Consumer and packaged goods (CPG) companies believe in the power of innovation, but what do consumers think? Accenture’s research suggests that in order to get better value from their R&D spending, many companies need to be more focused in their efforts to innovate—and that green may be the new gold.
Consumers already have too much choice, Accenture’s survey of perceptions of product innovation reveals, and are fed up with endless line extensions. Even in emerging markets, it is often new entrants that are seen as innovative, simply because consumers are not yet familiar with them.
What consumers really want is brand new products that will enhance their lives without damaging the environment—not more choices, but better ones. This implies many CPG companies’ R&D budgets are not currently being spent effectively.
Quality, not quantity, matters in innovation
Heavy R&D investment does not guarantee significant revenue growth. In the United States, new products typically recorded less than $10 million in year-one sales in 2013 according to IRI, while in Europe, Neilsen says just seven out of 12,000 innovations recorded sales of more than €10m last year.
Yet CPG companies are spending large sums on R&D. Accenture’s analysis suggests home and personal care companies, for example, are spending 2.3 percent of revenues on R&D.
The problem is that as much as 70 percent of CPG innovation spending focuses on line extensions and product maintenance. But consumers can’t keep up—in the past 35 years, the number of products in the average supermarket has increased from 9,000 to 47,000.
More than a third of consumers say they are overwhelmed by this choice. They don’t want more of the same, but new products that will add value to their lives.
Customization as innovation
Consumers in emerging markets are more likely to perceive CPG companies as innovative: In Brazil, 71 percent perceive home and personal care companies as innovative, while in China, 53 percent of food and non-alcoholic beverage companies are seen the same way. Average scores for innovation in the United States and Western Europe, meanwhile, come in at between 25 percent and 44 percent.Similarly, younger consumers are more likely to perceive innovation. So too are middle and higher income consumers.
These differences are important. CPG companies must do more to customize their products by region and demography.
Green innovation can be gold
Many CPG companies already score highly on consumer perceptions of their green product development. Home and personal care companies lead the way with a score of 80 percent, closely followed by food and beverage businesses (78 percent) and consumer healthcare companies (74 percent).
This is vital. Globally, 55 percent of consumers are willing to pay more for products from companies committed to corporate and social responsibility. That willingness is rising year-on-year.
Making R&D spend work harder
Accenture’s analysis of consumer perceptions and industry experience suggests CPG companies need a new approach to innovation:
Devote fewer resources to line extensions
Customize new products for emerging markets and different demographics
Prioritize quality not quantity: Be lean and green.
Focus R&D spending on genuinely new products, including green innovation
2013 IRI New Product Pacesetters. Pacesetters 100: The Fuel to Accelerate Growth
NIELSEN BREAKTHROUGH INNOVATION REPORT—EUROPEAN EDITION
Business Insider, “Cutting Down on Choice ...” January 2013
Food Marketing Institute (FMI) 2008
“Doing Well by Doing Good” – Nielsen, 2014