New product development is the key to ongoing brand success. The equity that marketers have built into a brand over time can be leveraged effectively when marketers introduce new products that fit within the brand’s product mix. But the overall success rate of new products is only around 10 percent give or take a few percentage points, which means that 90 percent of new product introductions fail within a few years.
The nutrition industry is rather mature and, as such, it is hypercompetitive, especially if a marketer doesn’t have much to offer in the way of product differentiation. One such way to gain competitive advantage and exploit the growing market segment has been to offer a natural or certified organic product, but this sector is cluttered with far too many brands offering essentially the same products, and so this strategy is no longer adequate. Your product has to be unique in some way, more effective, a better value, more functional or something.
There are certainly no guarantees of success, but it may come as a surprise to non-marketers that marketing is actually a science, and, as such, attention to basic concepts, models, and processes will greatly increase your chance of success, or at the very least ensure that you do not make some of the reckless, fatal errors that careless marketers often make when they ignore the principles of product development. Let’s review the most important aspects.
The Strategy
Marketing theory has many tenants that are commonly accepted and implemented. The Four P’s of marketing—product, price, place, and promotion—is just one example. This important concept provides a good framework for understanding how marketing is theorized and applied. Another important model involves new product development, and it frames strategy in terms of two variables, product and market. This theme pervades marketing as matching the right products to the right market is the key to successful product introduction. As such, the commonly held belief is that there are four such possible combinations of product and target market when approaching marketing strategy, and that a marketer should focus on one over the other three. This model, known as the Ansoff Matrix, presents us with a great way to begin to think about product development. These options are:
1. Market Penetration: This strategy involves improving an existing product and focusing on the existing consumer market a brand has already been focusing on.
2. Market Development: Unlike market penetration, there are no changes to the existing product, however a product may be repositioned and/or introduced to a new consumer market.
3. Product Development: This strategy concerns a consumer market the brand is already targeting and the introduction of an entirely new product.
4. Diversification: New products are introduced to new markets.
We will concern ourselves with the third and fourth strategy options since they involve developing new products. Remember that it is absolutely necessary to analyze a consumer need for a product category before you develop a product to meet those needs. In other words, don’t develop something first and then find a market for your product. Most needs are in fact already being met by a variety of product options, and it is the branded product marketer’s job to justify why retailers should allocate shelf space for any new offerings. This concept is so fundamentally important that it is called “the marketing concept,” and it’s one of the first things marketing students should learn.
Of course, industry veterans know from experience that distributors and retailers simply love new products, so it‘s considerably easier to manage product strategy in the dynamic, growing nutritional industry than it is in the conventional foods business. Our industry has always been about what’s new and interesting. But before you develop anything new, do your homework and analyze your internal competencies as well as the uncontrollable external factors such as competition and substitutes, economic conditions, the legal and regulatory environment, industry trends, consumer behavior, social trends and other important areas.
The Process
Regardless of which way you look at it, I advise that you plan and implement this time-tested process of new product development to reduce your risk of failure (which unfortunately is always high) and optimize return on investment. Sourcing and formulating products with functional ingredients is not always easy, but the demand has been strong for decades and, despite its massive size, the market continues to grow at a much higher rate than most other mature industries.
1. Idea Generation: Ideas come from many places. Employees, competitors, supply chain members and customers are always great sources of new product ideas. Conducting research in the consumer marketplace can expose many unmet needs, and investment in internal research and development can provide the firm with innovation-driven competitive advantages for years to come. Formal “brainstorming” sessions complete with objectives, a moderator, and a time limit are useful tools for idea generation. And using mature, “cash cow” products to fund R&D for new offerings is a time-tested way to ensure that you always have something new in the proverbial pipeline.
2. Idea Screening: There should be no “bad” ideas in a brainstorm-ing session, since such quick judgments tend to stifle creativity, so the screening of ideas is left to stage number two. Ideas should be screened based on internal feasibility (Are we able to do it?) and external opportunity (Just because we can do it, doesn’t mean we should do it). This exercise, resulting in a Situational Analysis and SWOT (strengths, weaknesses, opportunities and threats), involves the factors mentioned earlier in the article including, but not limited to, identifying and analyzing competition and substitutes.
3. Concept Testing: Once an idea has been screened and enough internal strengths and external opportunities have been identified, it is prudent to conduct market research that, although expensive, reduces risk. This is usually done in the form of focus groups and surveys, which can be conducted in myriad ways.
4. Business Analysis: Now that you have affirmed that your product might be accepted in the marketplace (that there is an underlying need amongst a group of people with both the ability and the desire to purchase it), it is necessary to expand your Situational Analysis and SWOT, adding the information you gleaned from your primary research efforts as well as additional detail. This information should be developed into a strategic marketing plan complete with measurable objectives, Four P strategy, budgets and other mission critical information.
5. Product Development: This is where the firm develops a prototype of the product and a small production run, if desired, for sampling or test marketing.
6. Test Marketing: Although not a necessary step, as speed-to-market is sometimes more important than getting everything just exactly in order, introducing your product to a specific market (usually a geographically based area) to see if it will work in the broader mass marketplace can also reduce risk. Obviously this step should be skipped if this will tip off more powerful competitors and give them first mover advantage.
7. Commercialization: Here is where the big money is spent. The product is manufactured and sold to resellers and consumers. The firm spends considerable monies on communication and establishing distribution channels, which can be an expensive and time-consuming endeavor.
8. Evaluation: Any student or practitioner of “process” knows that continuous evaluation is always the final step. Tracking and analyzing what’s working and what isn’t, through monitoring the external marketing environment, is absolutely crucial. Missteps can be corrected and adjustments made to exploit opportunity or respond to competition or pending legislation.
It all begins with brand strategy, and then marketers can craft a Four P Marketing Mix for each product that fits with this brand strategy. The product must then be managed throughout its life cycle, and in the vast majority of cases marketers must manage multiple products that are at different stages in their respective life cycles. Yet these same marketers are also tasked with developing new products on an almost continuous basis in order to maintain pace with the constantly evolving marketplace.
True innovation is hard to come by, as will be discussed in the second part of this series, but constantly emerging technologies coupled with changing consumer behaviors and attitudes necessitate that marketers make an ongoing effort to innovate nonetheless. For larger companies, nothing beats having marketing and product development professionals driving the effort to develop new products and also be held accountable for results. In any case, new product development cannot be an afterthought. Rather, it must be at the forefront of a brand’s marketing strategy. NIE
The next article of this two-part series will run in the October/November issue.
Darrin C. Duber-Smith, MS, MBA, is a senior lecturer at the Metropolitan State University of Denver’s College of Business (since 2003) and has more than 30 years of specialized expertise in the marketing and management profession, including decades of work with natural, organic, and green/sustainable goods and services. He has published more than 90 marketing-related articles and book chapters in various publications and has presented at more than 50 executive-level events. A frequent media contributor as well as recipient of The Wall Street Journal’s (WSJ) In-Education Distinguished Professor Award in 2009 and WSJ’s Top 125 Professor Award in 2014, Duber-Smith is author of Cengage Learning’s “KnowNow! Marketing” blog at http://community.cengage.com/gecresource2/info/b/marketing. He can be reached at [email protected].
