It is coming soon to a supermarket near you: Efficient Product Introduction.
Already, a very few leading-edge brand marketers are tasting the advantages that can flow from product development programs grounded in information technology.
The idea is to use information tools -- such as category management, micromarketing and trend analyses -- to help pick exactly the right stuff to make, and then not waste any time making it.
Done right, Efficient Product Introduction will reduce total costs of bringing new products to market. In addition, higher "hit" ratios combined with pay-for-performance might even persuade supermarket retailers to relax some demands for slotting fees, according to experts. It is also integral to a total Efficient Consumer Response effort.
"ECR can take the costs out of the system," said Greg Starzynski, vice president of retail marketing for Nielsen Household Services, Northbrook, Ill. "But without understanding what the consumer wants, you run the risk of delivering the wrong products more efficiently."
John Phipps, a partner at the Wilton, Conn.-based Deloitte & Touche consulting firm, said he estimates that the total system cost of introductions, including new product development, may amount to 10% of grocery store sales. That worked out to roughly $38 billion in expenditures last year on more than 15,000 new items.
For all that investment, Phipps added, "the rate of new product failures is still about 70% to 80%."
As Jim Horton, retail national director at Kurt Salmon Associates, Atlanta, said, "The major thing is to reduce the failure rate."
Back-of-the-envelope arithmetic reveals that cutting the failure rate by just 10 percentage points could potentially free $3.8 billion industrywide, which could be spent in support of successful products or applied to the bottom line. That's where the application of information technology, especially category management, is supposed to yield real benefits.
"Information tools are necessary to define what new products are needed at the beginning of the process," said Albert Page, professor at the University of Illinois College of Business Administration. "The clearer the vision that brand marketers have, the better they can analyze demand."
Page is also president of the Product Development & Management Association, a Chicago-based organization of new product professionals.
"The leading edge of information management is applying scanner data for categories to product development," he said.
At its annual meeting in October, PDMA will honor Nabisco Biscuit Co. as an Outstanding Corporate Innovator, an award that recognizes sustained company growth, profit and new product innovation over a five-year period. This is the first time the award will go to a consumer packaged goods company.
Nabisco Foods Group also was the recipient last week of the American Marketing Association's Grand Edison New Product Marketer of the Year award for 1993, along with seven other Edisons for products including Snackwell's, A.1 Bold Steak Sauce, and Planters P.B. Crisps.
Nabisco's success with new brands, such as Snackwell's, and with line-extensions, such as Fat Free Newtons, was based in no small part on the company's use of consumer market data to identify new product opportunities with potential to increase sales.
That process, which incorporates category management, demographic and trend information, as well as primary consumer research, is called "gap analysis" among Nabisco insiders and some other brand marketers. The idea is to identify gaps in the existing mix vis-a-vis consumer demand.
Although Nabisco is working very broadly with ECR, the term Efficient Product Introduction is not widely used internally, said Sharon Fordham, Nabisco's vice president of new business.
While gaps in the current category mix are often opportunities, Fordham said that new product development at Nabisco begins with marketing research. "Truly great new products don't have like products in the market," she said.
That's the key weakness of relying solely upon category management to identify gaps, said Alvin Day, a partner with the Partnering Group, a Cincinnati consulting firm. "Category management models talk about consumer needs within the category," he said. To push outside the category envelope takes insight from the entire marketplace.
Fordham added, "Once you have identified a product that could potentially resegment the category, then category management can be useful." Nabisco uses fact-based methods including category management to present new products to customers and to position them with consumers.
In studies he conducted at the University of Illinois, Page created a measure of new product program performance: Percentage of sales contributed by new products introduced in the last five years.
"My research found that among 50 low-tech companies, including some packaged goods companies, the average sales level of impact was about 22%," he said. "Nabisco was 29%."
Fordham said that Nabisco's statistics are even better now. "Currently we are above 30%," she said. "That number is probably even higher now because of the smash success of Snackwell's."
While marketing-driven companies like Nabisco tend to focus hard on the consumer end of the new product equation, efficient product introduction also has significant internal and organizational components.
PDMA's Page identifies four key tools or techniques that brand marketers are using now to improve new product selections and to speed them to market:
· Identify consumer needs: Here is where information tools contribute most to a better and more effective development process. · Improve the organization: The hot topic is cross-functional teams; the intent is to get a more integrated product development effort.
· Benchmarks and best practices: Use techniques learned from other companies and other industries to form a basis for finding ways to improve the process.
· Parallel processing: Do more activities concurrently instead of sequentially; teams can facilitate this kind of timing.
The last three areas, while more operations oriented than marketing oriented, all contribute to a shortening of cycle time for new product introductions.
Coca Cola Foods, Houston, is one brand marketer that has been emphasizing speed in new product development. Carl Blonkvist, who was recently named senior vice president of operations for the company, told Brand Marketing that faster cycles can enhance new product creativity, improve value by lowering costs and provide new products in time to capitalize on consumer demand.
"As a rule, the longer the commercialization cycle is, the more bland the product innovation, marketing and manufacturing design become," said Blonkvist.
Shorter cycle times reduce capital and manpower investment in new product introductions, reducing some of the economic risk, he said. Importantly, they also allow brand marketers to reach the critical "go/no go" decision points earlier in the development process, allowing obvious losers to be killed off before large sums are invested.
Fordham said Nabisco has cut its average development cycle time from concept to market launch by more than half, from four years or more to about 12 to 24 months. The gains came from the pursuit of process improvements intended "not so much to speed up the process as to streamline and avoid detours."
Coca Cola Foods uses a combination of interdepartmental coordination and independent small project teams to shepherd new products through, Blonkvist said. The net result of "parallel processing" -- a computer industry buzz word -- is to eliminate the time-consuming handoffs that can stretch new product development into many years.
Instead, experts from every discipline concerned with the process -- from manufacturing, marketing, design, packaging and, not the least, finance -- can work simultaneously to rule out any fatal flaw in a product concept.