Most successful marketing companies are fully aware of the importance new products will play in their growth. A 1998 U.S. study by Deloitte and Touche predicted that new product sales would generate about 33% of the typical manufacturer's total revenue within a few short years.
Marketers obviously see the value of new products, as 31,432 new consumer packaged goods were introduced in the United States in 2000, according to Productscan Online. That's a 21.2% increase over 1999 and nearly twice the amount introduced in 1992. Now, it is up to marketers to distinguish their new offerings within this onslaught of new brands, products, styles and flavors. Unfortunately, most are failing.
According to a 1997 U.S. study by Ernst and Young, there is a 67% failure rate among truly new products (meaning products that actually create a new category). New brands entering an existing category experience a 50% failure rate, and perhaps most surprising, there's an 84% failure rate among brand extensions.
What's the reason for this high failure rate among brand extensions? Ernst and Young cited a fundamental lack of competitive differentiation. The proliferation of undifferentiated brand extensions is symptomatic of a discipline that is in desperate need of some prescriptive principles regarding brand portfolio architecture.
When a new product fails in the marketplace the reasons cited are usually related to the execution of the launch: "We priced it inappropriately" or "we entered the category too late" or "the advertising missed the mark."
Sometimes, the product is simply ill-conceived and there is no doubt that the sheer number of new entries has made consumers weary of yet another "improvement" that does little for them other than make life more complicated. However, there are also some fundamental strategic principles that need to be re-examined.
Gaps in two key areas of marketing theory lead to unnecessary brand failure.
First, the creation of holistic new brands (as opposed to new products) seems to be woefully underserved from a theoretical perspective. A lot has been written about new product development, but very little about developing a new brand idea. The academic perspective on brands seems to focus on managing existing brands in the marketplace rather than creating strong new ones. Moreover, most experienced managers spend their careers managing large, existing brands. They may only develop one or two new brands in a career.
The result is that very few people are in a position to create general principles about new brand development. It seems clear that marketers are in need of principles and models specifically developed for the creation of new brands.
The second area that needs to be addressed is the thorny problem of brand portfolio architecture. Brand portfolio architecture describes a system that clearly communicates the differences and similarities across the offerings of a brand family. The decision to launch a new product as a new brand vs. a sub-brand vs. a product line extension is too often made in a compartmentalized, tactical manner.
The architectural impact of a new offering should always be treated as a strategic decision because bad brand architecture dilutes the power of existing brands in the portfolio and leads to overall consumer confusion. This confusion leaves brand extensions poorly differentiated and they fail in the marketplace. Moreover, poor brand architecture decisions can result in portfolios with inelastic brands that cannot support extensions into new product categories.
In addition, tactical brand architecture decisions lead to a proliferation of brands that pile up over time and create inefficiencies for the company. Unilever found that only 25% of their brands generated 90% of their global revenues in 1998. By reducing their focus to 400 global brands (out of 1,600), sales were increased by 3.2%.
The solution? Rather than developing the latest technological advancement in quantitative testing approaches, marketing thinkers need to get back to the basics and address the need for strategic, prescriptive principles around brand portfolio architecture. Then we need to tackle the creation of a workable model for new brand strategy.
This model will need to embrace a creative process that is largely ignored in brand theory. But new brands must grow out of relevant, differentiating (unique) positioning ideas. The brand strategist developing a positioning for a new brand is essentially facing a blank sheet of paper that requires creative thinking. Therefore, creativity must be integrated into a disciplined marketing analysis. The right model(s) could help facilitate this type of thinking.
Bruce Tait is co-founder and managing partner of Fallon Brand Consulting, Minneapolis, an independent division of Fallon Worldwide.