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At TNS, when we look at our database of innovations tested in the last 18 months, we can see that 4 out of 5 innovations fall into the ‘line extension in the same category’ classification. In many cases, the traditional metric to assess performances of this kind of innovations are sales potential. But… is sales potential the right criteria to measure success? In our opinion, no! But why?
Because “total sales” ignore the value-destroying menace of cannibalisation. As a consequence, we believe that it is the potential growth the new product brings to the corporate portfolio that should be the success criteria.
And it isn’t just cannibalisation of the parent brand we need to worry about. In an age where many companies manage a portfolio of brands within a category, you need to look at the wider picture :
Take brand E for example on chart below. This was a personal care brand which had recently moved into a new category and was being extended. However, the company already owned the brand leader in this category and as shown below more than a third of Brand E volume was being sourced from this sister brand.
So, TNS believe success needs to be measured in terms of how much a new product adds (volume/profit) to the total business. And, the new paradigm for accuracy in sales forecasting should be how good are you at predicting incremental volume?
Source of Volume has historically been difficult to accurately forecast from a Simulated Test Market (STM). TNS believe this is primarily because the traditional aggregate modelling approaches give all respondents equal weight and take an average of their response, which does not reflect reality:
We believe an over-reliance on making launch decisions based purely on sales potential of new products, rather than also taking account of their growth potential to the business, means that too many line extensions are being developed at the expense of ‘true innovation’.
Breakthrough innovation is by its very nature highly incremental. When the lens of incrementality is applied to the innovation screening process, TNS has found that 1 in 8 of the ideas traditionally killed by making screening decisions based on total potential should be kept and nurtured as offering high growth potential.
How many potential Red Bulls or Swiffers have perished at the hands of a blunt concept screening process before they had the chance to flourish?
By taking an individual modelling approach, TNS delivers more precise advice on whether the product will be successful in growing the business, rather than just providing another range of skus which dilute the overall brand portfolio.
Basing decisions on growth potential will also help surface true innovations and keep them in the process, rather than being killed early because ‘not enough people got the idea’.
Would you need complementary information from TNS, please contact Raphael Ventura (Managing Director - Consumer) at [email protected]