Analysis

How the small can succeed

Analysis

How the small can succeed


A new product’s success or failure is generally determined by its velocity—an objective, quantifiable metric to assess demand. But velocity is not the only path to incremental growth.  

Learn which attributes drove the success of the small innovations in our analysis and how you can position your future product launches to win.


A tale of two soft drinks

Two new soft drinks were released on the market. Only one survived. 

In its first year on shelves, Soft Drink A sold $30MM and had above-average distribution, whereas 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.  

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, their total sales can be small in the absolute if they 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 distributed. Even if they sell a lot in the absolute due to their broader distribution, 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 three times 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. It is this type of scenario that 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 a goal of producing incremental sales for retailers, which provides a path for new revenue without cannibalizing growth. Crucially, big innovations are not always the most incremental. NielsenIQ BASES uncovered that two-thirds of the time, the slowest moving SKUs within a line are more incremental than some faster moving SKUs, which is 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. To better understand how they do this, we reviewed more than 4,000 new product SKUs within the last five 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.

  1. They target (and delight!) 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 are interested in the health benefits an alternative provides, but do not 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, since loyal customers often become brand ambassadors through social media and user communities.  

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.  

  1. 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 NielsenIQ 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 is critical to justify a product’s value. Successful low-velocity products in our analysis were two times more likely to achieve strong value perceptions. 

  1. They increase consumption through different needs and usage occasions 

Differentiation to drive incrementality could also simply come in the form of a size extension, 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 else can you set up your small launch 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.  

Finally, early identification of potential slow-velocity SKUs is critical. Ensure that your internal stakeholders have the appetite for a smaller launch and understand the product’s fit within the entire portfolio. Likewise, make it clear to retailers—who have low tolerance for slower-turning initiatives without clear justification—exactly what value this initiative will bring.  

Ultimately, the odds of success are slim for slow-turning SKUs. But manufacturers who identify them early, set reachable targets, generate incrementality and delight their customers with an exceptional product experience—all while aligning the expectations of retailers and stakeholders—can increase their chance of long-term sustainability. 


Is your next innovation poised for success?

Fifty percent of strong concepts fail because of poor product, according to NielsenIQ BASES research. That means companies should take extra care to ensure their innovation is strong and ready for a successful launch. Because you never get a second chance to make a first impression, we’ve put together four ways to focus your development process.

Four ways to focus your development process