How Consumer Goods Companies Create Breakthrough Innovations
For consumer goods executives, keeping up with all of the reports on how difficult it is to win in the industry might be just as difficult as actually winning in the industry. Countless articles and reports repeat Clayton Christensen’s statistic that 95% of new products fail, or note how very few new products end up being breakthrough innovations that meaningfully impact their categories. Many more detail how new product launches fail to meet a variety of specific metrics, such as covering development costs or having a material impact on the company’s growth trajectory. Most recently, however, Nielsen revealed its list of 14 Breakthrough Innovation Award Winners. Of more than 3,400 consumer goods product launches in 2012, only these 14 met Nielsen’s strict criteria for breakthrough innovation: (1) distinctiveness — delivers a new value proposition to the market; (2) relevance — generates a minimum of $50 million in year-one sales; and (3) endurance — achieves at least 90% of year-one sales in year two. Looking at the patterns among these 14 game changers reveals several best practices that consumer goods companies can leverage to create their own success stories.
Design offerings around jobs to be done — Launching a product that truly makes an impact on a category requires more than looking at what customers are currently buying and adding a few new features. At the same time, it also does not require companies to place all-or-nothing bets on long-shot projects. Innovation is about thinking outside the box, not launching into the stratosphere. Importantly, real game changers require insights from real customers. Taking a jobs-based approach to product design requires looking at the functional and emotional jobs that customers are trying to satisfy, understanding how new products can target the awkward work-arounds that are currently addressing those jobs, and building solutions that cater to a customer-defined characterization of success. For example, Kimberly-Clark’s Depend Silhouette and Real Fit Briefs were designed to account for the compensating behaviors –from wads of toilet paper to frequent wardrobe changes — adopted by many adults suffering from incontinence. While the briefs needed to meet a number of functional criteria, much of their success is also attributable to the emotional and social jobs they satisfy. By designing and marketing around emotional and social concerns, Kimberly-Clark was able to capture substantial sales volume from adults who previously suffered for 6 months to 2 years before buying an incontinence product.
Capitalize on trends, not fads — Often times, teams tasked with launching new products start by looking at what their direct competitors have done. In addition to taking too narrow a view of competition, this approach often leads to product designs that account for fads that are already half played out. Even when these products show initial signs of success, they generally fail to deliver sustainable value. Instead, companies need to engage in a deeper level of forward-looking discovery that leverages insights from other industries, uncovers trends with a high potential for impact, and leads to solutions that account for a variety of uncertainties and possible industry scenarios. Sargento’s Ultra Thin Slices may look like just thinner slices of cheese. Looking more closely, however, the Ultra Thin line capitalizes on individual-centered health trends that are playing out across several industries. Among other achievements, the thinner slices allow consumers to reduce their intake of fat, calories, and salt without trading down to low-fat varieties. Ultra Thin doubled its sales in its second year, and it is also credited for much of the 6% increase in sales of natural sliced cheese.
Think beyond historic customer groups — Many consumer goods companies fail to create breakthrough innovations because they focus too heavily on their existing customers. Companies delight in the comfort they get from how well they know their customers, and they are often wary of introducing products that do not appeal to those customers. Unfortunately, focusing on such a limited range of customers substantially limits growth potential. By contrast, The Boston Beer Co. — maker of Sam Adams — embraces the opportunity to reach new customer types. By launching its Angry Orchard cider, Boston Beer was able to attract a large segment of customers who do not typically drink beer. Angry Orchard has been particularly successful among women, who have historically been a hard demographic for beer makers to target. Angry Orchard has already captured roughly 40% of the U.S. hard cider market, and analysts project that it will account for 20% of Boston Beer’s sales volume by the end of 2015.
Improve relationships throughout the value chain — It can be very hard to change engrained consumer behaviors, and fitting a new brand or product category into existing retail merchandising schemes can also be quite the challenge. On the other hand, everyone wins when consumers understand what a company is selling and how it can benefit them. More often than not, this requires work from more actors than just the manufacturer. When Nabisco introduced its belVita “breakfast biscuits” to U.S. consumers, it was already facing an uphill battle. It was trying to create a new breakfast category by selling customers a product that sounds like a buttery side dish but looks more like a cookie. Although the biscuits are currently sold in the cookie aisle, Mondelez (Nabisco’s parent company) worked with grocery stores to make sure that the product was initially promoted in locations where consumers buy breakfast items, such as the cereal aisle. BelVita brought in more than $70 million in year-one revenue, and sales grew by more than 50% in its second year.
Build capabilities that support sustainable success — Relatively few companies have demonstrated an ability to consistently launch new products that meaningfully impact their category. Doing so requires finely honed processes for exploring new markets, generating high-potential ideas, and turning those ideas into game-changing product launches. No one recognizes the value of building innovation capabilities more than P&G, which, incidentally, is responsible for 3 of the 14 breakthrough product launches on Nielsen’s list. In addition to being the leading spender on consumer and market research, P&G also invests roughly twice as much as its major competitors on strengthening its innovation capabilities and pipeline. While P&G improves its go-to-market structures at a scale that is hard to match, its insistence on interacting with real customers and focusing on innovation infrastructure is a mindset that all companies would do well to adopt.
Winning in consumer goods may be hard, but it is far from impossible. In fact, the companies who launched the 14 products identified as breakthrough innovations in Nielsen’s report were able to reach such a high level of success by relying on a handful of strategies and best practices. Looking more broadly, those practices can be roughly categorized into three essential elements of success: (1) rely on real market and consumer research, (2) prioritize building the infrastructure for innovation, and (3) generate new business models that consider innovations across multiple domains.
Story by Dave Farber.
Learn more about Jobs to be Done thinking in practice at www.newmarketsadvisors.com!
