Why early failure can be a good thing for new products
There's nothing worse than introducing a new product and having it fail when it hits the market. But the fact remains that in today's marketplace over 90% of product launches are unsuccessful, up from around 70% in 1997, according to a joint study by global business strategy firm Ernst & Young and Nielsen BASES.
Nielsen BASES is a company with expertise in forecasting whether a product or marketing campaign will succeed based on factors such as marketing expenditures, potential sales and consumer demand.
Speaking at a marketing conference held in Cairo May 6, representatives from BASES gave over 100 marketing professionals here insight into successful ventures versus their not-so-successful counterparts -- product failures that could cost a company millions in advertising and marketing dollars.
BASES data, which has been collected since 1977, shows that 65% of marketing expenditure is allocated to unprofitable new products or line extensions. Figures from Nielsen Egypt indicate that companies here spend approximately $650 million (LE 3.6 billion) on advertising and consumer research every year.
With nearly 100,000 concepts tested, 13,000 of which were in the Middle East and Africa region, and another 15,700 products assessed, BASES has a large database it uses to analyze everything from price point and customer likeability to projected incremental growth and distribution volume. According to the company, its predictions are on average within plus or minus 9% of the product's actual sales, based on more than 1,500 in-market validations.
Banoja Acharya, BASES director of client consulting for the MENA and Asia Pacific regions, says the key to saving money is to "fail early, fail fast and fail cheap." Marketing is not just about driving innovation; it's about answering key questions about a product's sales potential, likeability, marketing push and advertising budget before a company spends big bucks, she says.
Three aspects that should be considered when looking at launching a new product are strong consumer demand, adequate marketing support and a plan for incremental growth that taps into new segments. To calculate consumer demand for any new product, BASES adds the number of trials to the number of repeat trials to get the total volume of sales.
What product marketers should be most concerned with is getting consumers to try the product as opposed to focusing on repeat use. This is particularly important for new brands or items that consumers are not familiar with. BASES studies show that brands supported by a strong concept or a good match between price, benefits and claims, the marketing message and the product's endurance are much more likely to survive over the long term.
In terms of marketing support, Acharya recommends quick implementation of awareness or marketing pushes that put the new product or line extension in the forefront of consumers' minds. The push should be early and sustained instead of dropping off a few months after product introduction. Timely distribution should also be a consideration, with particular emphasis on in-store product placement, shelf facings and possible point of sale 'real estate.' Generally, the most successful items are promoted or considered new for double the time typically associated with a product launch cycle, says Acharya.
"There is a strong correlation between early flighting [getting the message out there early] and increased sales," she says. Higher distribution, longer ad campaign exposure and more facings equal bigger sales. The idea is to grow incrementally versus encroaching on a parent brand's market share, which is important when launching expanded product lines that can include new flavors, advanced technological benefits or different packaging. One of the common mistakes marketers make is borrowing from advertising earmarked for the parent brand, a trend that can lead to decreased awareness and sales for the parent brand.
After the Launch
One lesson marketers should take from a successful product introduction is that the 'out years,' or period after the launch cycle, are just as crucial as the product's introduction phase, says BASES manager Shradha Bhagchandani.
BASES research maintains 69% of products lose momentum and drop in sales during the out years, while only 17% continue to grow. But how does a company keep its loyal customers and attract new buyers at the same time? Bhagchandani says doing both could be as easy as adding larger size ranges to the existing product or offering innovative incentives to try the product, but continued marketing and advertising support as well as sustained distribution and prime product placement in retail outlets are a must.
"All new products go through a process of repeat decay, or loss of purchasers overtime. Once a product is purchased six to eight times, that decay stabilizes," she says.
After a product has managed to hold its own in the marketplace for a few years, it becomes a staple for consumers. However, it can also become forgettable or lost in the influx of newer, more innovative products in its category. That's where the re-launch comes in, says Bhagchandani.
Keeping consumers' interest is paramount in keeping their business, which means renewed efforts to promote the brand or product, not an easy prospect when a large portion of customers have trouble accepting changes to existing products, she says. BASES recommends using branding techniques such as differentiation and clearly defined product benefits to draw in new testers, while piquing the interest of loyal customers. But do not make the mistake of under-spending because it will be clear to new and existing consumers if the advertising campaign lacks solid foundations, she adds.
Closing the conference session, Acharya echoed Bhagchandani, telling audience members that recessions and slowing economic times call for higher emphasis on marketing spending and product innovation, even though marketers may find their budgets slashed.
Putting some of these concepts in action, Miranda Osman, marketing manager for popular homegrown snack foods brand Bisco Misr, says her company still plans to launch new products this year, but slowing sales in some categories have changed her plans. Unable to reveal details because the products have not been introduced to the marketplace yet, Osman says the company will be adding value-for-money to its launches by offering larger portions for the same price.
She says most of the big players in the snacks industry are changing their marketing plans by buying less television advertising and instead using lower cost alternatives, including radio ads and customer promotion. Though her budget hasn't been reduced yet, Osman is decreasing her expenditures and trying to make smarter decisions about where to put marketing dollars. "We haven't cut the budget yet, but we're slowing down the expenditures. We're moving the budget we allocated to spend in the first quarter to the second quarter," she says.
Osman, looking for a surer deal in a tough economy, is set to take advantage of BASES' product launch models to test whether Bisco Misr's new products will be welcomed by consumers in Egypt. "For me, [the conference] was very beneficial in assessing our marketing campaigns, especially in Egypt. [] We are faced with so many doubts about what we should do. I think [the BASES models] will help us very much."
By Jessica Gray
© Business Today Egypt 2009
