New Product Innovation in a Recession

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New Product Innovation in a Recession

Successfully launching new products is always tricky, but recessionary environments pose their own set of unique challenges and the margin for error declines. Investments receive more scrutiny and priorities shift from more "normal" times. The temptation to view new item innovation as a discretionary expense can be strong.

At the same time, much has been written about new product successes that have been birthed during hard economic times and the need to resist the impulse to pull back on new product development. To be sure, some changes in marketing activity are necessary when the economy is slumping. But the rationale for strategic choices during these times should have more to do with a clear view of the fundamentals than with fear of failure and uncertainty.

To test this hypothesis, Nielsen recently mined insights from about 35 new item launches that are being actively monitored across a variety of packaged goods categories in the United States. The results revealed important clues on how to think about innovation in the current economic downturn.

Don't throw out the playbook

The first observation from studying these launches is that most are proceeding as expected. Of the initiatives being tracked, about three in four showed no unusual patterns in sales relative to Nielsen expectations, and little evidence that economic conditions were negatively impacting sales.

Since most consumer packaged goods categories are showing small impacts on category turns from the economy and only moderate effects in terms of brand shifting, the idea that new products are largely on track makes good fundamental sense. When it comes to everyday goods, consumer habits are slow to change. This mirrors Nielsen's finding over years of testing new products in the BASES system -- consumer purchase intent and value perceptions are relatively stable over time regardless of macroeconomic conditions.

Premium items are not dead

Many would be surprised to learn how many premium-priced initiatives are active in-market right now -- over half of the items that Nielsen is tracking are priced at a premium to their parent brand and/or their respective category. Perhaps even more surprisingly, many of these items are also performing as expected. The key learning is that even higher-priced items can succeed during recessionary times if the fundamentals are right. While purchases of expensive "intermittent" luxuries like vacations or cars might be delayed or cut altogether, everyday affordable indulgences can still play a role in consumers' lives.

An emerging pattern, however, is revealing that some premium items are more vulnerable during this downturn than others.

Stretching into premium territory could be risky

A number of brands that are currently underperforming are attempting to stretch into pricing territory that is outside their historical comfort zone with consumers. If the base brand is parity- or value-priced and doesn't have a clear differentiating element, this may not be the time to attempt an extension into a more premium space. Brands that are more price-driven may experience better return on investment behind fortifying the base equity, rather than attempting to commercialize extensions into higher price tiers.

Know your brand's limits

Winning innovation strategies always start with an objective understanding of the competitive landscape and the strength of key brands' assets. Using new products as a way to mask or overcome brand positioning or equity issues is a risky play under any circumstances. Current new product performance suggests that this principle may be especially relevant during tighter times, particularly as it relates to a brand's value equation.

Clearly state the "why to buy"

For premium-priced products, the unique benefits must be clearly positioned with consumers. One of the pitfalls Nielsen is observing with premium products currently struggling in the marketplace is unclear differentiation and a lack of clear consumer rationale for why to buy. When premium initiatives lack a clear reason for their higher price, they struggle to make it off the shelf and into a basket. Marketers can avoid shortfalls in the market by spotting the early warning signals with two key indicators:

Key indicator #1: Understand consumer "attraction"

Nielsen measures consumer interest in new items using an idea called "attraction" in its consumer adoption framework. Generating strong consumer attraction depends on both an initiative's perceived consumer relevance and also its competitive differentiation. For premium products, setting the brand apart with high relevance and clear perceived advantages vs. the category are critical factors for success. And in a soft economic climate, this is even more important, as those brands not meeting expectations had clear problems in generating attraction prior to launch.

Key indicator #2: Learn about value perceptions relative to experience

Even for premium initiatives, Nielsen typically advises targeting at least "average" perceived value as the consumer success criteria in the BASES system. This is quite evident in current new product launches, as some of the weakest performers demonstrated very low value ratings in testing.

Occasionally, a marketer will rationalize why it might be acceptable for a premium item to generate relatively weak value ratings. However, Nielsen advises an extra degree of caution if an initiative is weak on value during these economic conditions. An initiative with this profile should have its positioning, target and/or price point explored further to see if the value perception can be improved. If not, strong consideration should be given to abandoning the product launch altogether and focusing resources on better opportunities.

The mantra for these times is this: Guide the ship with a steady hand, but don't over-steer. If a fundamentally sound innovation process has shown results during "normal" times, then the right principles are likely in place. The same principles that guide innovation decisions during normal economic times are relevant during recessionary times, too.

Proceed with caution

Armed with a clear understanding of the competitive landscape and a robust assessment of a new product's position, marketers can make an educated decision about whether to stay the course or modify a launch. Even during recessionary times, if the fundamental principles are in place, marketers can grow via innovation -- being mindful of the warning signals.