Innovate or Die by Fossil

Fall 2010 Marketing Management

Find the courage to attack new product innovation

Innovate or Die By Calvin L. Hodock and Guy Adamo

The fuel for sales and profits in any business is

situation. But there are compelling reasons to

product innovation, a high-risk endeavor where

attack the risky turf of innovation roulette.

failures widely outnumber successes. The

Product life cycles have become shorter.

reward for innovation is usually market leader

Competitors are too nimble to permit a long

status, even though another business can

comfortable residency in the marketplace for a

imitate or improve on the new product.

new product. Clorox and SC Johnson had their

The Innovation Dilemma The statistics of product innovation are

own versions of Febreze in less than a year after Procter & Gamble introduced it. When marketers take the position of “why fix it if it isn’t broke,”

heartless. Nine out of 10 packaged goods

somebody else out there is looking for a way to

products fail. Advertising Age estimated that

fix it; and they’ll find it. Incumbent inertia made

the food industry loses $10 billion annually

instant photography, the Sony Walkman, soda

due to these failures. Kevin Clancy and Peter

pop and sport utility vehicles vulnerable to the

Krieg suggested in a March/April 2003 issue

likes of digital imaging, iPod, Gatorade and

of Marketing Management that the figure

Prius. Companies must have the audacity to

probably understates the reality of the

attack their core businesses, or competitors will.

Marketing Management Fall 2010

And finally, there is little doubt that the payout for successful innovation is often lavish: Think of DuPont’s discovery of nylon in 1935, which still makes so much money today that its sales alone qualify the company to be on the Fortune 500 list. Blockbuster status is not always the goal. A more modest success was Mountain Dew’s line extension, Code Red. It garnered two-thirds of its sales from outside the Dew franchise, dashing the conventional wisdom that line extensions get most of their sales from their parent brands. Product innovation is a paradox: Damned if you do and damned if you don’t. The odds of failure are high, but there are substantive reasons to pursue it—despite the inherent risk.

Life Cycle Strategy Every product has a life cycle: introduction, growth, maturity and decline. Improved or modified products are developed to keep brands in maturity, rather than letting them slip into decline. Most products today are in the maturity stage, which normally lasts longer than the prior two stages. This sometimes poses overwhelming challenges for the mar-

Fall 2010 Marketing Management

keter since sales growth slows down in the maturity stage. Changes in the product (features, quality), markets to be served (expand, increase usage rate) or marketing programs (distribution, pricing, advertising, personal selling and sales promotions) will keep the product alive and profitable. Tide was first introduced in 1946 and remains a dominant brand today, largely due to the aggressive strategy of improving it 70-plus times since its birth. Colgate toothpaste was first introduced in 1896 and also remains a dominant brand, with 20 different types available (cavity protection, tartar control, baking soda, whitening, sensitive, etc.)—including at least five different varieties for children. “New and improved” is a magic wand for brand longevity. Quaker Oats oatmeal brand is 130 years old. Procter & Gamble introduced Crest toothpaste in 1956, and the brand became the country’s best-selling toothpaste within six years—thanks to its therapeutic benefits (fewer cavities and tooth decay), coupled with the endorsement of the American Dental Association. There are 38 versions of Quaker Oats oatmeal on today’s grocery shelves. Today, Crest has 52 SKUs (stock-keeping units) with undoubtedly more to come. The purpose of these line exten-

sions is to keep both brands alive, avoiding the decline stage of the product life cycle. Line extensions are criticized for cannibalizing the sales of the parent brand and for con• New and improved can extend product life cycles. sumer confusion at the shelf. For example, 48 versions of Tylenol represent choice morphed • Being an innovator can pay off more than copycat innovation. into madness, according to consumer market• Brand equity can be leveraged to enter a new category. ing pundits. But line extensions, when smartly executed, can prolong brand life. A little-known fact is that new products are actually line extensions more than 80 percent of the time, C. Merle Crawford and C. Anthony Di Benedetto in as expressed by David Aaker in E.J. Nijssen’s 1999 article in New Product Management (McGraw-Hill/Irwin, 2008), the European Journal of Marketing, “Success Factors of Line pointed out that companies such as Cooper Tire & RubExtensions of Fast-Moving Consumer Goods.” ber Company, Matsushita Electric and White Consolidated But all line extensions are not necessarily parasites. For Industries Inc. deliberately wait for winning new products years, Listerine and Scope were the dominant mouthwash to emerge from competitors, and then rush into the market brands, each with one-third of the sales. Listerine’s core with similar versions. users were older and dying off while younger consumers There are situations where emulation is implemented on avoided the medicinal-tasting mouthwash. A strategy of new defensive grounds because the company missed a new develListerine flavors was discussed for more than a decade, but opment in the marketplace. The Coors Brewing Company the makers of Listerine were nervous about denigrating the dismissed the introduction of Miller Lite and Bud Light as taste of the amber, foul-tasting original, believing that the fads. As light beers gained traction, Coors saw its supremacy unpleasant taste was a barometer of perceived efficacy. dwindle in important markets such as California. Many Listerine finally woke up from its incumbent inertia, years later, Coors abandoned its one-product tradition and introducing several line extensions that were better tasting introduced its own light beer—better late than never. than the original. Citrus Listerine used proprietary technolThe bigger payout typically belongs to the innovator, ogy from the pharmaceutical side of the business. And each not the copycat, because of first-mover advantages. A sucflavor was aggressively detailed to dentists, replacing Lavoris cessful first entry garners the dominant share in the category. The first copycat will get half of that. Crawford and Di Benedetto observed that first products in new markets gained an average longterm share of 30 percent. The innovator has the experience curve working for it, and Cepacol as the recommended brand of the dental in terms of manufacturing and marketing the new product. profession. Younger consumers were drawn to the Listerine These advantages are a major barrier for the copycats. Nevfranchise, with the new flavors and portable Listerine Pockertheless, companies—think Coors as an example—may be etpaks. Listerine passed Scope in sales to become the top forced to imitate as a prerequisite for survival. mouthwash brand and recently celebrated its 130th birthBrand Franchise Extensions day—thanks to the flavor-line extensions and the modernity Brand franchise extensions can be a notable exception of Pocketpaks. to imitating a strategy, where the brand equity of a power Innovation Imitation brand is leveraged to enter a new category. Jell-O, the quintCopycat innovation occurs when marketers introduce essential American dessert, extended the brand into pudding a warmed-over version of the competitor’s successful new snacks—carving out a $150 million business and trumping product. The imitation strategy transfers risk to a competithe category pioneer, Swiss Miss. There was nothing new tor. Beltone, a successful maker of hearing aids, never leads about Jell-O’s chocolate or vanilla puddings. but always follows category leaders such as Starkey. It offers Crest Whitestrips built on the strong reputation of Crest the hearing impaired a low price, structured around secondin the dental care market, and targeted the “teeth whitengeneration technology, while Starkey’s technically advanced ing” market, while reinforcing the brand’s powerful dental hearing aids cost $5,000 to $6,000. image.

b r i e f ly

product innovation is a paradox: damned if you do and damned if you don’t.

Marketing Management Fall 2010

In an effort to reconnect with its customers, Procter & Gamble recently relaunched its Pantene hair care line by reducing the number of shampoos, gels, hair sprays, and other hair care products by approximately 30 percent—adopting the “less is more” concept. The company has kept the retail prices of the products the same since the relaunch, differentiating itself from value-conscious and premium-price range competitors. The key for these kinds of line extensions is a tight fit between the brand equity (the stored value of the brand) and the product category. We would hesitate about trying Texaco milk or Alpo chili. Hershey’s extended the Reese’s brand from peanutbutter cups to Reese’s Pieces (and then licensed it for Reese’s Puffs cereal), and Ralph Lauren extended from clothing into fragrances. Gucci extended from accessories (handbags, gloves) to clothing, and Ferragamo has added jewelry and readyto-wear clothing to its famous shoe line. In each case, the extension was a natural fit to the existing market.

els, rather than cutting-edge game breakers. It trapped itself in a sea of sameness. In a landmark 1976 study reported in the Harvard Business Review, J. Hugh Davidson evaluated 100 new products equally divided between successes and failures. One of his principle conclusions: Failures were “indistinctive me-toos with a very low chance of success.” Conversely, successes had major differences. They were game breakers. Not much has changed since Davidson’s observation: Witness the mad

tepid line extensions and copycat innovation are major contributors to the high new-product failure rate.

Game Breakers Product innovations classified as game breakers have basic characteristics that alter category dynamics. The new product might replace an existing product, such as when the ballpoint pen replaced the fountain pen. Or it provides a new approach to satisfy an existing or latent need, with Swiffer being a better way to clean a dirty kitchen floor. Game breakers make companies and shareholders prosperous. Why do we pay more than $200 for a share of Apple stock—think iMusic, iMac, iPod, iPhone and iPad. Each provided a different approach to listening to music, navigating the Internet and communicating with friends. Even the stock of a low-tech company such as Procter & Gamble rose dramatically under the stewardship of A. G. Lafley, who included an aggressive emphasis on product innovation. Game breakers require a quest for remarkable, original products like Procter & Gamble achieved with Swiffer, Crest Whitestrips, Align probiotic supplement and Olay Regenerist. In today’s crowded marketplace, standing out always trumps fitting in.

What’s It All About The heart of product innovation is survival, regardless of the form it takes. But all product innovation is not equal. Marketers worship at the altar of line extensions and customization in an attempt to offer choice, but their effort is unfortunately dominated by look-alike extensions. One of General Motors’ major business problems was the illusion of choice in its attempt to market too many look-alike mod42

Fall 2010 Marketing Management

rush of companies to emulate warmed-over versions of competitive products. Corporations could enhance the bottom lines, with an improvement in launching new products. Tepid line extensions and copycat innovation are major contributors to the high new-product failure rate. There is no more juice left in the orange as corporations have downsized, cut costs and extended their flagship brands to the point of no return. Corporations have looked everywhere for profit enhancement, except the low-hanging fruit (or money) dangling from the apple tree in their own backyard. The last silo for profit improvement is the elimination of frivolous innovation, which would be worth a great deal to the bottom line. Clancy and Krieg also pointed out that the editor of New Product News, in working with consumer packaged goods experts, developed an introductory budget for a typical new product. It consisted of advertising, and consumer and trade promotion expenditures, and reached the staggering level of $54 million. Note, the calculation did not include product development, package design, sales force contribution and brand management costs. The price of failure is not chump change. Even the large financial losses are basically misleading, because opportunity costs are never factored into the write-off equations. What would companies have earned without their plethora of new product failures, investing their time and dollars elsewhere? We need to think more astutely about the need for line extensions. Do we really need Tylenol chewable tablets, an extension that appeals to less than one-half of 1 percent of consumers who purchase pain relievers? The victor is the first one or two innovative brands that enter the category sandbox. The later copycats nibble on scraps and are not worth the shareholder dollars they squander.

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Articles Applied Innovation: A Guide to the “Breakthrough Idea,” Prophet, 2010 How to Measure Innovation, MarketingNPV, 2009 Innovation’s Effect on Firm Value and Risk: Insights from Consumer Packaged Goods, Journal of Marketing, 2008 AMA Meetings Brand Measurement: San Francisco Oct. 5-6 San Francisco Webinars Innovate Like Edison: The Five-Step System for Breakthrough Business Success Sponsored by: Strategyn

Pepcid AC, Swiffer, Gatorade, the Toyota Prius and iPod are examples of game breakers that achieved dominance with value-added propositions. Would it not be refreshing for the imitators that follow to move on to something profitable? The high priests of marketing really need to confront the “curse of me-too,” new products inevitably destined for failure, while squandering shareholder value.

Lessons Learned There are several lessons to be learned, when it comes to embracing new product innovation. 1. T he product life cycle is reality in the marketing trenches, but don’t let it become a self-fulfilling prophecy that kills current products off. Refuse to accept the status quo by having the courage to attack it. Adopt a strategy of reinvigoration for existing products, as Procter & Gamble did with Tide. 2. B e ever alert to trend shifts in the innovation equation, and stay away from fads. Fads are usually short-lived and unpredictable. Trends can work for or against us. Take trend analysis and detection very seriously, with the establishment of a formal system that teases out important developments with major innovation significance. Otherwise, risk dismissing a key trend like Coors did, missing the emergence of light beer. Always remember that if it goes up too fast—think the swift

rise and fall of low-carb, colored and clear products such as Crystal Pepsi and Heinz blue French fries—it’s a fad. Know the trends from the fads. A formal detection system helps make trends an innovation ally, not a predator. Every company should have a senior marketing manager, stewarding the trends-detection process. 3. B rand names have strengths and limits. Choices must be made. A brand can’t be everything to everyone. The brand should be viewed as a bank account, and brand franchise extensions should make a deposit rather than a withdrawal. Too many failed extensions impair brand equity, and brand franchise extensions make a deposit when there is a logical fit. Nobody would eat Clorox baked beans; it’s a withdrawal and an unappetizing one to say the least. Consumers did not want to swallow Ben-Gay aspirins, associating the Ben-Gay name with the burning cream. 4. B ring something new to the party. New products that will not satisfy consumers’ needs and wants will fail, and marketing managers need to first identify consumers’ attitudes and preferences. No amount of marketing or money can help tepid new-product innovation, where there is nothing unique, different or interesting about them. Game breakers such as Häagen-Dazs ice cream inevitably altered the marketing landscape by creating the new super-premium ice cream segment. 5. T he world does not need another pancake syrup, even when it carries a powerful brand name such as Eggo. Money is saved—and dropped to the bottom line—when copycat new products are avoided. An innovation such as DiGiorno frozen pizza—which brought a new, real-taste benefit to supermarket pizza that previously tasted like cardboard—is worth more than 50 avarice-driven copycat new products. The single most dominant characteristic of successful new brands and businesses is the ability to bring a new benefit to an existing category. Gillette’s Mach 3 brought superior performance to shaving. Apple and Microsoft brought simplicity to computing. iPod made digital music portable. And Healthy Choice brought health (low fat) and good taste to food products. Enough said. MM Calvin L. Hodock is former chairperson of the American Marketing Association board, author of Why Smart Companies Do Dumb Things (Prometheus Books, 2007) and professor of marketing at Berkeley College, based in Woodland Park, N.J. He may be reached at calhodock@hotmail. com. Guy Adamo is chairperson and professor of the Fashion Department at Berkeley College. He may be reached at ga@berkeleycollege.edu. Marketing Management Fall 2010