Getting to ...

 

the company that introduced the new product doesn’t capture the value of its innovation.

One consequence of this is that companies will find that being the fast follower to market is often a more effective and profitable strategy than to be a market leader.

For example, Sara Lee recently launched a line of bagged salads that include meat, which was a new product that addressed consumer needs. Soon after, Kraft launched essentially the same product. So even though you have two products that consumers are getting value from, the two companies are unlikely to generate significant return on that innovation since the products aren’t sufficiently different. This is an example of where being first to market may not reward you with sufficient value capture from your innovation, because it isn’t hard for a competitor to deliver a similar product.

That’s why differentiation in the CPG sector is so difficult. One solution, which is often overlooked, is to focus your efforts only on innovations that are more difficult for competitors to copy. Focus on product or packaging technologies that require a little bit more advanced science to manufacture; this will at least delay copying by competitors, and may buy you enough time to enjoy an attractive return.

Any time you gain between your launch and competitor’s is of tremendous value. A while ago, Heinz began selling “Easy Fries”, microwaveable French fries. That may not sound like a major breakthrough, but it does require some science behind how you actually make these French fries microwaveable, in both the product and the packaging. They’re really convenient, pretty crispy and pretty good. And they fly off the shelf. No one else has matched them yet, and it’s been a while since they launched.

GMA Forum: Opportunities like that don’t come along
every day. How can CPG companies increase their
chances of coming up with such breakthrough ideas?

Alex Kandybin: This gets back to companies’ overdependence on customer input. Breakthrough ideas come from understanding technology development, better understanding trend development, and trying to actually figure out potential solutions for that. You can never know if an idea will be successful or not, so companies should develop multiple options to the prototype stage, and only then involve consumers in the process. Then they will have something to react to. Keep in mind, though, that if your idea is truly new, consumers may not appreciate all of its benefits.

But in general, the problem for CPG companies is that they are often too risk-averse. They may develop truly breakthrough products, yet still they often decide that they can’t afford to develop all of them. So they institute processes that kill too many good ideas and produce too few breakthrough innovations.

The better model is to allow more breakthrough innovations to fail. Nobody really knows how the market will react to a particular breakthrough innovation. You can’t really predict sales, and you can’t even really predict whether that breakthrough innovation will or will not be successful.

So the only way to actually make it work is to create a business model that allows you to test in the market different breakthrough innovations on a regular basis, kill those that don’t work, and amplify those that do. Companies that can do this will have tremendous competitive advantage.