the trouble with innovation

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Innovation & Product Development

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The Trouble with Innovation Presented by: David Soulsby June 2013

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Innovation is the ‘go to’ strategy to deliver against stretch financial expectations

Today’s Base Business

Tomorrow’s

Target

Today’s Base Business

Tomorrow’s Identified

Opportunities (incremental)

Growth Gap Tomorrow’s Identified Risks

to Base

?

2

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But generally failure rates for innovation are unacceptable….

1 Delivering successful innovation

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What is the definition of a successful innovation?

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To understand what drives successful innovation TNS have undertaken R&D across a range of categories based on Kantar WorldPanel data, ie household purchase panel.

We looked at the importance of:

• Total sales for the new product

• Incrementality = 100% - Cannibalisation %

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• Survival

Is the product still available (in distribution) after 2 years?

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Sales volume for the new product is a strong predictor of survival

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….but is survival really success?

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• Survival?

• Providing growth to the business that is stronger than the category development = “successful growth”

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0%

20%

40%

60%

80%

High volume

High incrementality

Medium volume

High incrementality

High volume

Low incrementality

Medium volume

Low incrementality

Low volumes

Probability of successful growth

If you are looking for growth, biggest is not always best Incrementality is the key to success Example: Laundry category

Note: Incrementality = 100% - Cannibalisation % Source: Kantar WorldPanel

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Source: Kantar WorldPanel

…and this applies across a range of categories

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But the news get’s worse for the ‘cannibals’ ….. ….they often lead to an overall decline in business!

Profile of launches with high volume but low incrementality

0%

20%

40%

60%

80%

100%

Laundry Savoury

snacks

Soft drinks Skin care

Failure

Survival butdecline

Limited Success

Full success

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So TNS believe incrementality must be built into the way we assess new products throughout the process

Which of these new products offer the best growth opportunity?

Product A Product B Product C Product D Product A Product B Product C Product D

Sales six months after launch (€m)

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So TNS believe incrementality must be built into the way we assess new products throughout the process

Biggest is not always the best

Overall potential doesn’t necessarily measure the growth potential of an idea

Product A Product B Product C Product D Product A Product B Product C Product D

Sales six months after launch (€m)

Cannibalisation Incremental volume

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Once the decision has been made to invest in product development it is difficult to ‘put the brakes on’ a project

Source: Cooper & Kleinschmidt

29%

Prelim market assess

Idea screening

Prelim tech assess

Market study

Financial analysis

Product development

In-house prod test

Customer prod test

Test market

Pilot production

Business analysis

Production

Market launch

Average % of innovation spend

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And, you need to know you are backing growth ideas early in the process

2 Identifying the innovations which can deliver growth

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The current norm – biggest is best ….but trial potential is only part of the story

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Trial potential High Low

STOP REWORK PROGRESS

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% Incremental

Low

Our database shows considering incremental growth potential provides a better perspective

Concepts that could grow the business, but would be traditionally screened out

High

Low

Should we progress these cannibalistic concepts?

High

Trial potential

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Understanding incremental growth potential provides better advice

Traditional categorisation based on highest trial potential

Progress

Stop

Rework

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Understanding incremental growth potential provides better advice

When we build in incrementality, in 40% of cases you would make a different screening decision

Progress

Stop

Rework

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Winning cannibal?

Initiatives with broad appeal that will cannibalise the existing franchise.

Incremental winner

Initiatives with strong growth potential

De-prioritise

Initiatives with narrow appeal and limited growth potential

Investigate

Initiatives with moderate growth potential which have stronger appeal among Early Adopters

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Concept eValuate identifies the new product ideas that will drive growth early in the innovation process

Cannibalisation isn’t always bad:

• Better margin (but rare)

• Defensive when you have a weak

parent

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Understanding incremental growth potential means better advice

New categorisation taking account of growth potential

Incremental winners

Investigate

De-prioritise

Winning cannibals?

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Uniqueness does not guarantee incrementality In fact, you cannot predict incrementality from other traditional measures

Correlation (R) with: Purchase intent -0.32 Uniqueness 0.21 Liking -0.24 Value for money -0.02 Believability -0.05

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“Definitely would” buyers are more important than “probably would” buyers

To predict incremental growth accurately you need to understand people as individuals

Aggregate analysis treats all respondents as equals - but

Heavy buyers of the new product are more important than light buyers

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Proof that individual modelling doubles the accuracy of the incremental growth estimate

More

accura

te

Less

accura

te

Salad dressing Toothpaste Dishwasher

tablets

Snacks CSD Shower gel

Traditional aggregate model TNS individual model

Accuracy of cannibalisation estimate

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Individual modelling isn’t easy. TNS has 20 years experience and validation that our models are predictive

In-m

ark

et

tria

l ra

te

Trial index weighted by marketing plans

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3 Example

TNS © 1.24.2013

Test project

Assuming 100% awareness and distribution. Based on Total Category Buyers

% Trial Bottom 50% 50 - 25% Top 25% Bottom 50% benchmark Top 25% benchmark

Trial

50

0

37

Concept 1

32

Concept 2

21

Concept 3

21

Concept 4

30

36

Identifying the concepts with strong trial potential is only part of the story

TNS © 1.24.2013

Test project

Assuming 100% awareness and distribution. Based on Total Category Buyers

Incremental Non-incremental Bottom 50% 50 - 25% Top 25% Bottom 50% benchmark Top 25% benchmark

Trial

50

0

26

Concept 2

21

Concept 3

19

Concept 1

18

Concept 4

20

25

Winning cannibal?

Incremental winner

Investigate De-prioritise

To maximise your chance of success you need an understanding of incremental potential

TNS © 1.24.2013

Test project

Concept 2 Incremental winner

Development guide

Product expectations:

Natural ingredients Spicy flavour Price point:

€2

Target

Brand X buyers

Watch out

Weak credibility

Growth

6

26

32

Topspin

45

Uniqueness

35

Early Adopter trial

42

Excitement

Based on Total Category Buyers

Incremental growth Brand cannibalization Bottom 50% 50 - 25% Top 25%

Precise development plans aid speed to market

4 Successful growth through innovation

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TNS identifies winning ideas for growth

Biggest isn’t always best. Incrementality provides the key to growth potential

Individual-based modelling provides more accurate screening and prioritisation based on incremental growth potential

Back the right projects early in the innovation process to optimise speed and efficiency

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