Consumer Packaged Goods (CPG) companies depend on a nearly continuous stream of product enhancements, reformulations, brand extensions and breakthrough innovation to drive brand loyalty and sales.
“A CPG company often generates one-third of annual revenues from products that have been on the market for one year or less, so setting product requirements and successfully launching new iterations are critically important,” states the McKinsey Global Institute report, “The Social Economy.”
According to Symphony IRI, more than 80% of new product introductions fail in the first year and only 3% reach sales of $50 million in that same period. So if CPG companies could get ahead of the curve and better anticipate what consumers want, or better yet, enlist their customers’ help in brainstorming and designing new products, perhaps the success rate of new introductions could be improved.
CHANGING THE CONVERSATION
Many CPG companies are finding that the answer lies in social media. Empowered consumers are changing – and taking control of – the buying decision process with a new voice. Conversations and word-of-mouth have overcome “push” marketing in forming people’s opinions of what to buy. Research house Booz and Company says social media is quickly replacing broadcast media as the primary way people learn about products and services. In fact, 70% of consumers now say they look at product reviews before making a purchase and nearly 80% report using a smartphone to help with shopping.
Companies are joining the conversation with consumers to better understand, co-create and personalize new products and services to meet their needs. “Social networking and mobile applications are increasingly becoming part of our customers’ day-to-day lives globally, influencing how they think about shopping,” said Eduardo Castro-Wright, vice chairman at Wal-Mart in a statement about the company’s purchase of Kosmix, a social media start-up. Kosmix is now called @Walmart Labs and examines Twitter and Facebook posts and search terms on Walmart.com to help the big-box retailer measure interest in new or existing products.
HARNESSING THE POWER OF THE CROWD
Many companies are beginning to use social platforms to harness the power of the “crowd” to help them concept and design new products. Frito Lay is one example. The company recently set the Guinness World Record on Facebook with 1.5 million new “likes” in 24 hours while using the social medium to promote its line of natural snacks. And now, using its own Lay’s “Do Us a Flavor” contest app, the company is soliciting input from consumers on new flavors for its chips. Frito Lay will produce the three winning flavors and the top new chip will earn its creator a $1 million prize.
Last year, Fiat did something similar with a new car design. The Italian carmaker invited customers and car enthusiasts to help develop the Fiat Mio online in real time. In the 18 months the project has been underway, more than 2,5 million unique visitors have participated and logged nearly 20,000 comments and ideas on the design, ranging from wheels that rotate 90 degrees to ease parallel parking to vehicle-to-vehicle communication to avoid collisions. It is one of the world’s first collaborative cars.
Early this year Samuel Adams, the Boston-based beer brewer, teamed up with social media enthusiast Guy Kawasaki for the first Samuel Adams Crowd Craft Project to create a crowd-sourced beer. Using an interactive Facebook application, the company used its fan base to weigh in on all aspects of a beer, from color and clarity to the flavor profile. The result, an American red ale called B’Austin Ale, debuted in March.
“I’m a total believer in crowd sourcing,” Kawasaki says. “it brings great minds together that might not collaborate otherwise.”
More than 80% of new product introductions fail in Year One Symphony IRI 2011 New Product Pacesetters Report
What works for product development also applies to packaging. A few years ago, organic dairy products maker Stonyfield Farms asked its virtual community to help redesign its packaging. Nearly 40,000 of the brand’s fans offered input on shapes, colors and even campaigned to keep Stonyfield’s mascot, Gurt the cow, on the packaging.
According to chiefmarketer.com, Uniball pens has jumped in with both feet, migrating all of its spending on broadcast media to a social and digital program, supported by an overarching national retail promotion. When the company felt it could no longer effectively reach its primary target audience – males 15 to 34 – through broadcast media, it produced three slapstick humor videos for Facebook and doubled its fan base to 23,000 within the first few days of the campaign.
But do such ventures pay off? Rusty Snow, vice president and general manager at Uniball, says it does. “We feel we get much more targeted promotion and better benefit for our spend that is spread out for a longer period of time in more specific places for our people to see it,” he says.
The McKinsey Global Institute thinks so, too. The three largest potential sources of value from social media – marketing, product development and enterprise collaboration – could generate as much as $300 billion in potential sales over the next ten years in the CPG sector, the group estimates. That equates to potential productivity increases of between 0.6% to 0.9% per year.
According to David McCarty, Consumer Products Industry Solutions Portfolio Director for IBM, 3D promises to change the playing field dramatically, inside the enterprise and out. “Online virtual environments in which employees, suppliers and consumers can work together to turn new ideas into reality are an exciting new aspect of social media,” he says. “Product design and simulation can now be done via the cloud even with handheld devices such as smartphones. Such widespread access to virtual 3D environments means designers and engineers can work on a product and share ideas with others from anywhere and everywhere – and that brings the potential impact of ‘social’ to an entirely new level.”
“The possibilities are endless, but new product development is becoming one of the hottest areas in which CPG companies are exploring the potential impacts social media might have,” McCarty says. “Companies that are breaking ground in this area are likely to be at a competitive advantage for some time until their counterparts catch on and catch up.”
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Main image: Some of the winning flavors in the Frito Lays “Do Us a Flavor” contest (image courtesy of Frito Lays)