Every retailer claims ‘the customer is at the heart of everything we do’, which is why ensuring that customers are excited by the products they discover is a crucial point of differentiation for supermarkets. Indeed, our research reveals that 62% of shoppers appreciate it when a range evolves – with new flavours, packaging and formats.
However, if new product development (NPD) is so vital to retailers and their suppliers, why is an estimated £3bn annually wasted in the process of devising products that supermarkets believe customers will want?
Retailers shouldn’t “innovate for innovation’s sake”. Regardless of the rationale behind it, innovation must either add value to the end consumer or reduce costs for the company producing it. An understanding of what a customer really wants is critical to the success of innovation and NPD. Research that sets out to prove a company’s own hypothesis right, rather than understanding the needs of the end consumer, is more likely to result in products that fail, wiping out potential profit and disengaging customers.
We have identified three steps to help retailers and suppliers get NPD right: better collaboration, production and iteration:
1. Collaboration
Retailers and suppliers hold their cards close to their chests, while internal teams operate with differing motivations. Frequently, the NPD team’s desire to be as creative as possible collides with the commercial drive to sell a product at the highest price and the operational desire to demonstrate cost savings. Moreover, the commercial game played by retailers and suppliers means their relationship lacks trust. Crucially, the way NPD terms are negotiated must change.
Honesty and visibility is key. After all, NPD costs are never really hidden – someone will always end up paying. Both parties need visibility of the whole picture to encourage greater levels of trust. This new state of openness will result in an efficient process creating the best product at the best possible price – with both sharing the benefits of healthy sales.
If both parties know what customers really want, and the implications of even the smallest changes to the production process, significant time and money could be saved upfront.
No retailer or supplier wants to see tweaks to products that stunt production and don’t add value to their businesses or customers. But, by aligning motivations and sharing insight, all parties can pull together to create the right buying environment and remove inefficiencies from the NPD process. The outcome: new ways of working for both, but in pursuit of the same aim – to create products that customers will love.
2. Production
While collaboration is key, product decisions are often made without acknowledgement of how this impacts the manufacturing process. All proposals should be tested with the manufacturer first, before large-scale production is considered.
Manufacturers know that tinkering with the innovation process can have considerable knock-on effects. We have seen first-hand how the pursuit of creating an ‘imperfect cake’ to give it more of a “homemade feel” reduced production line efficiency to below 50%, whilst tripling the volume of waste. But the question is: did customers really want a rustic looking Victoria Sponge in the first place?
These incremental costs often relate to raw material, manufacturing, and the supply chain – and they can significantly add up. However, there are many fall-outs in production which can be prevented with better upfront analysis.
Understanding the impact of the smallest changes cannot be underestimated – a change of packaging or ingredients can push up costs and reduce efficiency. In the case of a popular ready meal, we’ve also seen how opting for a slightly cheaper coating can result in machinery being unable to form the packaging. In this case, line efficiency dropped to below 30% and it took four months to fix the issue.
These real-life examples show how the true cost of a change in specification or process is frequently hidden or, worse still, misunderstood from the start. The consequence is squeezed margins and requests to pass on these costs in the next round of price negotiations across the whole range.
With data and correct scientific analysis, it’s possible to mitigate these costs. When armed with the detail of every aspect of production – from the ingredients to how many people are required to make a product – retailers and suppliers can collaborate to pinpoint any efficiencies back to an actual SKU. This means they will know exactly what to fix.
It’s vital that the production implications on what is agreed are properly understood and that a product meets a genuine customer need from the start. Combine this with a recognition of what people are prepared to pay, and an end-to-end understanding of the entire NPD process will finally become visible.
Ultimately, with closer collaboration and by sharing this insight early on, production errors can be avoided and margins will be properly calculated. With the discounters still gaining market share, and an estimated £3bn of wasted cost in NPD, producing innovative products at the best possible cost could make a big difference to a customer’s shopping experience.
3. Iteration
Collaboration and data analysis will only take retailers and suppliers so far. Huge labour and operational costs can be saved the earlier they can make a decision about a product. By testing in the concept stage, both parties can be reassured that a product can be delivered at the best cost and answer a genuine need with customers. However, this stage needs more investment early on, to deliver greater savings further down the line.
Along with having the potential to severely restrict the production process, simple changes, such as new packaging, often don’t add any value to the customer. Therefore, it’s this approach that needs changing.
By putting the needs of the customer first and trialling products early on in the process to find any complexities, any creases can be ironed out – or better still, products that won’t work will be stopped. That’s not to say that retailers and suppliers should limit the number of products they choose to look at from the outset. After all, both will need to ensure that enough ideas are in development so one or two will make it to the shelves and give customers a reason to get excited about their shop. But, by failing fast and doing it quickly, unworkable concepts won’t even make it to the kitchen, let alone reach (and probably frustrate) customers.
Some of the most innovative ideas in shopping over recent years have come from the growth of discounters like Lidl and Aldi. Smaller stores, outside of the Big Four, have put value at the heart of their proposition and out-performed bigger supermarkets, or developments that focus on convenience; for example, M&S Food’s ‘Dine in for Two’ £10 offer, which is perfect for a mid-week treat.
Retailers and suppliers shouldn’t be concerned if one product out of an initial 100 ends up in store. With a relationship built on trust, combined with an understanding of what consumers really want and a detailed analysis of a production process – only the real star product will make it to the end of the line. And that’s good for retailers, suppliers and ultimately – the customer.
