Retailer-friendly new product introductions will drive net gains in distribution

During the Great Recession of 2007-2009 new product introductions declined significantly. But now, with the economy on the upswing, the number of new items is returning to normal levels. In fact, based on current trends, the number of new items introduced is likely to reach record levels. And rightly so since 60% of a CPG manufacturer’s growth will come from items that have been in distribution less than one year. This growth rate happens to be the same for retailers; therefore, both trading partners have a vested interest in successfully introducing new items. Yet approximately 80% of the items introduced will fail within the first year — meaning the remaining 20% will generate the growth.

There are a number of factors impacting the excessive failure rate of new items. Line extensions and “me too” type products enable manufacturers to build upon proven product lines by developing new flavors, forms, sizes and packaging. This minimizes risk while enhancing the shelf presence of the original product line. However, line extensions and non-unique products typically don’t deliver incremental growth because shoppers simply switch purchases, i.e., they purchase the new kiwi-strawberry fruit drink instead of buying grape. This lack of incremental sales led retailers to the “one-in-one-out” method for determining new item acceptance. Additionally, shelf space is likely to decrease as retailers continue to open stores with smaller footprints.

Changing Behaviors and Processes
Willard Bishop recently analyzed 54 new product introductions from across the store in order to begin developing better processes and methodologies for new product introductions. The study also focused on disruptive innovations because these products tend to be more retail relevant; therefore, they have greater chances for success. The study used two key metrics for defining disruptive products. First, the new product had to bring new purchasers to the category. Secondly, the spending rates for existing category purchasers had to increase.

Using these metrics, we discovered significant variance among product performance as indicated below:

In addition to dramatic variances in product performance, the study also confirmed the need for retailer support. For example, one new product in a frozen category was evaluated at two retailers. One retailer executed the complete in-store merchandising program and provided ad support, while the other retailer accepted the new item without providing in-store or advertising support. The retailer executing the complete introductory program outperformed the other in terms of new-to-category users by 38%, and increased the spending of current category users by 109%.

Perhaps most importantly, the study confirmed the need for manufacturers and retailers to work collaboratively when launching disruptive products. Doing so will benefit both trading partners as well as the consumer. It will also encourage retailers to support companies with better track records in new product development. Creating better track records will require CPG manufacturers to embrace a disciplined focus in every aspect of their new item development processes. By doing so, they will be better positioned to have introductions that result in net distribution gains.

How else can retailers and manufacturers work together to boost sales of new products?