Is Your Competitive Intelligence Missing Innovation Intelligence? [REPORT]

By Matthew Senger, SVP, Product Leadership, Innovation Measurement

In 1979, Harvard Business School Professor Michael Porter launched his Five Forces framework with a powerful statement: “The essence of strategy formulation is coping with competition, yet it is easy to view competition too narrowly and too pessimistically.”

Modern marketers have a number of tools to drive growth in the competitive environment which are supported by data to make confident decisions—like pricing, promotion, assortment and media.  But when we talk to marketers about growth, no lever is cited more often than innovation.

The trouble is, innovation is still a mystical artifact of strategy in today’s competitive environment—meaning the same marketers who say it is important also cite a lack of visibility to innovation activity and a lack of basic performance measurement. Unfortunately, this trouble only increases because of constant evolution among competitors, new entrants and substitutes—especially in pools of emerging consumer demand.

So, how can we more effectively invest in innovation as a growth engine? We tend to think it comes down to three seemingly simple things: measure, monitor and manage. Let’s look at each individually.

Measure

The fast-moving consumer goods (FMCG) industry has access to plenty of hard metrics, where past performance is used to predict the future. But is there a better way to see the future competitive landscape?

In 2016 and 2017, Nielsen reported liquid tea as the No.1 growth category in the U.S., rounding out two straight years of 10%-20% growth. That sounds like good news for anyone in the category, right?

Our 2017 data on innovation in tea found that new entrants flooded the future of the category. Meanwhile, the marketers who controlled 60%+ share in the current category were getting less than 35% share of innovation sales. Smaller players were driving about $70 million in innovation sales, as market needs were shifting.  For example, new entrants were bringing new-to-category features like kombucha and exotic flavors in more accessible packaging. Caught off guard and remaining static, several established sub-brands fell almost 25% during that time.

Understanding innovation performance could provide a more holistic view on how the competitive environment is changing in the quest for growth. But it needs to be fast, granular and always on.

Monitor

Marketers try to understand successful innovations from the past, while conducting ongoing searches for emerging trends. But what can we learn from innovations that are hitting the market right now?

The beer category is a good example of how potential substitutes (across non-alcohol and alcohol beverages) can change competitive dynamics. And it shows: Between April 2018 and July 2018, more than 1,200 innovations entered the U.S. beer category, which was about 2x to 5x more activity than any other major beverage category. Outside of sheer magnitude, how beer marketers were responding provides insight into the trends:

•     20% of the innovations were less than 5% alcohol by volume (ABV; also lower calorie), but another 20% had more than 8% ABV—providing insight into bifurcation in market forces
•     65% of the innovations were in cans, offering a number of benefits to consumers like the opportunity to enjoy the beverage during outdoor occasions
•     20% of the innovations led with fruit flavors, and 59 new flavors entered the category with dessert flavors (“pastry beers”) and multi-flavor combinations, which mirrors other beverage trends

Competitive innovation activity is a source of learning that enables marketers to adapt, respond and/or adopt new trends before they scale. Without facts, fiction prevails. We need a way to see high-level trends, navigate thousands of new entries in the competitive scene, and see real examples in real time.

Manage

Most marketers manage launched innovations through a series of tracking mechanisms for distribution, sales, promo, etc. The processes are at varying levels of maturity and consistency, but enable management against pre-launch goals. But is there a better way to manage innovations?

Let’s start with an $8 billion problem. Yes, with a “B.” Our BASES team found that 27% of new product launches were not viable with consumers in pre-market testing. Not counting the cost of development, these launches were supported with $4 billion in marketing spend—and almost all of them failed due to a lack of consumer demand. Meanwhile, another 27% of launches that were viable with consumers failed due to a lack of marketing support. Opportunity cost and irony just doubled.

It’s arguable whether this type of failure is caused by poor planning or poor execution. Nevertheless, few would argue that it is a big, expensive problem. And rather than choose between planning and execution, marketers should strive to address both:

•     Set goals and marketing plan expectations using data on similar innovations in the market
•     Track launch performance against internal and external benchmarks, and best-in-class forecasts
•     Take targeted, corrective actions quickly using consistent metrics and tools

Advancements in any one area of measure, monitor, manage would enable better innovation performance at an organizational level. Each involves taking a broader and optimistic view on competition in order to formulate effective strategy. It also involves keeping the information flow constant in a changing environment to bring agility to strategic decisions.

The real power will come when businesses can harness all three areas, and integrate them into the ongoing decision-making processes throughout the organization.

To down load report CLICK HERE.