How Emerging CPG Brands Can Use Data to Innovate Successfully

by Nielsen IQ

June 27, 2023

For many small and emerging brands, product innovation is a major driver of their growth. A new product launch may be the core of this innovation and yield great results or hurt your bottom line.

But many brands don’t know how to use data as the cornerstone for these innovations. A new product’s success or failure is generally determined by its velocity. That is, a measure of sales per distribution point. But velocity is not the only path to incremental growth.

Read on to learn which attributes drove the success of the small innovations and how you can position your future product launches to win on the back of data.

Case Study: A Tale of Two Soft Drinks

Two new soft drinks were released on the market. Only one survived. This sounds dramatic, but it’s unfortunately not uncommon.

In its first year on shelves, Soft Drink A sold $30MM and had above-average distribution. Soft Drink B sold only $10MM with lower distribution. Soft Drink A was designed for mass appeal, and Soft Drink B catered to a narrow, premium audience. Both had below-average velocities. Which one succeeded?

If you guessed Soft Drink B, you’d be correct. But why?

Understanding the reason Soft Drink B survived Year 1 requires understanding velocities.

Product Velocity and Brand Success

Typically, a new product’s ability to succeed is determined by its velocity. Velocities are a reliable indicator for success because they are an objective, quantifiable metric to assess demand—and retailers are focused on growth.

High-velocity products have strong sales where they are carried. However, total sales can be small in the absolute if the products are not as widely distributed. In either case, these products are considered “big” because they turn quickly.

Low-velocity products, on the other hand, sell less in the places where they are carried. These products may sell a lot in the absolute due to their broader distribution. Still, these innovations are considered small because they turn slowly relative to the rest of the shelf.

Delisting slower-moving SKUs for faster-moving products is one way that retailers focus on growth. In fact, according to NielsenIQ retail measurement and BASES research, a product is 3x more likely to succeed if its velocity is in the top 40% of the category. Yet, some slow-turning SKUs—like Soft Drink B in our opening example—are still able to sustain. This type of scenario frequently elicits questions from clients who partner with us on building successful product innovations. Why would retailers keep these products around?

There are More Paths to Growth than Absolute Size

Big or small, most launches start with the goal of producing incremental sales for retailers. This provides a path for new revenue without cannibalizing growth. Crucially, big innovations are not always the most incremental. NIQ BASES uncovered that two-thirds of the time, the slowest-moving SKUs within a line are more incremental than some faster-moving SKUs. That’s why retailers might choose to keep some small innovations on shelves.

That said, without the support of strong velocities, smaller launches need to differentiate themselves to drive incremental sales in deliberate ways. This means you need to understand what the data is saying.

Common Pathways to Growth

To better understand how emerging brands differentiate themselves, we reviewed more than 4,000 new product SKUs within the last six years, across 20 categories. We analyzed the number and types of SKUs with low-ranking velocities in Year 1 that survived long-term. And for an even deeper understanding, we investigated the characteristics of these SKUs, concept testing approximately 20 of them in primary research. Ultimately, we found some common pathways to growth that help to explain why the small can—sometimes—still succeed.

Here are three common pathways to growth:

1. They Accurately Identify and Target Their Customers

More than one-third of the successful small launches in our analysis offered some sort of targeted strategy or benefit. Targeted products are successful when they reach an underserved group and provide a superior experience that meets their needs. For example, a plant-based pasta with satisfying texture and flavor profiles might be targeted to a segment of consumers who cannot eat gluten. Or maybe customers interested in the health benefits an alternative provides, but don’t want to sacrifice taste.

In such cases, continued purchasing among the core is needed to offset a smaller consumer pool trying the product. And because targeted propositions are smaller by nature, word-of-mouth endorsements are often more influential for target users. Loyal customers often become brand ambassadors through social media and user communities, driving growth.

Strong repeat purchases for targeted products is a key indicator for success. In our analysis, surviving targeted innovations had repeat rates in the top 25% of their category.

2. They Offer a Trade-up Opportunity

When a specialized product wins favor among a passionate group of buyers, it can also likely command premium pricing to help generate incrementality. An analysis of NIQ retail measurement data revealed that 70% of the slow-velocity sustainers we analyzed were more likely to be priced at a premium to the category.

But trading up doesn’t always mean charging more—sometimes encouraging consumers to switch pack sizes or formats can generate incremental growth. Take, for example, the +10% trade-up per dose that we observed in swapping consumers from liquid detergent to pods. Marketed as a budget-friendly upgrade to a price-sensitive consumer target, the trade-up generated the incrementality needed to sustain.

Regardless of pricing strategy, however, it’s critical to justify a product’s value. Successful low-velocity products in our analysis were two times more likely to achieve strong value perceptions. Low-velocity products may be great additions to your product mix.

3. They Focus on Increasing Consumption

Differentiation to drive incrementality could also come in the form of a size extension. That is, increasing consumption or drawing in shoppers who are more value-conscious or purchasing for a special occasion. In fact, in our analysis of over 4,000 new SKU launches, size extensions comprised approximately 20% of our successful low-velocity innovations.

Some of the sustainers in our analysis increased consumption by offering new ways for consumers to interact with their brands. Take, for example, a soft drink manufacturer who produced a new 7.5 oz can. The beverage provided appealing health benefits to their target audience while also presenting a new usage occasion: being the perfect size for cocktail mixing. In this case, their 7.5 oz can drove a 60% premium per ounce as compared with their 12 oz counterparts.

How Data Can Set You Up for Success

Let’s return to our opening example. What enabled Soft Drink B to succeed despite its face-value indicators to the contrary? Pricing was one key factor. The beverage was premium to the category and sold in glass bottle four-packs. Additionally, its narrow appeal and high-quality taste targeted a niche group of consumers, which increased its word-of-mouth endorsements and its repeat rate. These factors combined to generate the incremental growth Soft Drink B needed to survive its first year.

Incrementality, whether generated through targeted benefits, trade-ups, size extensions or new usage occasions, is key to success for any slow-turning SKU, particularly those not associated with established brands. But equally essential is the ability to provide a superior experience and solve unmet needs for consumers. When a new product does its job to overcome compensating behaviors—providing exactly the right size, packaging or consumption experience consumers have been looking for—it often can command a premium and achieve a high repeat rate, driving even more growth.

There is little room for error in small launches. Nailing your activation requires advance planning and strategic execution. Whatever your differentiation—hitting your target, justifying your premium or communicating a new usage occasion—it must land, and land well. This requires you to build your plans on the back of accurate and up-to-date data.

Is Your Next Innovation Poised for Success?

As a member of Foodbevy’s community, you can sign up for a free subscription of NIQ’s Byzzer, a platform making business intelligence accessible to small businesses. You’ll get three free reports, plus a weekly email alert with actions you can take to grow your brand.

Byzzer acts like your own personal team of data analysts. Rather than handing you a wall of numbers to interpret, this platform tells you what the data means and provides clear recommendations for the best course of action. With powerful insights, an easy-to-use interface, and affordable subscriptions designed for small businesses, Byzzer is made to help you evolve into a national brand.

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