Innovation is a survival tactic - Do not shy away

Innovation is cultural, and cannot be turned on or off wilfully. Learning from consumers and acting on it, after all, cannot stop

In my previous articles, I have mentioned pricing and distribution, and how FMCG companies should follow the right strategy with regard to both to stay afloat. The articles talked of how FMCG companies should not increase prices during the bad times and weigh price increases against grammage reduction. On the distribution front, I concluded that the quality of distribution is as important as quantity of distribution. You can’t grow in value without growing in volume.

In the third part of the series, we are looking at innovation and how innovation is one of the prerequisites for growth and success of FMCG companies during tough economic conditions. When there are obvious financial pressures on them such as cutting costs, how can they come up with innovations? The other fear is that 90 per cent of innovations fail in the market. The probability of success is only 10 per cent. With the number of product choices available to the consumer increasing by eight times, the FMCG landscape is only becoming more cluttered.

Most companies, hence, pull the plug on innovation in tough times to try and maintain their market share. But for a few players, the strategy is quite the opposite. They are more adventurous, and innovate when the market is in a bad shape, in a bid to gain market share. With regular innovation, they tend to gain more consumers than the more staid players. In turn, these are the companies that think ahead of times and invest in the future. And, they tend to be the ones with a fire in their belly because they have trailed the market leaders.

Reducing innovation spends is not a good strategy as innovation is cultural, and therefore, it means that you cannot turn it off and back on wilfully. Learning from the consumer base and acting on it, after all, should not stop, and that is what fires up the innovation engine the most.

Innovation is critical to the success of FMCG companies, as the top quartile performers can generate up to 20 per cent more revenue from new product introductions than companies in the bottom quartile.

Cutting costs on innovation lowers the quality and liveliness of a brand and hence, lowers consumer satisfaction. Consumers lost during recession seldom come back.

Companies, however, should move new product ideas fast from development to launch. They should consider (a) a brand “new” for at least two years, and (b) supporting a launch after three-six months of launch activity, especially in long purchase cycles. After three years, it is usually time to re-launch.

Innovation is not only about launching new products, but also improving shopping experiences by providing a range of tools to purchase products with. Do a launch for a strong product acceptance and not for the sake of launching.

Innovation is also a survival tactic now. Indian consumers have become global in their aspirations and are more demanding. At the same time, product lifecycles are shrinking. The pressure to market new products, quickly, is strong.

Out of 14,500 launches in India, only 31 are breakthrough innovations. These breakthrough innovations have been able to command a 1.7-times premium. These have leveraged modern trade to get seven times the growth.

Most companies need to think about the medium term and not just the short term. Innovative products account for approximately four times the percentage of sales of the average FMCG player.