5 Steps to Finding Growth Opportunities

Most companies participate in mature categories,from a growth standpoint. Fighting the category trend to grow the brand is difficult in a mature category. Uncovering growth opportunities will be done so in very different ways than opportunities for brands in a growth category.  

The careful balance and application of five marketing tools can provide success for a business. The visual below applies to both B2B or B2C corporations and highlights the five steps companies must consider for planning purposes:

The Innovation Brand Needs a Makeover

 

in·no·va·tion

noun \ˌi-nə-ˈvā-shən\

1: the introduction of something new

2: a new idea, method, or device

Merriam-Webster dictionary

Innovation is a powerful word - a label for the stream of activity as well as the new things that organizations create.   CEOs increasingly cite innovation as their top priority. It has become the organizational imperative, with the power to revive a company, a category, and create the future. 

What If the term “Innovation” were a brand?  Would it be a strong brand, a profitable brand?   Viewing “innovation” as a brand helps to clarify some issues caused by the overuse and misapplication of the term.  

Update or Innovate?

In a survey conducted by Grocery Manufacturers of America (GMA) and Accenture, only 36% of consumer package goods (CPG) companies believed they have a holistic, effective approach to new product development and introduction (from innovation to end of life). Yet these executives know the future of their companies will be tied to their ability to innovate to grow segments and steal share from competitors.  One frustration is lack of new product success even with a large investment in innovation.    

The Nielsen Company / BASES, a leader in tracking and predicting new product success concluded that there are 12 Key Factors that determine consumer adoption and success.  A low (or below average) score on any single factor will be the weak link that leads to market failure.     

Launching New Products – Success is in the Process

It is fun to imagine the inventor, the creative mind, toiling away on a mission, inventing something no one has seen before. We all dream that if we only had the time, guts, and determination…… then that could be us. But this is not really the way that successful new products are invented. Having launched many new items in my career, the story of the successful hero/solo artist is like a romance novel -– fun, but rarely the way it works in real life.

First of all – let’s remember that 80% of new consumer products fail in the market. Radical new ideas? Information Resources Inc., which tracks consumer product sales in retail outlets, reported that of the 1,500 or so successful new national products launched every year, over 90% are close-in variety extensions of existing powerful brands. And even of those, many will not be around for even a few years.

Process is Top Priority for Success

There are three broad components to any new product launch – Product, Process and Passion. The most important of these is process – product and passion are actually just the tools and stuff needed to make it through the process. This is counterintuitive to most inventors, developers and marketers - who are far more excited by the strength of the product idea.

Successful companies such as P&G, Apple and others launch great product ideas. But their strength and success is actually the internal process which has refined, improved every detail, every step of the way. When this process is solid, they fill the funnel of new ideas and trust that the process will improve and validate each to lower the variability and chance of failure. Successful innovators have their own processes tailored to their unique strengths and resources.

Passion is also a key element of success. Following a process that improves ideas, builds stronger ideas, kills bad ideas is hard work. For a first time inventor, the sequential and logic of the process can be exhausting to the creative mind. The tendency is to want to move more quickly by skipping important steps, cutting corners, and minimize obvious product flaws, assuming that the brilliance of the original idea will make up for it in the end. Customer demands are another cause of cutting corners.

The original product idea is actually of lesser importance. A good process will identify targeted, useful new solutions using tools. Product ideas are cheap and bountiful and most are usually deeply flawed in terms of potential market viability. The process of improvement and selectively weeding them out is much more important than the original idea.

The good news for smaller businesses is that gaining advantage to compete against larger players with more resources can be gained by focus on the strength of the new product process. Many large companies suffer from poorly constructed process or don’t follow them effectively.

 

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The Key to New Product Success

Most new product programs do not deliver the results that are hoped for by the organization.  Most consumer product categories in the developed world are stagnant and marked with intense competition just to hold share position.  In a recent survey, conducted by Grocery Manufacturers of America (GMA) and Accenture, only 36% of consumer product goods (CPG) companies believed they have a holistic and effective approach to new product development and introduction (from innovation to end of life).    Yet these executives know that the future of their companies will be tied to their ability to innovate to grow segments as well as steal share from competitors.   

Much of the focus of new product development programs, therefore, is on top-line growth and finding strong product ideas to put into the development funnel.  Marketers know that New Products is a numbers game –- many ideas will be hatched, few will make it to launch.  The focus is often turned to the quality of the new products process, strategy behind the ideas, and precision of execution.  There is, however, an even bigger factor that will determine the overall success of a new product process.   

Replacement Profitability

“Replacement Profitability” is the level of profitability of a new product compared to the item it will replace in the existing portfolio. Most new products have a strong cannibalistic affect on items in the line.  Often, profitable base items in the line are declining and new products must be introduced to keep sales strong.  While the net effect of new products to the company can be growth, new products often rely on new technology, higher costs of goods and generally non-standard manufacturing. Pricing often cannot be taken too much higher or consumers will not adopt the new items.  Replacement profitability is logical; however, once the development of a new product is well underway, the team’s excitement can rationalize away the costs that creep higher.

Deteriorating Profitability

 

 

 

 

 

In the illustration above, new products drive overall top-line sales while slightly lower margins on these new items lower profits for the company. The net effect is lowered dollar profits as margins begin to quickly shrink.  New item must make equal or greater profit margins than the base item that are declining.  (This illustration assumes that the base product profit margin remains constant, which is often not the case. Therefore, the overall profit picture worsens). Project leaders must ensure that items deliver strong profit margins at every check point of the development program.  Innovation can grow a company profitably, or quietly eat away profitability and leave a company weaker, delivering less back to the bottom line.

The Decline of the Netbook–Selling Less for Less

There was an interesting  article in the New York Times about Netbooks.    (Thanks for sharing, Larry)
Netbooks Lose Status as Tablets Like the iPad Rise 

Remember seeing that little netbook in the big box electronic store? It is the $250 laptop alternative that lets you surf the web and do some cloud computing without the size, and weight of a standard notebook (laptop) computer.  Of course the price was also great with the potential of opening up many more users to computing (think kids at school, or less affluent parts of the world, etc.).
 
This device, when introduced, really put a scare into the notebook industry with the result being a drastic reduction in the price of a notebook computer from an average of over $1,000 a couple of years ago to less than $500 today.

The manufacturers of the first netbooks picked up one very strong consumer insight.  Consumers want portable technology that is lightweight and accomplishes the basics pretty well.  But as the NY Times article states, sales slipped this past holiday by –38% versus last year.  So what happened?  The answer to this question can be found by looking at  consumer insight, marketing and competing technology. 

For consumers, electronics purchasing decisions are based on a clear priority.  First comes “cool and wow” (lots of features, applications and great product design).  Only after that does the price factor become important.   Certainly you hit the jackpot when you offer “cool and wow” for cheaper, but only after the coolness has been widely accepted.  For a while, the netbook was legitimately cool.  But it was soon seen a product of tradeoffs – sort of a “less for less”.  That, unfortunately, fights the consumer priority order and is is not workable in the fast evolving world of computing. 

From a marketing standpoint, there was no interest in dialing up any cool features with advertising buzz around these devices either.  The dilemma for the manufacturer is obvious - if you market this product to anyone, you are taking a potential notebook purchaser and downgrading them to a netbook.   Can anyone think of any cool applications (apps) for these machines?  Personally, I think that it would not have been hard to tout potential unlimited access to all your business software, gaming, file sharing, Skyping, etc on the net.  Isn’t that what an iPad is anyway? Just seemed like the industry had no interest.  

The final nail in the netbook strategy came from competing technology.  Ebooks, and Ipads and the beginning of the so called “slate” screen interface have made the netbook (and soon laptops) out of step.  These newer interfaces will soon replace the “flip open” screen technology in the years to come. And the consumer will be asked to pay top dollar for these newer interfaces.   If you understand the consumer priority of purchase decisions (wow first, price second), consumers will be happy to pay.

Locating in Philadelphia? – Watch out for the “Taxman”

The thoughts that dance through the mind of the soon-to-be entrepreneur are of innovation and the freedom to turn dreams into reality.   Anyone who has done more than dreaming will want to quickly decide where to build their dream.  In a search for cities and municipalities that might be conducive to this adventure, Philadelphia is a top choice – in some ways.

Global top 100 cities ranking for innovation in 2010 by the group  2thinknow ranks Philadelphia #6 in the USA and #30 in the world based on cultural assets, human infrastructure and networked markets. Not bad.  Philadelphia has a rich mix of history and culture, along with a go-get-em workforce attitude.

But, if you add taxes to the equation, the picture changes dramatically.  Taxes quickly become a central issue for a new business when calculating potential cash flow off of “slim” margins over the first few years.  The City of Philadelphia has a problem here.  Its tax rate is almost the highest in the nation for cities.  There may be brotherly love (and great cheesesteaks), but it comes at a whopper of a price:

Tax	Rate
PA State tax rate	9.99% on all net profits
Philadelphia Business Privilege Tax	1.415 mills on gross receipts 6.45% on taxable net income
Philadelphia Wage Tax (on gross wages)	3.9% (Resident) 3.5% (Non-Resident)

In 2001 Philadelphia was ranked as one of the worst cities in the country on a taxation comparison for business.  The Philadelphia suburbs have a more attractive taxation picture.  As a result, the city has seen residents and corporations leave the city altogether.  It is a spiral of sorts, forcing the need for higher taxes in the city to keep services whole.  Philadelphia has reduced its tax rates as more progressive politicians try to restore sanity to this spiral, but they are still burdensome. 

On a personal note, Philadelphia even taxes bloggers $300 if they make any revenue (you know, that $4.50 you made last year with the sidebar ads).

I love Philadelphia, and feel that the people, culture, and business community are great.  Yet, if you are starting up a business venture and are making profit maximization a priority, Philadelphia tax rates make the city a poor location choice at this time.

“Let me tell you how it will be - There’s one for you – nineteen for me” – John Lennon, Paul McCartney “Taxman”

A Simple Way to Produce Breakthrough Ideas

The human brain has the unique ability to produce creative ideas.  It creates a new idea by taking 2 or more existing ideas and seeing a new “relationship” between them that applies to an opportunity or problem it is seeking to solve.  A solution, idea, path forward, etc. is handed over to you (sometimes when you least expect it).  This is a very simple procedure for the brain to accomplish and it does this work on its own. 
New ideas are important in many, if not all disciplines, but particularly in business.   Any one of these creative ideas, once nurtured, can move you in new directions.  It would be nice to know how we can direct this activity of the brain and call on it on a consistent basis.  There is a technique.      
James Webb Young wrote the classic book “A Technique for Producing Ideas” in 1965. I am not trying to plug this book in any way, except to say, I have used it’s advice many times.  Mr. Young was an early pioneer in the advertising industry and started teaching this technique to college students at the University of Chicago in 1939. It would take you about an hour to read and it is worth every minute and every bit of its $6.00 price on Amazon.
There is a 5 step process to creating ideas, which must occur in order. 
Stage 1.  Gathering raw material – this is an important part.  You must develop a curious mind that grabs bits of information across subjects – some that are all about your business or project and others that are far afield as history art, science, etc. Without this stuff, there is not enough raw material with which to work. 
Stage 2 – Chew on the dimensions and facts regarding the solution or idea you seek.  Poke, prod, go deep where you have questions, hold it up in new lights.  Work this part to exhaustion, don’t give up.
Stage 3 – Let it all go – push away, go to the movies, a concert, or to sleep.  
Stage 4 – The idea will appear – Your mind does this part on its own; presenting you with the light bulb moment, an idea..
Stage 5 – Expand on this new idea – work it in the real world, don’t hold it too close, let others breathe life into it.  
All of this suggests that a life rich in curious wonder of the interesting things happening around you is the most useful material to creating breakthrough ideas.  The power of just one brilliant idea may just change your world.