How to Innovate in the Consumer Goods Industry

Every industry has its peculiarities when it comes to innovation. Developing a new aircraft requires a different approach than a new consumer good (Ulrich & Eppinger, 2012, p.20). The existing innovation processes such as the Stage-Gate Model or Design Thinking are very general in design, lead to a high flop rate of 65% to 80% and are therefore not very efficient (Meffert, Burmann & Kirchgeorg, 2008, Völckner & Sattler, 2006). Thus, the consumer goods industry needs an innovation process adapted to their needs.

We first have to ask the supposedly trivial question how innovation is defined. The answer comes from Csikszentmihalyi (2014), who describes innovation as a product of a social system that judges an individual’s creativity.

This social system is represented by the so-called gate keepers (consumers, management, trade, NGOs, consumer protection, etc.) who decide in their own company and in the value chain which innovations will be included in the domain. This admission process is neither democratic nor can all ideas be taken into account. This model makes clear that many good ideas or good products will never find their way into a domain. Think of the many original, but hardly noticed films, songs and short videos on YouTube, which continuously extend the “tail”. Another example is Galileo Galilei with his heliocentric worldview, which was not accepted in that time. Another example are the many successful consumer goods, where the marketing mix has been carefully defined, but still disappears from the shelves after a short time. This is an explanation of why new products fail, and it has nothing to do with the product.

Current innovation processes are based on the assumption that the act of creating a new product is crucial for success, which is why much attention is paid to the activity of creation. If this is not the case, a weak execution or an inappropriate procedure will be held responsible. This false interpretation does not take into account the fact that a good idea does not necessarily have to be recognized as such, regardless of how original it is.

Therefore, it makes sense to select the right markets (segments, categories, channels, etc) before the act of creation. Target markets are where people pay much attention to new products or ideas. Such markets are characterized by growth and a high absorption rate of new products. Think of the iPhone. The market for consumer electronics enjoy a lot of attention in our time. Would Apple have been equally successful in a stagnating market? Probably not. In the fast-moving consumer goods industry, some categories work better than others. On the other hand, a market where many new products fail over time, is unsuitable for launching new products because of the lack of client interest. The chances for a hit are much lower.

The next step is followed by idea generation. In this phase, we are looking for new products ideas which our own company can produce, too. One of the main problems after a brainstorming or an idea workshop are the huge amount of technicaly or marketable infeasible ideas. Therefore, an idea workshop needs a framework which will be explained in a later post.

Accordingly, the activities of an ideal innovation process must look like this: high absorption exists → feasibility is given → idea will be feasible for an attractive market. This approach leads to a more efficient process than the existing innovation processes, which follows the reverse order: an idea is made → feasibility is unclear → absorption is vague.

Mirko Stanic publishes on www.tojeto.ch and is the Author of the ebook “Innovation in the Fast-Moving Consumer Goods Industry,” where he writes about the new innovation process for the FMCG industry. Download the ebook for Amazon Kindle http://amzn.to/2EwKx71

References

Csikszentmihalyi, Mihaly. (2014). The systems model of creativity (Vol. Vol. 1, The collected works of Mihaly Csikszentmihalyi). Dordrecht: Springer.

Meffert, H., Burmann, C. & Kirchgeorg, M. (2008): Marketing–Grundlagen marktorientierter Unternehmensführung, 10. Auflage, Wiesbaden, Gabler.

Ulrich, K. T., & Eppinger, S. D. (2012). Product Design and Development (Fifth ed.). New York: McGraw-Hill Education.

Völckner, F. & Sattler, H. (2006): Drivers of Brand Extension Success, in: Journal of Marketing 70(2), S.18–34.

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