The principles of product innovation

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Breakthrough innovation is possible in any company, country and category. What’s most important is that companies remain focused on consumer needs versus exclusively focusing on driving production scale.Breakthrough innovation is possible in any company, country and category. What’s most important is that companies remain focused on consumer needs versus exclusively focusing on driving production scale.

Fewer than two in every 100 new products launched in Southeast Asia meet key innovation success criteria for distinctiveness, relevance and endurance, according to Nielsen’s Southeast Asia Breakthrough Innovation Report.

The report, released last month, is based on analysis of 2,500 consumer product launches in the top 20 fast-moving consumer goods (FMCG) categories in Malaysia, Indonesia, the Philippines and Thailand. The analysis reveals that of the 2,500 product launches analysed, just 35 (1.4%) met the fundamental criteria for a successful product launch. Products were assessed on the degree to which they deliver a new value proposition to the market (distinctiveness), their ability to generate significant year-one sales (relevance), and their ability to achieve at least 90% of year-one sales in year two (endurance).

Just 10% of new products retain a retailer listing beyond their first year, highlighting the significant risk involved in investing in taking a new product to market, notes the report.

Tobias Puehse, Nielsen’s Head of Innovation Analytics in Southeast Asia, North Asia and Pacific “Thousands of new product launches fail in their first year, costing businesses millions of dollars, yet manufacturers can reverse these outcomes by changing their perspective on what drives innovation success,” emphasises Tobias Puehse, Nielsen’s Head of Innovation Analytics in Southeast Asia, North Asia and Pacific (pic).

“Successful innovation is about deliberate attempts to touch all aspects of the innovation process and challenge everyday norms, such as consumer attitudes, long-standing beliefs, launch mechanics, organisational behaviour and disciplines.”

The Nielsen report highlights growing investment in innovation by local giants. Although big-budget product development is traditionally the realm of global brands, the local giants are increasingly driving their own home-growth innovation, with 54% of innovation successes driven by local giants.

“While the opportunity for innovation lies in understanding underlying consumer jobs to serve, the fierce competition and varied approaches to innovation between local contenders and global giants will elevate the FMCG industry to the next wave of growth, with consumers being the key beneficiaries,” observes Puehse.

Among the 2,500 product launches analysed, Nielsen identified three which stood out as underscoring the principles of breakthrough innovation – Japanese skin care line Hada Labo in Thailand, brandy manufacturer Emperador Light in the Philippines, and Nestlé’s Lactogen 4 in Malaysia.

Spotlight on 3 innovation successes in Southeast Asia

When Hada Labo entered the highly competitive skincare category in Thailand it had a clear charter – remain flexible enough to address local consumer needs, maintain steadfast focus on creating a new niche for its products, and deliver on its commitment of superior quality. Hada Labo also gained insight into local consumer dynamics, enabling it to successfully leverage online channels to generate significant online buzz around its products and drive consumer recommendation – a powerful endorsement in Thailand.

Hada Labo is now ranked among the top 10 facial skincare products for women in Thailand, and achieved 6% growth in its second year, off the back of a strong first year.

Emperador Light was the first spirits manufacturer to enter the Philippines in the late 1980s. Its Light product offering is an evolution on its original range, which has been developed to appeal to a younger generation and take into account local market characteristics and priorities such as taste preferences and affordability. Its launch has been so successful that there are now several ‘copycats’ in the market trying to emulate Emperador Light’s success.

Today Emperador Light is the biggest selling brandy offering in the Philippines. The brand achieved an astounding 600% growth in its second year, following a successful first year.

Nestlé’s Lactogen 4 launch in Malaysia was driven by one simple, powerful universal insight: mothers want their children to grow, happily and healthily. From here the Nestlé team identified a need to extend its existing Lactogen range to cater to children beyond three years of age. Nestlé’s target market for this product, the Malay community, largely resides in rural Malaysia and are lacking in knowledge about food nutrition. Nestlé bridged this gap through healthcare professionals and Government clinic nurses. The Nestlé team also went to great length to adapt its range for local cultural and religious needs, as well as simplifying the scientific messaging on its packaging.

The launch of Lactogen 4 in Malaysia was a resounding success, and in its second year the product achieved 74% growth over year one sales.

“There are a number of common themes across all three brands, in particular keeping the consumer’s needs central to innovation investment, understanding the consumer and competitive landscape, and focusing on innovating for local market needs rather than a globally-scaled approach,” notes Puehse.

“Breakthrough innovation is possible in any company, country and category,” concludes Puehse. “What’s most important is that companies remain focused on consumer needs versus exclusively focusing on driving production scale.”

The Project reveals a few myth-busting headlines:

  • Breakthrough innovation is possible in any company, country, and category.
  • Organisations can perform much better than current levels when they are focused more on consumer needs versus an exclusive focus on driving production scale.
  • Managers offer many definitions of “innovation”. Consumers use just one: innovations perform important jobs in their lives that currently have only incomplete or no solutions.
  • Breakthrough achievers overwhelmingly take advantage of the Asian trend of consumers not simply buying more products, but better
  • Demand Driven Innovation is lean innovation that comes with a unique sense of entrepreneurial spirit and quick decision making processes.
  • Innovation success has very little to do with luck or genius – and even less to do with magic. It’s a purposeful and meaningful set of activities that creates value.

Why Demand Driven development is hard

  • The overwhelming majority of innovation work is sustaining in nature. Incremental innovations improve existing offerings in familiar ways. Consequently, when those rare transformational opportunities emerge, it’s all too easy to overlook the very different capabilities required to fully, faithfully fulfill.
  • The forces of conformity are unbelievably strong. Asset utilisation, established expertise, familiar channel strategies, proven brand equities, financial hurdle rates, managers’ incentives and other forces work visibly and invisibly to maintain the status quo, making it difficult for truly breakthrough innovations to emerge.
  • The margin for errors in breakthroughs is maddeningly small. Consumers tend to have a surplus of mediocre ways to deal with nuisances or tradeoffs in their lives, so only perfect solutions break through. A few small compromises often doom potential success stories.

“In short, Demand Driven Innovation offers to innovation what the Total Quality Movement promised for manufacturing: transformation. Success is never certain, but marketers can predictably and consistently flip historical performance from 85% failure to 85% success,” Nielsen says.

Nielsen breakthru innovators

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