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Exploring Investments in New-to-Market Innovation vs. Product Renovation for CPG Companies

Within the consumer products industry, economic conditions and consumer preferences can contribute to both industry success (or failure) and a company’s overall sales and marketing strategy. While pricing is a critical factor determining consumer behavior – especially amid continued inflationary pressures – portfolio options, value propositions, distribution channels, and brand integrity also remain critical influencers of consumer trends and decisions

Maintaining a competitive advantage depends on the ability to navigate this rapidly changing environment, anticipating and responding to consumer needs and then meeting them with new, innovative solutions and product improvements. Below, we’re covering some key details to keep in mind when comparing new-to-market innovation vs. product renovation.

New-to-Market Innovation vs. Product Renovation  

Today’s consumers seek value and efficacy in their purchases, not to mention constant accessibility and fast order fulfillment – pushing CPG companies to refine existing products while exploring new ways to innovate. CPG brands constantly grapple with the decision to invest in two types of innovation: incremental innovation and breakthrough innovation. Finding the balance between these priorities requires an intentional innovation strategy, where the allure of new-to-market innovation is tempered by the realities of complex market dynamics and a constantly evolving consumer. 

Downsides of New-to-Market Innovation 

New-to-market, “Capital I” Innovation, can at times feel disconnected from consumer needs. Longer product development cycles lead to results that fail to resonate with the targeted consumers, and the required organizational investment to market new-to-market products can refocus funding from other business activities, including the smaller-scale product innovations that are more attuned to current market dynamics.  

In addition, while (successful) new-to-market, revolutionary inventions can shake up industries and reach new consumers, the process demands a significant and consistent investment of time and money – CPG category captains P&G and Unilever collectively spend over $1 billion on R&D every year. For many businesses, there are too many downside risks associated with “Capital I” Innovation, including a lack of market traction or massive share gains by better-funded rivals.  

As any business leader knows, investment is typically measured by the returns it generates – but among CPG companies, higher innovation R&D investment sees an astounding 85% failure rate. This high rate of failure underscores the challenges and complexities of new-to-market innovation, making it hard to justify such astronomical R&D funding, especially if capital can be redeployed to acquire proven ideas or utilized to fuel innovations with a higher probability of success.  

Benefits of Renovation 

Renovation (“lowercase i” innovation – incremental enhancements and refinements of already existing products) encompasses a spectrum of initiatives, from feature enhancements to packaging innovations. The focus on marginal improvements can enhance sales and profits, mitigating risk by building upon established products and consumer preferences and bypassing the uncertainty often attached to new-to-market products. 

There’s existing research that supports solid effectiveness of incremental innovation in business success in CPG companies. A study of 2,500 companies found that R&D spending at the industry level had little effect on consumer goods sales and that investments in marketing showed greater returns for these same CPG companies. This isn’t to say R&D spending is ineffective, as the research found that R&D spending showed positive results when it was aimed at meeting specific consumer needs 

This idea of targeted and specific investment aligns more closely with the ideas of incremental and meaningful innovations, which can serve as a bridge between consumer insights and near-term product opportunities, resulting in often higher, nearer-term returns on “little i” innovation. It also lowers the gap between product introduction and retail execution as incremental improvements require less buy-in from retail partners than do less-proven Capital I innovations. 

When investments are made with deep specificity and a data-driven consumer need they fill, the results can be far more meaningful. Said innovations are responsive to consumer desires and serve to recapture consumer interest, driving business growth and brand differentiation and balancing familiarity and recognition with the excitement of something new. Incremental product development – product improvement – becomes a critical method of revenue generation. 

Examples of CPG Renovation 

In the CPG industry, renovation serves as a useful catalyst for business growth and differentiation, providing brands with opportunities to grow their offerings and expand their customer base. Every time a new software update is released for an app, or Apple comes out with another iPhone, “lowercase i” innovation – renovation – taps into markets (and consumer wallets) again. Renovation can take many forms – product feature enhancements, product packaging innovation, services, and more. 

Package designs serve as a strategic way to resonate with modern customers and their preferences for usability, sustainability, customization, and digitization. It doesn’t have to be drastic; the uniqueness of Cuties oranges packaging excited consumers, driving product growth until Cuties became a household name. 

Smart technology, also known as connected packaging, can also close the gap between the brand and the customer. QR codes on product packaging can connect the customer with more detailed use instructions for a skincare product or cocktail recommendations to pair with a particular bottle of liquor. With its many forms, renovation reflects the commitment of CPG brands to meet consumer needs through strategic refinements.   

Looking Ahead 

Finding a strategic balance between “Capital I” and “lowercase I” innovation is essential, particularly as brands navigate market uncertainties and limited availability of capital. Today, CPG brands are constantly battling to retain their “must-have” status and stand out on store shelves and online channels. For many companies, renovation is a lower-risk, more cost-effective solution to make this happen.  

Clarkston’s consumer products experts are prepared to help your company create a growth strategy tailored to your specific challenges and goals. Reach out to us today. 

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Contributions from Grace Leitner & Aaron Messer

Tags: Product Lifecycle Management, Revenue Growth Management, Brand Strategy