Innovation in the consumer packaged goods (CPG) industry is evolving quickly, but many companies are not keeping up. According to our strategic partner Nielsen, less than 20 percent of new products generate more than $10 million in first-year sales. Fifty-four percent produce $3 million or less.
Nielsen's findings demonstrate the painful fact that incremental innovation is no longer as effective as before. With consumer needs evolving quickly, people demand bigger thinking and more value.
So where do CPG companies make mistakes? One significant challenge companies run into, according to Harvard Business professor Clayton Christensen, is mistaking correlation with causation when making product decisions. For example, if a test group overwhelming prefers version A to version B of a new product concept, that doesn’t prove version A will solve a real need in the consumers’ lives. But CPG companies draw hundreds of these correlative data points between preferences, age, gender and ethnicity to determine the direction of new products.
A better approach, according to Christensen, is to determine the customer’s original circumstance that would lead him or her to use a new product in the first place. The innovator must ask, "what job is the consumer trying to complete?" Answering this question is especially important in early-stage ideation phases.
The innovator must ask, "what job is the consumer trying to complete?"
This philosophy, while having many names, is widely known as the Jobs-To-Be-Done theory. This methodology proposes that the products that help customers get their job done better than others are the ones that win market share.
But what does “better” mean and how can product developers understand what it looks like to their consumer? Building organizational capabilities that allow you to check in on the consumer circumstance, how and why it evolves, and what you can do in that moment to positively impact that circumstance is key. This starting point helps prioritize which pain points to address and which have the most potential value.
Here are three ways CPG companies are innovating with the Jobs-To-Be-Done methodology, demonstrating how your company could also leverage deeper understanding of the consumer to uncover breakthrough products and drive profitability and returns on R&D spend.
1. Learn about the consumer’s circumstance
Defining demand begins with understanding the specific circumstance that lead a consumer pain point. To uncover a circumstance that would be relevant to innovation, brands need to identify consumers who are struggling, what they are struggling with, and when and where the struggle takes place. Consumer pain points can then be prioritized against business goals.
Frito-Lay, for example, found that the snack cravings of a single millennial Latina were not determined primarily by her demographics but by her mood, the time of day and the social context. In each of those situations, she had a slightly different circumstance, and was therefore open to different snacks at those times. Alone, the struggle may be boredom or hunger, depending on the time of day. While hosting friends, the “job to be done” may be providing a fast and easy snack option.
Using this insight, Frito-Lay refocused its innovation program around the core circumstances its consumers found themselves in. The results were dramatic: after years of decline, Frito-Lay’s growth exceeded the market and increased its market share.
As this example shows, uncovering the demands created by your consumers’ circumstance requires a finger on the pulse of their changing needs. Understanding how those needs evolve is a core capability that helps companies be agile in meeting them.
2. Uncover a new solution to the problem
The circumstance alone won’t determine the form innovation takes, though it will likely help focus your team’s efforts on the right bets.
Nestlé Purina’s Tidy Cats litter team uncovered a consumer circumstance that was different from the usual problems of smelliness and clumping. Through customer research, Tidy Cats’ brand director Rebecca Schulz concluded: “What we’ve heard time and time again is that carrying litter is a burden.” Schulz's team discovered that customers kept clean litter in the trunks of their car until the bag was half-empty and light enough to carry inside. This particular circumstance led to an R&D breakthrough: producing cat litter that was 50 percent lighter than before. Rather than competing with similar brands on similar problems, Tidy Cats uncovered a unique problem and solved it in a big way.
Not all consumer problems require breakthrough R&D. The problem of heaviness could be solved in any number of ways, including a subscription cat litter service that delivers litter to your home every few weeks, or more expensive packaging with small wheels on the bottom, to name two examples. Once you’ve uncovered the unique consumer circumstance, you need to determine the form your new innovation will take to solve the problem and prioritize where your time and energy should be focused for market success.
3. Test, prototype and iterate
One-third of all product concepts succeed in pre-market testing. But with more than half of all new CPG products selling less than $3 million in first-year distribution, pre-market testing clearly isn’t enough to determine a home run.
Nielsen studied innovation leaders from brands such as Kellogg’s, Anheuser-Busch and Milo’s Kitchen to see what they do differently. The study revealed that these leaders relentlessly prototype and continue to engage with consumers in-market.
To understand the importance of in-market validation, it's worth revisiting the Tidy Cats example. Upon launching the company's lightweight cat litter, Purina's research team observed and engaged with consumers to confirm whether the new packaging was light enough to carry to the house. Consumer feedback validated that Purina had succeeded.
As this example shows, innovative CPG leaders continue the testing once the product has launched to find out if it’s a fit with the intended consumer circumstance. At every consumer feedback point, lies an opportunity for refinement.
Innovation is in flux and incremental innovation doesn’t guarantee success. Innovation needs to be about creating products with meaning. That meaning must authentically connect your product and brand to what your customers hold most valuable. Focus your teams on the right consumer “job to be done” and give them ongoing consumer intelligence to keep up with the evolving consumer circumstances over time. CPG companies must start to align innovation processes around real-world, consumer-defined struggles; without taking this step, breakthrough innovations and their rewards will remain elusive.
For more on CPG innovation, check out this page and discover a smarter, data-driven approach to uncovering breakthrough products.