The Practice of Consumer-Led Innovation

We recently launched our brand new survey builder which made we want to resurface this previous issue regarding consumer-led innovation.

Although the origin of the line “innovate or die” is up for dispute, most in CPG understand the importance of innovation and actually many over prioritize it, especially early on in their journey.

I have touched on the inflection point of innovation before and how some brands can focus too much on innovation prematurely instead of building out product-market fit with their core product mix, but this newsletter is going to assume that we have hit that inflection point and that we now need to innovate so that we can own more space on the shelf and give our consumer base what they want.

I want to focus on demand and how to involve the consumer at every point of the innovation cycle. I believe that by doing this, you can reduce the failure rate of innovation, which is already a staggering 95%, and use innovation as a way to build future sales and velocity.

One thing I have always struggled with while building a business has been pricing. The book Monetizing Innovation helped me with this and proposed looking at innovation and new products by what you could potentially charge for it. This concept works better inside the confines of SaaS, but I think looking at the CPG innovation cycle and asking yourself these two questions can bring a similar parallel to the book:

1) Will consumers buy this product?

2) Will this innovation support sales and marketing?

You might notice that I am not asking, will retailers buy this product? Way too much innovation is proposed by the retailer. I have heard too many horror stories about retailers proposing innovation or an LTO that the retailer would support, only for it to fall flat with consumers or not have the impact the brand expected it to have.

If a retailer asks for an LTO or a new SKU, the answer should be yes, but only if consumers are signaling that they will support that innovation and that you have built velocity ahead of the new distribution.

*A quick disclaimer. We have spent a lot of time looking at innovation at WeStock, but in an effort to disconnect this newsletter from selling WeStock, I am going to mostly touch on free tools outside of WeStock.

Below is what a typical innovation cycle might look like and it surprisingly won’t vary too much between bigger and smaller CPGs.

Let’s break these down…

Innovation and idea generation are what most people would classify as the fun part. You’re putting up post-its on a blank wall and you’re throwing ideas out for new flavors, categories, and product extensions that you think make sense for the brand. Most founders and brand teams don’t have a problem populating new ideas, it’s the next step that can be critical.

When it comes to prioritizing these ideas, if you’re doing so without data, then you are making the decision blindly. Bigger CPGs might leverage panels or focus groups to help them whittle down their list of ideas. Others might just look for the biggest growth opportunity in the market.

If the Spins or Nielsen data you’re subscribing to says that cold cereal is growing 30% faster than your category, you might decide to prioritize that cold cereal idea that Suzy came up with at the brainstorming session. This data helps and is better than just prioritizing innovation by a feeling, but it isn’t building velocity ahead of future distribution and it isn’t engaging the consumer throughout the process

Innovation is often seen as a closed experiment. Your co-packer or flavor lab is Los Alamos, and you are Cillian Murphy, burning the midnight oil in hopes of unearthing this secret new flavor or product.

When it should be a marketing opportunity and a way to increase the relationship between you and the end consumer. The best example of this was the Lay’s Flavor Competition. You had consumers engaging with the brand by submitting the next flavor (and also submitting all their first-party data with it to the brand), then you had the excitement build around the competition, then another wave of excitement around the winner, and then again you had a marketing surge when the product hit the shelf. The product was building velocity at every point of the innovation cycle so that by the time it hit the shelf it was already sold out. It was supporting sales and marketing before the product was even created.

That process could run on a Google Form on a much smaller level, but with a similar impact on your brand:

• Let us know what flavor of X that you want to see next!

Push out the form to your channels and give it a week or two for the results to populate.

• The top requested flavors were Grape and Apple. Let us know which one you prefer and what store you shop at.

You used the results to prioritize the top two options, engage your audience, and avoid expensive focus groups.

This is all the data your sales team is going to take to the retailer and information you're going to use to activate that audience to buy the product when available.

This process is going to take care of the optimizing phase.

You’re going to be able to see the potential impact of the innovation before moving to production. This is also going to help you with the volume phase. You’ll understand which retailers you‘re going to approach and how many consumers you are looking to activate. These steps help you to not waste resources on expanding your innovation to a level where it exceeds the demand. No matter how excited everyone is about innovation, it should be supported by consumer demand.

The brands that bring their followers, subscribers, and customers into the innovation cycle also open up an unlimited amount of new content for the brand. We have touched on documenting instead of manufacturing content before and bringing your consumers into the process is a great way to document content and build that bond. This includes bringing them into the product development cycle.

Mid-Day Squares does a great job of bringing you into their production and I also loved this recent day in the life video from Minted New York, which also brought us into the development and innovation process.

Day In The Life | Running a business in NYC | Work and training

This level of candor and transparency in your production and innovation process is not just providing content and building trust with the consumer, it’s building future sales.

Tracking and measuring the ROI of innovation is key.

I work with companies to help them understand what innovation their consumers want and what retailers they want to see it at, but without trackable KPIs, it’s for nothing.

The importance of understanding where your consumers want to see innovation is as important as what the innovation is. As mentioned, most innovation I see is dictated by the retailer, and a specific request they have, instead of the consumer.

This causes brands to sink a lot of money into innovation for a particular retailer and if that retailer changes their mind or backs away from the launch, you’re left with a custom product for a retailer that you now need to sell or market, and not one for your end consumer.

You want to be in control. Understanding what your consumer wants and where it will have the most success enables you to start the innovation conversation with a retailer and provide the first-party data that supports why it should be carried.

Once the product hits the shelf, you need to measure the ROI and you need to have a plan for the first 90 days. You want to support it aggressively to increase the chances of success, but also to know quickly if you need to kill it.

You’re going to want to see the sales data from the store to see if it’s selling, but also waiting two weeks for that data to populate might not be an option or you might not subscribe to one of the bigger data providers who has this information.

If this is the case, here are a few hacks that might help.

• QR codes - Having a QR code that leads to a post-purchase survey on the product does a few things. It helps you grab feedback from the consumer that can support the innovation, but also it can help give you some real-time data on whether the product is moving or not. Having worked with brands on QR code implementation, I have seen firsthand that the data we collected for LTOs strengthened our argument to make the product an everyday item.

• Demos - You are looking for as much qualitative feedback as possible, so supporting your innovation with demos will both help move the product and allow you to talk with customers.

• Text rebates - There is a groundswell of startups getting into the space, so the options are plenty. Although I don’t think text rebates are a sustainable way to grow long-term velocity compared to in-store trade spend, I do think it’s a good way to get feedback through post-purchase surveys quickly.

The point is that there are countless ways to track the ROI of a new launch and to get instant feedback into your product innovation cycle.

Innovation doesn’t have to be expensive and it doesn’t have to be a surprise if it fails or succeeds.

Innovation should not just be a function of product development, but instead a tool that equips your marketing team with content while giving your sales team an impactful way to grow same and new store sales.

This can only be achieved by involving the consumer in each step and opening your process up to the public.

It would be great to know how you have approached innovation and how it was received in the market. Until next week!