What we know about New Product Development (NPD)

Summary

This paper explains the concept of New Product Development (NPD) – the process of bringing a new product to market – and how to ensure its success.
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Successful new product launches are those that listen to consumer needs and develop an in-depth understanding of what drives consumer preferences. Whatever brand strategy is chosen for a new product, the business must be prepared to invest a significant amount of money over the long-term to support the product. Often new product launches fall down as the media investment is much lower than required, and solely focus on short-term gains.

Definition

New product development (NPD) is the process of bringing a new product to market. This includes conceptualising ideas, designing, developing and eventually launching a new product or service in the market.

Key insights

1. Machine and human learning are best combined to help predict the success of NPD

AI/ML models for predicting innovation success promise to make innovation testing faster and more cost efficient. Training is the foundation of all predictive models, and the quality and appropriateness of the training data used will determine how good it will be. Training an AI/ML model to recognise a successful new product innovation requires examples of successful and unsuccessful innovations so it can learn the features that predict successful ones. However, as consumer needs evolve over time, innovation concepts from the past may not be able to fully predict successful innovation concepts of the future – so it is critical to understand and validate the accuracy of the model being used. Models that are trained for specific purposes e.g. by category and/or geography tend to be more accurate. Models are also improved by using verbatim consumer responses to concepts rather than the content of the concepts themselves.

2. Research can help with differentiation and distinctiveness during NPD

When innovating to create a new brand or product, creating a proposition that is different from potential competitors should be the key objective. Market research, whether desk research, qualitative, ethnographic, quantitative, social listening, trend spotting or, ideally, a combination of some of these approaches can identify a clearly defined opportunity space for differentiated innovation. Ideation should then focus on generating new product ideas that are clearly different from potential competitors and in a way that is relevant to consumers because it offers them benefit(s) which they value. Care should be taken to ensure that the difference is clear to consumers and maintained through all iterations of the proposition as it is developed and gets launched in market. Market research can and should test for relevant difference at all steps in the process. Creating strong distinctive brand assets, such as visual and aural cues or a slogan, that make it come to mind easily in buying situations, and ideally also instinctively recall the brand’s differentiation for consumers, is also key. Research can play a role here by providing inspiration for creative design. In particular, semiotics is an invaluable approach in terms of providing insight into what the visuals, colours and other codes in the category mean to consumers and how are they changing over time. Market research can also help test if proposed design resonates with a target audience and is distinctive.

3. Collaboration with Creators offers new possibilities for NPD

While influencers grow a social following to attract the attention of relevant brands and their marketing dollars, creators use their own talents or a specific topic to grow a strong and sticky community around their own brand, which they monetise in numerous ways – for example, through tiered access, merchandise lines, product spin-offs and virtual drops. As a result Creators are potential competitors to established brands. This new dynamic heralds more open and collaborative business models, with brands inviting creators in and giving them a springboard against which they can pursue their own ideas. Instead of all innovation, design and creativity coming top down, the brand becomes a central hub with resources, cash and credibility, from which multiple creators can launch their own takes. This can potentially augment a brand rather than dilute it - pulling it in new directions, seeing it through new lenses, opening it up to new communities, remixes and iterations – driven by Creators but still anchored in the brand.

4. Trend tracking helps to launch the right product, in the right market, at the right time

FMCG giant Unilever wanted to ride trends rather than chase them with its NPD. It built an analytics-powered trend engine with predictive capability that used geo-tracking to model how trends move across markets. Unilever found that trends are usually born in one of a set list of originator markets, picked up by transmitter markets and ultimately reach follower markets. This produced clear guidelines as to the lead markets to constantly monitor and the expected lag-time for a trend's subsequent transmission. Using this framework, cosmetics brand Lakmé was able to innovate and launch new products before the trend entered India and maintain an image of a brand that is leading trends. Unilever's innovation pipeline across divisions is adopting this framework to identify opportunities for growth. It can be challenging to differentiate fundamental trends that are based on a deep-rooted consumer need from passing fads. To understand what is trending in a category, the brand looks at multiple data sources which help the discovery of possible themes around formats, ingredients and flavours and uses algorithms to filter out the fads and identify the sustained trends.

5. Product testing is “going digital” to enhance learning

Product central location tests (CLTs) are evolving to capitalise on technology opportunities. For example, two case studies in the soft drinks category show how:

using a biometric appliance to capture emotional responses provides an additional layer of discrimination in product performance to assist product optimisation
using virtual and augmented reality to contextualise the product experience can lead to better results

Technology proved important to enable product testing during the COVID-19 pandemic when in-person CLTs were challenging to conduct. Recruitment and one-to-one data collection can be conducted online, with product shipped to respondents’ homes. Virtual product labs, focus groups and online communities can be used to get feedback from multiple participants at once.

6. Breakthrough innovation comes from early understanding of the few real innovators

The true innovators are just 2.5% of the population. They are made up of alpha trendsetters – people who were talking about current consumer fads five years ago – and mavericks – visionary risk-takers with disruptive business ideas. They can be quite separate groups but can have shared values. Alpha trendsetters further split into those who have the ideas, those who promote them, the opinion formers who endorse ideas and influence the taste makers who are the “purveyors of cool”. These alpha trend setters may not be easy to spot but will provide crucial insight into what will become important to the mainstream in future. Adidas has tapped into the underground innovators with its Ultraboost footwear, which it began making in 2017 from plastic waste recovered from the oceans in collaboration with non-profit Parley Ocean.

7. Successful NPD is consumer-led

Brewing giant Anheuser-Busch InBev has rethought its approach to innovation in order to become more responsive to consumer needs. Following poor innovation success rates before, AB InBev is transforming itself to innovate much faster. It employs separate teams working to bring new products to life in less than 100 days, with an emphasis on better insight from data-analytics and social media, and a test and learn approach to kill bad ideas fast. Among the consumer-driven successes are Michelob ULTRA Pure Gold Organic Beer, Budweiser Copper Lager - a partnership with Jim Beam bourbon to create a beer aged in bourbon barrels – and Drinkworks – a partnership with Keurig Dr Pepper creating capsules for a range of 24 different cocktails made by a bartop machine that mimics the technology of Keurig coffee and espresso makers.

UK telecommunications company BT has also re-orientated its NPD from being technology-led to consumer-led. Faced with a saturated UK broadband market, BT needed to defend its premium position and retain customers. Success hinged on translating network convergence - the provision of telephone, video and data communication services within a single network - into a tangible, differentiated consumer benefit. An intensive consumer learning programme helped create a customer retention proposition, BT Plus, which promised to keep consumers always connected. This was championed internally and taken successfully to market despite technical difficulties with some of the originally planned features.

Tea brand Twinings was entering the kids’ beverage market for the first time and needed real consumer insight to develop a strong concept. It got parents to use its mobile ethnography app to understand the real-life challenges of kids’ hydration and then worked with them to solve the issues in a co-creation workshop. The resulting concept achieved BASES scores in the top 5% for all drinks concepts ever tested globally.

8. A clear NPD process can increase the chances of success

UK manufacturer Premier Foods has developed a three-step process to guide its NPD and identify promising ideas:

Identify innovation territory – a clearly defined and sizeable business opportunity grounded in consumer insight. This can emerge from any number of different sources, including: consumer segmentations and needs, trends or category (and adjacent category) dynamics, brand equity or ambition, and core competences or internal capabilities.
Immersion in that territory – start with existing sources of data to map out the “who, what, when, where, why” of the category. Tap into trends via existing internal and external research, and information in the public domain. Only then fill the insight gaps via qualitative research, consulting experts, mining social data, looking at cultural insights and semiotics.
Ideation – There are no hard and fast rules - it can be done externally or internally, formally or informally.

9. An online community helped Nestlé upgrade its NPD

Charged with developing a five-year innovation pipeline, only five of thirty concepts met the required standard (of three stars or more) under Nestlé Cereal’s existing processes. To step change its approach to innovation and bring consumers closer into the process, it set up online community the Future Cereal Club. To make research more approachable, the company dropped the idea of ‘respondents’ and did not require the moderator to remain neutral. Cereal super fans in the community became real partners in the process – providing incisive feedback and committed to screening 150 ideas in two days. Results exceeded expectations in terms of generating ideas. Of the thirty new concepts the brand tested, almost half reached the action standard: five were three-star ideas, seven were four-star ideas and one hit the five-star mark.

10. Premiumisation is the best strategy for new products to fuel category growth

A study of over one thousand successful launches in 38 categories globally found that all benefited the manufacturer with 40-50% of sales won from competition. However, from a total category perspective only 46% delivered category value growth. This is very rarely the result of attracting new buyers to the category. Driving additional category purchase or volume was much more likely but premium pricing was the biggest factor likely to drive category value growth – though it can limit the size of the launch.

Read more in: Innovating for growth and What we know about premiumisation

11. Analysis of online search can inspire NPD

Beauty group L’Oréal have worked with Google to turn search data into actionable insight for NPD, such as its launch of a DIY home kit tapping into the ombré hairstyle trend. Using search to listen to and understand what the consumer is looking for has enabled them to react quickly.

Fragrance and flavour house Firmenich partnered with Tsquared, an online search insights brand, to study trends around natural food, organic food, and related dietary restrictions in the US and UK. Using big data to analyse online search activity, they found the audience consists of two segments; one interested in organic and another, interested in vegan, gluten-free, and 'natural' food in general. The analysis identified an 'ideal' vegan beverage for the UK market in 2017: a coconut milk non-dairy drink with acai berry, sweetened with honey.

12. Brand extensions can help to reduce costs and risk

New brand development can be costly and risky, in order to minimise risks and costs brands are increasingly focusing on brand extensions. Brand extensions provide opportunities to leverage the existing equity of current brands, whereby the brand name is already recognised, and they can build upon positive associations with the existing brand. When considering a brand extension it's beneficial to assess brand equity and consider a number of different future visions, in terms of brand fit and the attractiveness of the opportunity. Successful approaches to launching brand extensions include being true to the brand vision, building a distinctive positioning and understanding unmet consumer demands.

13. It’s important to learn from the past and avoid thinking just in the short-term

Learning from successful, and not so successful NPD can help brands to become more effective at launching new products.

FMCG brands can risk cannibalising existing products if they add to a range by making a small variation, rather than creating a new one.
When exploring NPD it's important to listen to what consumers really want to buy through market research, and only invest in the best ideas.
Communicating the key USPs through the advertising campaign as well as the packaging will help to create synergy and entice impulse buyers.
Accurate forecasting is critical to ensure that the price is set correctly to cover costs but still appeal to consumers.
It's also important to avoid discounting too heavily at launch. While its does help to create standout, discounting too heavily sets an expectation of a low price over a longer period that cannot be maintained.