fusion point research Marketing Research Reports

Marketing to New Product Development in CPG

Understanding Their Role

The ability of a company to innovate year after year is a critical component to long-term success.1 New product development (NPD) is an important part of a consumer products company’s growth plan. CPG companies use research & development (R&D) departments to drive innovation. R&D is a huge expense, but innovation is vital to the sustainability of these companies.2 Large CPG companies prefer to invest money in the long-term benefits of innovation rather than the short-term returns from sales promotions.3

 

Innovations are comprised of two primary sources.4 The first is clear insight into customer needs. These needs can be functional, social or emotional. The difficult part is recognizing the need as a viable source for innovation. The second is technological progress. When technological processes improve, or new technology is developed, companies can innovate in unforeseen ways. When choosing to invest in new technology product innovation potential is the driving force for many manufacturers.5

 

Despite these investments, most new product launches are unable to maintain a retail listing beyond their first year. This high rate of failure in such an important area for these companies fuels an intense desire for NPD process improvements. CPG companies manage a portfolio of innovations, knowing many of the ideas in the pipeline will never be successful sellers. The use formal planning processes and try to understand past failures. The challenge is greater for global organizations. Strong communication is required between locations in order to minimize misunderstandings as the company navigates complex international activities.6 Because of these challenges, most new products introduced each year are simply brand extensions, with only a handful of completely new, innovative products.7

 

“We would much rather invest a dollar in innovation or equity, those benefits are proprietary and sustainable.”- Jon R. Moeller, Chief Financial Officer, Proctor & Gamble8

1 Nagji, Bansi, and Geoff Tuff. “Managing Your Innovation Portfolio.” Harvard Business Review 90, no. 5 (2012): 66 – 74. EBSCOhost(74438661).

2 Landrum, Wendy, and Ted Butler. “R&D Tax Credits for Food and Beverage Companies.” Tax Adviser 44, no. 10 (2013): 666 – 669. EBSCOhost(92611864).

3 Vizard, Sarah. “P&G Plans ‘Major Innovations’ as Sales Growth Stagnates.” Marketing Week (Online Edition) , 2013, 5. EBSCOhost(91689176).

4 Tybout, Alice M. and Calder, Bobby J., ed. Kellogg on Marketing. 2nd ed. John Wiley and Sons, Inc., 2010.

5 “Manufacturers Can Put Technology on Trial.” Food Manufacture 87, no. 10 (2012): 4. EBSCOhost(82538886).

6 Sakellariou, Evy, Kalipso Karantinou, and Konstantinos Poulis. “Managing the Global Front End of NPD: Lessons Learned from the FMCG Industry.” Journal of General Management 39, no. 2 (2013): 61 – 81. EBSCOhost(95886363).

7 “IRI Identifies New Items That Made Big Impact.” Chain Drug Review 35, no. 8 (2013): 27. EBSCOhost(87778134).

8 Vizard, Sarah. “P&G Plans ‘Major Innovations’ as Sales Growth Stagnates.” Marketing Week (Online Edition) , 2013, 5. EBSCOhost(91689176).

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Copyright © 2016 Fusion Point Research, Inc.

Innovative products are essential to the success of CPG companies, and they invest heavily in new product development. The process is challenging, though, and most new products fail in the marketplace.