REVAMPED PRODUCTS DRIVE REVENUE

CHICAGO - CPG products that have been enhanced with an existing science or technology and subsequently repositioned enjoy the greatest revenue growth. That's according to a five-year study by McKinsey & Co., which explored 480 product launches in 16 high-growth categories to see how substantially different marketing tactics contribute to revenue growth.Categories studied included energy drinks, snacks/granola

CHICAGO - CPG products that have been enhanced with an existing science or technology and subsequently repositioned enjoy the greatest revenue growth. That's according to a five-year study by McKinsey & Co., which explored 480 product launches in 16 high-growth categories to see how substantially different marketing tactics contribute to revenue growth.

Categories studied included energy drinks, snacks/granola bars, bottled water, yogurt, milk substitutes and sports drinks.

Repositioned products were successful "because the product actually targeted areas of consumption that were not reached before, like a new consumer segment, occasion or new way of using the product," said Carl-Martin Lindahl, associate principal at McKinsey & Co. here. He related that by sourcing these products, retailers could drive greater traffic and revenue.

A published article in McKinsey Quarterly, the company's online journal, cited the 2002 modification of an existing Yoplait yogurt product that leveraged both marketing tactics. The manufacturer whipped air into the yogurt, renamed it Whips and began merchandising it as a dessert. Yoplait also launched a vitamin-enriched yogurt drink called Nouriche.

Sales of the two products grew four times faster than the yogurt category as a whole.

On average, products that were enhanced with an existing science or technology and repositioned, experienced a one-year revenue improvement of 2.8% above their respective category's already aggressive growth.

Although rare, product launches employing the single marketing tactic of a breakthrough innovation, on average, reaped incremental revenue gains of 2.7%. The study defined breakthrough innovation as a truly novel breakthrough in science or technology. Only 15 of the studied products employed such a marketing tactic. One of them was Procter & Gamble's ThermaCare portable heating pad, according to the McKinsey Quarterly article.

Marketing strategies including line extensions and value pricing were much less successful.

New flavors of existing products, as well as products that were enhanced by an existing technology or science but not supported by additional marketing tactics, experienced additional revenue growth of 0.5%.

"Although line extensions could possibly deter a category from shrinking, the incremental growth experienced isn't terribly interesting compared to that of the other marketing tactics," said Sharon Flanagan, partner, McKinsey & Co.

Value pricing was associated with a mere 0.05% incremental revenue improvement.

"Value pricing starts 25% lower so you have to sell more products to compensate," Lindahl said. He explained that sales of products priced at a value didn't offset the discount unless there were economies of scale.

When combined with value pricing, products that were also repositioned after leveraging an existing science or technology only experienced incremental improvements of 1.3%, as opposed to the 2.8% growth realized with those two marketing tactics in the absence of value pricing.

Products that employed a combination of two or more of the five marketing tactics studied experienced, on average, a 0.7% improvement above their respective category's growth.

The study's authors reviewed growth in 290 CPG product categories before narrowing them down to 16 high-growth categories. The 290 categories grew, on average, by 2.3% a year, while the 16 categories grew five times faster.