CPG brands aren’t always associated with innovation, though they may be associated with innovation on a small scale.
People buy the same brand of coffee for years, or decades, even. Packaging may change, but the product is predictable, and CPG brands have done well by offering the consistency that is so reassuring to the consumer’s everyday life.
But people change. Markets change, demographics change, and technologies change too. People today purchase CPG products in profoundly different ways than they did a generation ago. Who would have thought you could “subscribe” to laundry detergent?
Here are some of the challenges that CPG brands face with innovation and how to overcome them. You can also download this helpful infographic to help you envision ways to manage innovation effectively.
What Innovation Must Accomplish
For innovation to make a real difference to consumers and brands, it must be replicable and cost-effective simultaneously. Further, it must resolve a consumer problem or address a consumer need. CPG brands are great at creating small innovations that are cost-effective and replicable, such as improved packaging that’s more convenient to use or that prolongs product shelf life.
Not so easy is discovering and addressing unspoken consumer wants. Many innovations that do that come not from legacy CPG brands, but from startups that disrupt how something is bought or used. For example, it was Keurig K-Cup, not Maxwell House, whose pods made it convenient for office workers to make single cups of coffee in their preferred flavor. This was a stark departure from how coffee had been made and consumed previously.
Different Types of Innovation
Innovation doesn’t necessarily mean disruption. In fact, there are several key types of innovation that make sense for CPG brands:
- Incremental Innovation – like the limited-edition flavors of Oreo cookies
- Breakaway Innovations – which give new uses to existing products. For example, Milk-Bone figured out a way to create dog treats that help dogs fight gum disease.
- Radical Innovations – like Campbell Soup’s Habit startup, which makes personalized food recommendations based on an individual’s DNA
The Challenges of Funding Innovation
Funding innovation can be a challenge in a publicly traded legacy brand that reports quarterly earnings. Sometimes the pursuit of long-term innovations is a hard sell in a company where short-term gains are emphasized. Shifting away from cutting costs (a popular CPG method of increasing revenue) to investing in innovation can cause stock prices to drop in the short term, so innovators must make a strong business case for the increased revenues expected over the medium to long term.
Bringing innovation in-house as a key business function can be a smart investment in long-term revenues. So can setting aside money as venture capital. Tech companies, which are shining examples of innovation, typically put about 15% of their annual net revenue toward R&D, while CPG brands only put 1% to 2% of their annual net revenue toward R&D. Is it any wonder that Google, which started out as a search engine, now makes phones and self-driving cars as well?
Results of Innovation Make It Worthwhile
A culture of innovation is becoming increasingly necessary for brands that want to dominate consumer goods categories. When innovation is built into the fabric of the company, there is less fear of being displaced, or of being collateral damage from other companies’ disruption. Innovation also means a wider variety of CPG products make it into the hands of consumers. As innovation becomes a given, improvements to the supply chain inevitably result.
Innovation strategy and product development strategy must go together in today’s business world. IdeaScale offers CPG brands a mature idea management platform for their innovation teams to use to find new product ideas, adapt to consumer trends, and discover and implement new efficiencies. Innovation brings change, and IdeaScale incorporates change management so that growing pains are kept to a minimum while benefits are maximized. You can learn more about overcoming innovation challenges by getting our Innovation Starter Kit today.