Are you launching, or considering launching, an innovative new consumer packaged goods (CPG) product? Innovation naturally invites risk, but you can evaluate and mitigate that risk using a two-step process.
First, you need to identify what the risks are. Then you need to ensure that you confront those risks throughout the stages of your innovation journey—from initial concept testing to optimizing price and product line assortment. Evaluating the risk of innovation can mean the difference between a CPG product that breaks through and one that struggles to take off. So, assessing and stemming risk should be a priority at every phase of development.
The Risks of CPG Innovation
There are three main risks that you may face throughout the innovation process:
- Financial: Innovation always requires investment. Whether you reinvest your earnings into developing new products or seek outside funding, there are expectations for return—and some degree of risk. It’s your obligation as the CPG manufacturer to manage this risk and get your product strategy right to deliver return on investment (ROI) for you and your investors.
- Operational: Alongside the financial risk, you need to consider how your innovative product will perform. Will consumers want to buy it? Will retailers want to stock it? Will it be widely accepted right away, or will it be a specialty item that gradually grows a following? These operational risks, while related to the financial risk that comes with your investment in the product, need to be considered independently.
- Brand: The risk to your brand equity, while not the most immediate, is potentially the most damaging in the long run. If consumers develop a negative perception of your brand, it can impact your product’s performance across categories and product line assortments. Additionally, it can take significant time and resources to repair a damaged brand.
Evaluating Risk Throughout The Innovation Process
After identifying risks, you need to assess and minimize them at these four stages of the innovation process. That’s how you increase the chances of turning your CPG product into a success story.
1. Screening and optimizing concepts: To get a clear idea of which category your product will fall into when it launches, you need to screen and optimize your concept. This can mitigate a lot of risk from the get-go. Say you’re a manufacturer of a new drink that’s formulated to enhance brain function. But when your “brain performance beverage” hits the shelves, retailers classify your product as an energy drink. Upon investigation you find that there are six other brands with a similar product, and you just launched a product you thought was innovative and unique into an already-crowded market. If you screen your product’s category early on, you can identify these risky scenarios (and competing products), and modify your product concept before it’s too late or costly. Ultimately, if you invest time into thoroughly understanding the product category you’re about to enter, you can be more certain your innovative product will be just that—innovative.
2. Testing products and package designs: You need to test your product and package designs otherwise you risk not capturing your consumer’s attention in their critical moment of choice—and that means missing out on a sale. There are programs and applications available to help you get market driven feedback early on in your design process. For example, you might create a set of six package designs for your new vegan cheese product. You test the designs and find out that your consumers respond more positively to designs that feature “high in calcium” rather than “non-GMO.” So you prioritize “high in calcium” on the final design. Testing products and package design in this way helps you avoid the potential risk of disappointing sales before your product lands on the shelf.
3. Accurately forecasting sales: Accurate sales forecasts are key planning metrics to evaluate risk. Imagine you are looking to launch a new brand of cookies with lower fat content than competing cookie brands. You want to know, realistically, how many units you can potentially sell each year. To find out, you access historical brand and item ranking data from the past two years that shows how low-fat cookies sell relative to other snacks. You also use account-level data to see where (and at which retailers) low-fat cookies would perform best. This process allows you to create reliable sales estimates beyond just your introductory gross year sales. Accurately forecasting sales in this way decreases the risk of your product failing on the shelf.
4. Optimizing pricing and product line assortment: Optimizing your product’s price and line assortment minimizes the risk of underperforming sales and declining brand reputation. Suppose you’re a manufacturer of vitamins and supplements. You have a new beetroot powder product with more nutrients per serving than any of your competitors’ products, making it appealing for health enthusiasts. You price your 18 oz. product at $24.99, but is that the optimal price? You assess the other beetroot powder supplements on the market, and you find a similar product (but with less nutrients per serving) also priced at $24.99. Knowing you have a differentiator (your nutrient advantage), you decide to increase your product’s price to $29.99. This more accurately reflects your product’s position and increases brand equity and margins. Considering price and product line assortment in this way minimizes the risk of your product not performing optimally due to a price that’s too high or too low.
CPG manufacturers need to consider the potential risks involved in launching a new product at every stage of the innovation process. Understanding those risks and taking proactive steps to reduce and address them is how your new product will succeed in today’s competitive CPG market. And remember, innovation isn’t random—it’s a science that you can replicate if you have the right analytical tools and support systems. Used separately or together, Nielsen’s portfolio of innovation solutions can help CPG manufacturers like you launch successful innovations faster, more effectively and more consistently.
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