Less Exec Involvement Drives CPG Revenues

Less Exec Involvement Drives CPG Revenues

Leaving executives out of the R&D process for new CPG goods can produce substantial benefits, according to recent research from The Nielsen Company.

Light Idea Management Critical
Nielsen research indicates that companies with less senior management involvement in the new product development process generate 80% more new product revenue than those with heavy senior management involvement.

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For example, CPG companies with a very or somewhat “loose” stage/gate process (i.e., do not have many points in the R&D process where a new product idea must pass certain criteria to continue) average a 3.1% dollar return on new products. When those companies heavily involve senior staff, that return drops to an average of 1.7%.

And placing physical distance between innovators and executives also helps make new CPG products more profitable. According to Nielsen research, companies with an off-site “Blue Sky” innovation team report 5.7% of revenues coming from new products, compared to 2.7% when the team is on-site.

Nielsen advises that heavy involvement in new product development from the senior staff can destroy value. Senior management is often too quick to get involved in the creative process, especially when things are not going well. Their mere presence can stifle free-thinking and boundary-less ideas, which can doom the new product development process to failure.

Precise Process Management also Critical
Keeping executives removed from new product development does not mean the process should be any less precise. CPG companies with rigid stage gates (see above) average 130% more new product revenue than companies with loose processes.

Nielsen research indicates that the most successful new products tend to have:

  • Two to three stage gates that are strictly followed across the organization. The first stage gate is typically designed to identify ideas that will then be developed into a concept and prototype, while the last stage gate is usually designed to determine whether a product should be committed to production and market.
  • A focus on growing brands, not ones acquired or designated by senior management.
  • An innovation planning cycle that spans several years.
  • A formal scorecard to evaluate financial results.
  • A standardized and required post-mortem on all new product development efforts.
  • A knowledge management system to retain key lessons and insights from previous product launches.

Other Findings

  • Using outside ideation firms tends to result in a 15-20% improvement.
  • Selecting the right idea and commercializing it correctly can deliver a 130% increase.
  • Learning from mistakes can create an uplift of 50% to 90%.

CPG Brand Loyalty Diminishes
As an added incentive to improve the revenue from product development, CPG companies should be aware that consumer brand loyalty across a broad range of CPG categories is shrinking, according to recent data from comScore.

comScore evaluated the change in brand loyalty within a number of consumer goods categories, including health & beauty aids, OTC medications, apparel, food, household products and housewares. As the economic downturn has continued, the percentage of shoppers who typically buy the brands they want most has steadily declined across the categories and segments examined.

For example, in March 2008, 67% of consumers said they buy the brand of toothpaste they want the most, the highest percentage across all segments studied. By March 2010, this had dropped to 57%, and toothpaste still led all segments in brand loyalty.

About the Data: Nielsen conducted a study among 30 CPG companies and identified about two dozen best practices that drive better-than-average incremental revenue from new products.