Putting a new product on the shelf is no easy task. It requires coordination among trading partners and the numerous departments within them, all operating under a precisely timed promotion schedule. Even if all these elements work perfectly, new-item failure rates remain high.
Even if more products were successful -- and one recent study suggests that the new-product failure rate is closer to 25% than the 95% that has long been accepted as the industry standard -- the process itself could use improvement.
"There are definitely inefficiencies in the new-item introduction process," said Jim Swoboda, director of logistics and distribution technologies for Spartan Stores, Grand Rapids, Mich. "One is communication: It just takes time for everybody to find out about new products.
"Another problem is there's no rhyme or reason to when new items come out. There's no 'calendar,' though I suspect there never will be one in a competitive environment," he added.
While the goal of making new-item introduction more efficient was one of the four pillars of the original Efficient Consumer Response initiative, there has been little action on an industrywide basis to rationalize and streamline the process.
However, individual companies, recognizing some of the costs of inefficient introductions, are making better use of information and communications to tighten up the process.
Beyond the high cost of developing a new product and setting it up in a distributor's information system, an underperforming new item can also clog a warehouse with slow- or non-moving product, adding to inventory costs.
"Our category management and buying people concentrate on getting new items in. These items get the attention while the old items sit there and stagnate," said John Vegter, vice president of logistics for the Northern marketing region of Supervalu, Minneapolis.
"What it boils down to is we have a certain amount of square footage in our distribution centers, and it's a problem finding space for new items," he added. "As we handle more stockkeeping units in the same square footage, our efficiencies are compromised for all the items we carry."
To deal with this problem, Supervalu is preparing to launch a "companywide initiative to track the 'age' of inventory," said Vegter. "A computer system will identify exactly how long specific items have been in the distribution center." The program is scheduled to begin in the first quarter of 1998.
At the retail level, incentives built in to the new-item introduction process can cushion the blow of products that don't sell as well as projected. Some industry observers say this is part of the problem.
"Slotting allowances distract attention from whether a consumer actually wants a product or not," said industry consultant Dan Raftery, president of Prime Consulting, Bannockburn, Ill. "In addition, salespeople are traditionally incented to achieve the widest possible distribution of a new product. Few companies figure in the costs of bringing that product back."
In this situation, "the liability for the retailer is getting out of tune with their shoppers," Raftery added. "Where a 'wrong' product sits, a 'right' product isn't there."
Some retailers are leveraging the experience they've gained with private-label programs to increase the likelihood of placing the right product on the shelf.
Shaw's Supermarkets, East Bridgewater, Mass., offers 5,000 items, ranging from groceries to children's books, under its own label. These items account for 40% of the chain's sales, and Shaw's introduces as many as 700 new items per year, said Bernie Rogan, spokesman for the chain.
"The category managers are responsible for the bottom line of these new products. They have to 'design' a product within the guidelines of profitability," said Rogan. "This helps them better understand the process of bringing a product to market."
Greater insight into the new-product process is helpful for all sides, said Rogan. "Vendors have become smarter as to what will or won't fly. And there's more information available on sales trends and customer demographics. It behooves our category managers to be just as savvy as the vendors, and no longer to just accept a new product from them."
Prime Consulting's Raftery believes there's not enough use of market research in the new-product introduction process. In the interests of better communication, Spartan is piloting, along with a third-party company, a system that makes new-item information available over the Internet.
The Food One web site, which went live earlier this month, "includes all the product information a retailer would need to buy it, as well as the capability to order it on-line and have it processed through their wholesaler," said Swoboda.
The pilot, which is scheduled to run through January, is targeted to "people we knew already had Internet browsing capability," he said. "If the pilot is successful, and there's no indication it won't be, we'll try and roll it out to other customers quickly.
