When people talk about innovation, they are typically referring to what we call “breakthrough innovation”: game-changing new products that address a real consumer need in a way that no product has done before. Notable examples include Chobani, which incited the Greek yogurt revolution, and Plan B One Step, the first over-the-counter emergency contraceptive pill in the U.S.
But breakthrough innovation is challenging. Moreover, most new product launches are “small” or “sustaining” innovations, which include the many, many brand extensions that large companies launch year after year. These launches are absolutely essential for growing existing brands and defending shelf space.
However, because breakthrough innovation is so much more exciting than this kind of “small” innovation, it receives attention disproportionate to its typical contribution to company success—while “everyday” brand extensions receive less than they deserve. In fact, even companies that excel at new product development generally decline in overall market share if they don’t work hard to actively defend and grow their core businesses.
Given this reality, how might companies improve?
The first step is to increase the attention given to doing “small” innovation well. It’s still appropriate to try for breakthrough innovations, and to celebrate them when they come. Terrific businesses are built on Swiffers and iPhones and the like—but large brands also generate sizable revenue streams through much more modest brand extensions.
The second related step is to change your company’s attitude to brand extensions. There is a great deal of pressure from impatient retailers for such innovations, and manufacturers must respond to maintain shelf space. Consumers are demanding more variety, and it’s generally wise to give consumers what they want. However, because of these pressures, it’s often the case that small innovation is regarded as a must-do, routine activity designed to hold the line against losses, rather than an engine to maximize growth. Companies must stop churning out brand extensions without doing the research that will tell them whether the extension will make a real contribution, rather than simply keeping the brand on the shelf a little longer. In fact, it’s precisely because small innovation is a must-do, routine activity that companies need to manage it as carefully as they manage other routine processes, such as fine-tuning the supply chain, or driving down the cost of raw goods wherever possible.
Once these two changes in mindset have been achieved, a company’s whole attitude to small innovation will change. What is often seen as a large series of small initiatives, each treated the way small initiatives are typically treated, becomes a core function to be managed closely for costs and for profit. New flavors, new varieties, changes in package design, changes in product positioning—it is by treating these as core to the business that they become core to the growth of the business.
So how can you best grow an existing brand that makes up a part of the core business? The two fundamental ideas we want to stress are availability and awareness.
Availability. No matter how much consumers like a product, they aren’t going to buy it unless it’s on the shelves of the stores they frequent. In fact, distribution is so important that it has a near-perfect correlation with sales volume.
Now, large companies already have elaborate distribution networks, and most brands will wonder what they can do beyond what they are already doing. First, they should think about what it means to be available. At one extreme, Coca-Cola aspires never to be more than an arm’s length away from consumers at any given time. While this isn’t a reasonable goal for most brands, it does suggest that there is always room to grow.
Perhaps more practically, it is a reminder that established brands can increase their distribution by considering alternative distribution channels to which they may not have paid enough attention. How well-represented are you in specialty stores or on the virtual shelves of e-tailers? LVMH’s “selective retailing” division—of which Sephora, the global retailer of prestige beauty products, is a cornerstone—reported year-on-year revenue gains of 18% in 2015. As alternative channels continue to rise in popularity for some categories, brands should study what impact getting onto the shelves of all these channels could have on their bottom line.
In addition to maximizing the number of channels that carry a product, brands can also maximize their presence within stores. The obvious way to do this is to claim more shelf space—but we expect large companies may have exhausted this avenue. It is less common, however, for brands to have looked at all the possibilities for display outside their core location in a store. Most brands consider the checkout lane, with its impulse-purchase bounty. Fewer study the possibilities inherent in locating near complementary categories. Skinny Cow candy, a “diet-friendly” indulgence, placed custom displays near Lean Cuisine and other healthy frozen entrees to reach the kinds of buyers not usually found in the candy aisle. Other indulgence brands have used tongue-in-cheek placements in the feminine care aisle, earning themselves some social media buzz to boot.
Once a brand has strengthened its in-store presence by considering these possibilities, it can maximize sales by using the space it has in the most efficient way. This requires identifying the right number and variety of products to drive incremental growth. When two varieties are very similar, consumers tend to consider them interchangeable—so they generally trade one option for the other, which results in no sales gain. For example, consumers will probably buy either the “double chocolate” or “chocolate brownie” flavor of the same protein bar, given that they have similar taste profiles. It is more likely that they would buy both “chocolate brownie” and “peanut butter delight” flavors. In addition, by adding “peanut butter delight,” the brand would likely attract new buyers who love peanut butter but may not be as keen on chocolate. Either way, this combination of flavors will result in greater sales than two more similar flavors would.
Consider this actual scenario: a major food manufacturer wanted to increase total sales from its line of frozen entrees. The brand tested a range of scenarios with consumers, identifying the optimal number and combination of different frozen entrees to grow incremental sales. By adding three new frozen entrée varieties to its existing line of seven, it increased the revenue potential of the product line by 59%.
In addition to flavors and varieties, package sizes are a key piece of the assortment puzzle. They tend to drive incremental growth because they meet different usage occasions. Obviously, small sizes are best suited for immediate consumption, while family sizes are best for everyday use. Less obviously, different package sizes meet consumer needs in other ways. For example, 27% of consumers around the world rate portion control as very important when making purchase decisions. As a result, manufacturers are increasingly offering single-serve packages, “100-calorie” servings and mini-cans of soft drinks. For example, Coca-Cola has seen sales of its mini-cans grow at a nearly double-digit rate, and is now rolling them out across other brands in its portfolio, including Fanta and Sprite. Size variety keeps a brand competitive and attracts new consumers. Moreover, because it does not typically require significant marketing support, offering multiple size options is relatively inexpensive.
Awareness. Brands also often don’t realize just how invisible they can become to consumers who look for the colors and packages they recognize. Consumers are looking to speed their shopping experience by picking up the products they are used to. However, according to a theory popularized by the Ehrenberg-Bass Institute for Marketing Science, consumers aren’t particularly loyal to brands—so if you can attract their attention, you might find a new shopper.
You can think of awareness as another kind of availability—this time mental rather than physical. Consumers are generally aware of many brands, though they might temporarily forget about even iconic brands if they don’t already purchase these brands regularly. How can you best make yourself “mentally available” to new or lapsed consumers by breaking into their consideration set?
Advertising is crucial. But it’s not enough in itself. It may come as a surprise that in-store visibility is the number one driver of product awareness among consumers, significantly outpacing TV, print and online. And what drives visibility in the store is whether a product stands out on the shelf—a more important driver than displays, promotions, and so on.
Products need to work hard to be noticed on the shelf by those not already looking for them. The average U.S. grocery store stocks more than 40,000 items, offering consumers an overwhelming number of choices within each category. Here, the most powerful driver is package design. Based on results from eye-tracking studies, 76% more consumers will notice the top-performing package design than the bottom-performing one within a particular category. In fact, optimized package redesigns have been shown to generate an average 5.5% lift in forecasted revenue when compared to current, in-market designs.
In addition to the look of the package, the sheer number of packages can grab consumers’ attention. It’s much harder to overlook a brand with six varieties displayed together than a brand with only two.
Mental availability is also driven by consistently using the same distinctive assets in all of a brand’s communications. Apple: a simple aesthetic and the iconic apple logo. McDonald’s: golden arches and the color red. Starbucks: a white mermaid on a green background. Golden arches have little to do with hamburgers and fries, and mermaids have no obvious connection to coffee—but years of unvarying use of a logo ingrains these connections in consumers’ minds.
Mature brands should not assume that consumers are automatically considering them simply because they’re well known Consumer loyalty is more fragile than brands might expect. It takes hard work to stay top-of-mind. For this reason, it’s imperative not to let breakthrough innovation overshadow “small” innovation. Each deserves the attention its expected contribution commands.
Written by Delphine Bourgeois, VP, Nielsen Innovation Practice
Source: Nielsen