Marketing People invest too much energy into working with their technical, financial & advertising colleagues on New Products - but not enough with their distribution and sales colleagues. If they do, several crores spent on promotions can bear better fruit; not to speak of not having to miss promotions, slowed careers and lost accounts
New products was, and is, always a serious business - and it is getting more so. Mostly, the cards are stacked against your new products. The statistics shows that 90% of all new products fail during their launch phase. Failed new launches is much more than a loss of your future income opportunity - it is a loss for your vendors and distributors of their future income - and it is also a waste of your current cash and time. For the concerned marketing person and the ad agency it is at the least a black mark on their CV - and in severe cases a loss of job!
The increasing speed of obsolescence requires new products to be developed at a faster clip than ever before to replace the ones in the marketplace. In the early 1980s, a consumer durable dealer never complained about selling the same model for years - but today the same dealer expects you to change the model every year. Because everyone else is doing so! Even the consumers have come to expect this; although they dont need it!
A quick back-of-the-envelope calculation tells me that the Indian consumer product industry may be losing around Rs 1000 Crores annually - in promotion money alone - on failed new product launches. If all costs are counted, the losses will be of several thousand Crores.
What I want to say today is that you yourself - may be unwittingly - hurting your new products by falling prey to some common pitfalls; which can be easily avoided. If you are not careful, even potentially successful products may look like failures to you because there are two in-built disadvantages a new products start out with.
TRADE DISADVANTAGE
The first is a trade disadvantage. An external disadvantage. Under this, you may feel that the new product is not generating enough incremental volume. I quote from an issue of a leading Indian publication wherein the vice president of a well known international market research firm says “Unfortunately this is what the vast majority of new products do. On an average, 95% of a new product’s sales volume comes from stealing share from the existing brands.” The extent to which your new product is not encroaching on your existing products is indeed a measure of the success of your new product. After all you are spending on new products to increase your overall volume.
This is true, but with a catch : you must measure the encroachment over an appropriate time frame; otherwise you may reach wrong conclusions. You apply the criterion too soon and even a successful product can come out looking like a failure because, given the peculiarities of the Indian trade, it is very difficult for a new product to show you an adequate incremental volume in a short time.
The Indian trade allocates its key resources - buying budget and shelf space - to your business in its own unique way. Unlike foreign retailers who allocate their budgets and space based on floor space indices and slotting fees; the Indian trader allocates them based on an intuitive concept of "salesman-wise budget". Our Indian baniya has developed an experiential formula for the “size of the order” he would give to your salesman during his regular visit. To start with, he will allocate the same amount of resources to the entire basket of goods sold by your salesman; even if the salesman happens to carry a new product in his basket that day. Your marketing and advertising strategists may have targeted your new product at a different end-customer - but - while travelling through the common distribution channel – the new product lands up fighting for the same resources given to your other products. As a result, your new product faces sibling rivalry for the first few months; whether you like or not. Only when it has been demonstrated to the baniya that your new product does indeed generate a steady sale at his outlet will he increase his allocation to your salesman. Thus, your new product will have no option but to encroach on the resources of your other products in the interim period.
That is why, in India, it takes time for a new product to carve out its own niche. Unfortunately, many Marketing Managers and their bosses lose patience quickly and conclude prematurely that the new product is cannibalising too much into existing products and not generating sufficient incremental sale of its own. Before the new product is given time to earn its rightful space in the channel, the managers withdraw its support system and leave the new born to fend for itself in this cold and lonely world.
Which is why, in spite of all the advertising you do, your new product will take longer to take roots - unless you have plans to overcome this trade constraint. I am amazed that the ad agencies, who have high stakes in the new product game, and who “leave no stone unturned” from the customer marketing aspect, are frequently clueless about arrangements made by the client to overcome these trade problems associated with new products. Many agencies plan a diagnostic research as part of new product activity. But how many ask for trade diagnostics? The offtake data of Nielsen / ORG is good enough to see "what is" - but it is not good enough to tell you “what it could have been”.
SALES FORCE DISADVANTAGE
This is an internal disadvantage. I have seen many sales forces acting against the interests of their own new products because the new products make disproportionate demand on their time and attention compared to their contribution to sale. Instead of nurturing the new products they may unknowingly work against it.
What happens is this. Due to the first month of new product hoopla and conferences, the sale of existing products suffers because the sales force spends a lot of time behind the new products and even the top management goes to the market to supervise new product launches. By the end of the month the figures start looking bad for the existing products and the HO comes down heavily on the branches to “catch up” on the deficit of existing products. The sales force is only too glad to oblige.
For most sales forces the incentives are strongly linked to the overall sales value. The sales force, naturally, hates anything that comes in the way of their earning the incentives. Unfortunately, new products do. By their very nature of being new, they generate much lower volumes compared to the time and salesmanship that the sales force has to spend. Due to this in-built disincentive to sell the new product, when Head Office asks the sales force to “catch up” on the sales of the existing products, the sales forces happily falls back into their “default mode” of focusing on “tried and tested” high volume products. Result : new product suffers.
If you insist on selling both the new products as well as the old; sometimes you get the worst. As Vice President of Balsara, when I told our General Manager Vikesh Wallia to sell both the existing products - Promise and Babool toothpastes - as well the new Promise range of toothbrushes - he found that the sales force began selling the new range of brushes as if it was an established product : the new product was dumped in the trade with such high volumes that we were left licking our wounds for nearly an year after that. The range died a natural death just by lying for several months in the warehouses and shelves for months - waiting to be sold.
Because of these two practical disadvantages, you must make special arrangements of selling in advance to give your new products a chance to bloom. Unfortunately most marketing departments spend inordinately high amount of money and time discussing new products with their technical, financial and advertising people but not enough on how it will get distributed and sold. I have always felt that if an equal amount of planning is done in the area of sales and distribution, several Crores can be saved - not to mention of missed promotions, aborted careers and lost accounts!
