from each other. The way that marketers and retailers both win is when we treat innovation and execution as a symbiotic relationship, rather than the separate domains of marketing/R&D and sales/category departments. Our consumer and shopper information streams are successful only when they work together. This is a process that delivers the right product into the hands of the customer in the right way.

So, having both a good innovation process, combined with well-informed executional strategies is a win for both the manufacturer and the retailer. It allows for more fruitful conversations in what we all recognise to be a tough environment. Failure comes when the day-to-day swamps our ability to recognise that ‘what we do’ and ‘how we do it’ are the same thing.


Lee Naylor
BY Lee Naylor ON 28 August 2013
Managing director, TLE Sydney. Lee Naylor joined The Leading Edge in December 2010 as global head of disciplines. Previous roles include two years at The Nielsen Company as executive director, Consumer Research Australia, and 11 years as a research director at Research International.