New Product Pacesetters 2003

Editor's Note: The following report is excerpted from a presentation given at IRI's Reinventing CPG Summit by analyst Valerie Skala. Passages in italics are the Institute's analysis of information included in Skala's research but not featured in the public presentation.PrologueAs a reminder of why it's so hard to launch a successful new product -- why at least half of all new products fail and are off the market within three years -- let's begin by reviewing the basic New Product Math. If you have a strong sales force and strong retail sell-in, you can achieve such broad distribution that 90% of all shoppers in that category will have the option of buying your new product in the store where they are shopping. In the best case, however, only about 70% of the shopping population will be aware that your new product exists. That leaves you with 63% of all category buyers. If your marketing program is persuasive, you can generally get about one-third of the "aware" population to make a trial purchase. That brings you down to about 21% of all category buyers. If those trial users are satisfied with the product and decide it's as good or better than what they were buying before, typically about one-third will make a repeat purchase. Ideally, then, your new product meets all of these expectations and you achieve about a 7% share of all category purchases (a rough estimate of year-one share prediction, depending on the specific category purchase cycle). But that 7% share will decline further, because perhaps 50% of your two-time buyers will become three-time buyers, and maybe 75% of your three-time buyers will become four-time buyers, and those are the people who make up your long-term share. That doesn't exactly deliver a leadership position in most categories -- and in highly fragmented categories in which a 7% share is good a new product must convert a lot more trial users and repeaters than in this example.IntroductionLet's start with a definition. What is a life-changing, market-changing, or transformational product?First, the product itself has to reinvent a category, or create a whole new category of products, in a way that addresses an important consumer need: It can make an existing product more convenient, or address America's need for healthy, tasty, convenient foods. An example is the Packaged Salad revolution. It can make a luxury product more accessible and affordable to more people, which some have termed "Walmart-ization." It can address the needs of the aging Baby Boomer generation. The Olay product line is doing that with products that provide the results of a salon facial or other expensive skin treatments.But the product itself is only part of the equation. The product positioning needs to be clearly communicated to consumers. In other words, the product has to "say what it does," then fully deliver on that promise, in a way that is superior to previous products. In short, the product has to "say what it does, and do what it says."Next, the product has to sell extremely well. Those sales need to not only be large, but also incremental -- bringing new sales to the manufacturer and the retailer -- and also sustainable over a long enough period of time to make a lasting impact on consumer habits and to generate substantial profits for the manufacturer.The ultimate measure of success is when buyers like the product so much that they recommend it to their friends. Collapsing CategoriesResearch by a number of academics, most recently Carl Mela of Duke University, has found that the introduction of a disparate new brand forces existing brands in the category to become closer substitutes, as measured by cross-brand price elasticity (vulnerability to competitive promotions) and own-brand price elasticity (likelihood of losing more volume if own-brand price goes up). Brands at the extreme ends of the spectrum (ultra-premium or very low priced) are less affected; brands in the middle get pushed closer together.A new innovation shows low cross-brand price elasticity, but high own-brand price elasticities (which may be because introductory dealing incents trial, and/or because dealing encourages repeaters to stockpile).Be aware that a significant new entry (e.g., a big innovation that creates a new premium segment in the category) will change your existing brands' place in the market structure, leaving them more vulnerable to competition than they were before. Historical PerspectiveTo show how hard it is to develop a "life changing" product, and to give you examples of brands that can be uses as benchmarks of success to emulate, we prepared a "best of the best" list from the past nine years of New Product Pacesetters reports.Across the more than 250 categories tracked by IRI's InfoScan, we pulled data on all brands that had total FDMx (Food, Drug and Mass, excluding Wal-Mart) sales of more than $25 million in calendar year 2001, and examined their sales in 2003 (in the 52 weeks ended 11/30/03). We used this three-year data period to ensure that all these products met our "sustainability" criteria. There were slightly more than 200 brands that met this criterion. We then took the top 150 of those big brands, those which had FDMx sales in 2003 of more than $200 million. Of those top 150 brands, only 11 were New Product Pacesetters since we initiated the study in 1993-1994. They are: FreshExpress bagged saladDole bagged saladDiGiorno frozen pizzaFreschetta frozen pizzaWavy Lay's potato chipsDasani bottled waterAquafina bottled waterSilk milk substituteHuggies Pull-UpsIams pet foodGillette Mach3Vanilla CokePrilosec OTC heartburn medicationCrest Whitestrips teeth whitenerClaritin OTC allergy medicationKrispy Kreme donuts (through alternate channels)The five underlined brands meet the absolute sales criteria, but have not been out for three years yet, and so still have to exhibit staying power.Non-Food Pacesetters of 2002-03See chart at right for full list.This year, Claritin led all new products in both year-one dollar sales and unit sales. Normally, the No. 1 non-food brand achieves sales in the $100 to $150 million range. But this brand had huge sales as a prescription drug, and most users were forced by their insurance coverage to switch to the over-the-counter version when it came out. (The net effect is that Schering-Plough replaced a $3.2 billion a year Rx franchise with an OTC business one-tenth that size.)Still, the last Pacesetters that achieved anywhere near this level were Metabolife 356 in 2000-2001 (with $213 million in year-one sales) and Gillette Mach3 ($250 million in 1998).Four other products made the Top 10 based on unit sales: Herbal Essences Fruit Fusions, Trident White oral care gum, Halls Fruit Breezers throat drops and Wrigley Eclipse Flash Strips.The minimum sales level for the 2002-03 Top 10 was $60 million FDMx, which probably translates to $100 million if you include Wal-Mart and other outlets not tracked by InfoScan.Similar to results for 2001-02, this list shows continued interest in high-performance dental care products such as teeth whiteners, power toothbrushes (Crest Spinbrush Pro was No. 13 with $42 million in sales), and new toothpaste varieties. Among other trends, major Rx-to-OTC transitions are shaking up the health care aisle.Institute Commentary: Claritin also topped the Pacesetters chart in terms of ad support. Schering-Plough spent $86 million on media advertising to usher in the product, more than 28% more than was spent on any of the other brands in the top 10. The company also spent at least twice that amount on a massive retail effort that made Claritin displays, in-store signs and circular ads ubiquitous, especially in the drug and mass channels. No direct correlation can be made between the level of media spending and the ultimate success of the products on the Pacesetters list. Although all 10 brands received strong media support, totals vary as you move down the list (with some of the heaviest spenders near the bottom of the top 10.All 10 brands benefited from heavy activity at retail, with steady feature support in circulars and incremental display space in stores.Once the top-selling products have been identified, the next question to ask is, how incremental were their sales? To answer this question, IRI typically conducts a "source of volume analysis" to identify how much of the new product's sales were cannibalized from other brands and how much were incremental to the category. However, that doesn't address another important question: Did retail sales of the category show growth versus the prior year -- particularly in the growth-challenged FDMx market? In some cases, a source of volume analysis will identify that 10% of the new product's sales were "incremental" to the category, yet the category's retail sales are still trending down versus the year-ago period. While that's still valuable information to know, it's just not as exciting a story. And in newer categories, where there are just a couple of brands, it's pretty obvious what the source of volume is. This type of rough retail-sales-based analysis is not as "fair" in more highly fragmented categories, but again the goal is to give a rough idea of how many of these new products can be loosely credited with a contribution to category growth in FDMx outlets.For instance, Crest Spinbrush Pro had sales of $42 million in the year, while sales of all Crest Power Toothbrushes were up $15 million; so we estimate that 35% of the Pro line extension's sales contributed to franchise growth. Extending further, the total category was up $20 million versus a year ago, and about $10 million of that is attributed to other manufacturers (Sonicare and Braun/Oral B) and $10 million to Spinbrush Pro. So 25% of Spinbrush Pro's sales can be viewed as a contribution to category growth.To give you some benchmarks, we roughly estimated the extent to which each of these Pacesetter brands contributed to the growth of their category (see chart). The brands are still listed in order of total dollar sales. As you can see, the percentage of volume that was incremental to the category really doesn't correlate with the product's placement on the list. Claritin and Alavert were left out of the analysis because, as Rx to OTC conversions, it is difficult to accurately measure their contribution to their manufacturers and to retailers. They were replaced with Night-Time Dental Whiteners and Commit anti-smoking lozenges, the next two products in the Non-Food Pacesetters ranking, to round out the sample. The results? A few of the brands were almost entirely incremental: Night Whiteners and Swiffer Wet Jet. Three brands were in the 25% range, and half were just barely or not at all incremental.To offer some perspective on how tough it is to compete in some CPG categories, consider the case of Dove shampoo (not including conditioners). Here's a brand that racked up $50 million in sales, but with only about $1 million (3%) of that representing a contribution to category growth. This is a brand whose sales materials claimed more than $100 million in marketing support.Why are some products more incremental than others? They create a new product category, or revolutionize an old one They solve real consumer problems They demonstrate proven performance/superiorityFood and Beverage Pacesetters of 2002-03How did some of our other major food manufacturers do last year?There is one Kraft/Nabisco cookie product (Oreo Double Delight). Masterfoods has "Cookies &" cookie/candy bars (and also Uncle Ben's Breakfast Bowls at No. 17). There are Sara Lee bread and rolls, General Mills' Berry Burst Cheerios, PepsiCo's Gatorade Ice, Coke's Vanilla Coke and Anheuser-Busch's Michelob Ultra (and Bacardi Silver at No. 12). A good cross-section of U.S. food companies.How about the other leaders? Campbell Soup Co. had Soup at Hand at No. 11. Frito-Lay had Tostitos Gold tortilla chips at No 15. Kellogg Co. had Special K Cereal Bars at No 17. ConAgra Foods' best showing was Healthy Choice frozen novelties at No. 42.Among categories, there were two non-alcoholic beverages, two alcoholic beverages, and six food products. What are the highlights? Products for dieters, including: Michelob Ultra, the first (official) reduced-carb beer, from Anheuser-Busch. Several competitors are planning reduced-carb entries in 2004 Dannon Light 'N Fit Creamy yogurt. A no-fat, "more indulgent" line extension of the 2001 Pacesetter, Dannon Light 'N Fit. New flavors, colors, packaging: Gatorade Ice, a clear, crisp, fruit-flavored Gatorade from PepsiCo Yellow Tail, Australian wine Oreo Double Delight (peanut butter and chocolate crËme, etc.) from Kraft/Nabisco Vanilla Coke Campbell's Soup at Hand (year-one sales of $51 million and calendar year 2003 sales of $74 million) Cookies & from Masterfoods. A rectangular cookie topped with chocolate and candy pieces from M&M's, Snickers, Twix and Milky Way Distribution expansion of big-name brands: Sara Lee bread and rolls, a move to transform the fresh bread market from local bakeries to national brands Krispy Kreme making the "Starbucks" move to retail. Me Toos (Although first is always better, second still can be good): Malternatives: Bacardi Silver (at No. 12) from Anheuser-Busch, although total sales lag far behind the category-launching Smirnoff Ice (which had 2002 sales of $135 million). Cheerios with berries: General Mills' follow-up to Kellogg's Special K with Berries (which sold more than $100 million in calendar year 2003). A special mention goes to Johnson & Johnson's Splenda sugar substitute, which got off to something of a slow start, and reached just over 30% all-commodities volume distribution in its first 52 weeks (which placed it at No. 44 on the list). But this is one of the few new products that continued climbing over time, and it achieved sales of $115 million for the calendar year (taking over the No. 1 share position in the category).Institute Commentary: Drawing a correlation between media ad spending and new-product success is even more difficult among the food and beverage leaders, where the second most successful brand spent virtually nothing and several others spent relatively little.When launching Vanilla Coke, whose first-year sales far outpaced all other food and beverage entrants, Coca-Cola Co. focused on alternative marketing tactics, including heavy product sampling. It also typically used trade promotion funding to gain a strong presence at retail.More significantly, Krispy Kreme donuts generated $235 million in year-one sales with virtually no media advertising, but generous support in stores and circulars from participating retailers -- many of which used the product's availability as a competitive distinction. In terms of category contributions, the 11 top Pacesetters converted anywhere from 0 to 100% of their volume to category growth, with 46% being the average.Most successful were the aforementioned Krispy Kreme donuts and Gatorade Ice, both of which can be identified as bringing purely incremental sales to their categories. The weakest were Berry Burst Cheerios and Oreo Double Delight, which completely cannibalized sales from existing products.What factors contribute most to a new product's level of incrementality? The bigger the category -- in terms of sales, household penetration, and purchase frequency -- the more difficult it is for a new product to drive incremental growth. Categories with lower penetration have more room to grow. New products are more likely to be associated with category growth when the category is already on a growth trend prior to launch which indicates healthy consumer interest and potential for trial usage of new entrants. Some facets of the new product, its positioning and its marketing support also contribute. Products that offer a new consumer benefit, deliver superior performance versus previous alternatives, create new usage occasions, appeal to a new consumer target, and/or have a lot of "buzz" behind them (generated either by "free" media coverage and/or paid advertising). Lastly, a new product has a better chance of driving incremental sales when its retail shelf space is also incremental to the manufacturer and the category. Often, a manufacturer is forced to give up some of its existing facings to get a new product on the shelf, which leads directly to cannibalization.The products among the leaders with the highest incrementality express the above factors.

New Product Pacesetters 2003

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