With 80% of new products failing and with most of the breakthroughs according to the IRI pacesetters report actually being line extensions, we have to admit it.  The CPG approach to innovation is broken and must be reinvented.

There are five principles I propose, around which we can reinvent the innovation process itself:

1. It is more important to segment moments than consumers.  What is the landscape of consumption situations and what drives choice in each respective moment? To do this, you must have a discovery process.  Social media and immersive research are great.  With social media, remember that people are talking about their lives in an unscripted way.  Social media is not only rich for insight extraction, it is behavior itself.
2. Go beyond discovery to quantification.  So many in the innovation business stay with qualitative research to springboard into new ideas.  Who knows the size of the prize from qualitative alone?  You must have a valid way of quantifying this. Cluster moments into segments then profile consumers, not the other way around (which is traditional).  Develop behavior markets rather than product category defined markets.  This will also give you much more powerful media placement as moments will reveal themselves in digital life, especially via smart phones.
3. Uncover the cues that signal a product would be exactly what someone is looking for in a given situation. More than half of brand purchase decisions are made at point of purchase, and the leading source of awareness for a new product is in-store exposure.  Isn’t that a sign that the behavioral economists and other choice scientists are right about the impact of cues on instantaneous choice behavior? Shouldn’t marketing make it a top priority to crack the code on cues?
4. How do we test new product ideas with the same specificity with which they were created? If we are looking to address the choices people make in a given behavioral situation, why ask purchase intent which is not choice based and why ask it of everyone with a mouth? Get specific to the behavior market and study the choices people make when in those situations.  Understand the drivers of choice specific to those situations.
5. Evolve the measure of uniqueness into a measure of disruption. What a marketer really wants to do is to disrupt the habitual behavior that people have so their new product gets noticed and considered. Seeing it this way, the traditional uniqueness question in concept research is incomplete and inadequate.

I have been working with an inventive Oregon-based firm called InsightsNow to create a very contemporary approach to innovation that follows these principles. The process is called BehaviorLens ™. It uncovers innovation opportunities and then tests them in ways that are aligned to how those ideas were created in the first place. InsightsNow conducted a study at their own expense to understand the meal replacement market and there were some very big a-has from that research.  For example, it is clear that lines are blurring between what is a meal occasion and what is a snack occasion. It was also interesting to see products such as pizza being defined by some consumers as meal replacement products. From this research we identified seven behavior markets where the drivers of choice were similar within market and distinct across markets.  Most remarkably, when we extracted just meal replacement products, we found that they constituted a small portion of the true potential but also, that our estimates of market size tied out almost perfectly to reported sales for such products, so this is really the first discovery process that is validated to get at size of prize. (Study is available upon request if you send me an e-mail or by visiting their web site).

Don’t settle for tweaking traditional innovation research methods.  This is a different era of self-directed consumers who can pull any information they want digitally and who are instant sense-makers as they shop.  New era, new solutions.

Consider search engines.  How many of you actively decide which search engine to use for a given search you have in mind vs. just using the one that is habitual for you (Google for 2/3rds of us)?  “I don’t even think about it” is often the predominant factor in behavior yet we don’t really study this.

Do you think it’s easier to get someone to try a new restaurant in their neighborhood or to switch search engines?  In one case we are actively seeking, and in the other case, we are sensing…responding to cues in an automated and unconscious way as Dave Lundahl, founder of InsightsNow, Inc. might say.  The ability to gain trial for something new is clearly easier when someone is already “seeking” so the degree to which habits drive pre-existing behaviors is key to understanding the potential for a new offering.

Even in your business life, you are governed by habits and rituals.  Think about how you check e-mail in the morning and how you get your daily briefing.

Now, consider how most concept testing and choice experiments work.  We throw all of that insight about habit out the window.  We put people into choice and decision-making mode whether they are ever there in real life or not.  We force people to tell us if they are interested in a particular new product idea without measuring if they are interested in any new product idea at all for a given situation.  Yet, the key for new product adoption is disruption of existing habits and rituals.

We need to  break the concept testing habit and start researching new product adoption in ways that are closer to how people really decide.

Behavioral economists like Dan Ariely understand this.  They understand that people have heuristics, “little tricks”, that allow them to decide in non-fully compensatory ways…basically, the reality is exactly the opposite from how choice experiments and traditional concept testing work!

Traditional concept testing does not study how people decide, it merely gets at purchase interest IF they were deciding.  Usually less than half of those who say “definitely would buy” ever buy for this reason; we are forcing people into active decision-making mode when many are not there in real life.  This unnatural situation is what creates such poor individual-level predictive validity for purchase intent.

First and foremost, a new product must disrupt existing behaviors or leverage behaviors that are already disrupted to be “seen” by the consumer.

In real life, disruption is all around us in an age where digital technology is producing bone-rattling change in everyday life.  Imagine location-aware offers, brand stories, and payment all converging at point of purchase via your smart phone; this is already happening in parts of Asia.  As touchpoints emerge (weekly it seems), marketing and research approaches need to constantly evolve.

We need to start studying how people decide and how to break habits. I have developed a strategic partnership with InsightsNow to create a next generation of innovation development and testing methods that will get at this concept of disruption. Hopefully, we can induce marketers to align lean forward research methods with contemporary marketing thinking and break the traditional concept testing habit.  Maybe then, finally, CPG will do better than the 80% new product failure rate.

Please attend the webinar on this subject on May 25^th, at 2PM Eastern time.

So, which is it?  Are consumers creatures of habit or active decision-makers? And why does this matter to marketers?  Let’s dig deeper…

The definition of “habits” from Wikipedia:

Habits are routines of behavior that are repeated regularly and tend to occur subconsciously.^[1][2][3] Habitual behavior often goes unnoticed in persons exhibiting it, because a person does not need to engage in self-analysis when undertaking routine tasks. .. Features of an automatic behavior are all or some of: efficiency, lack of awareness, unintentionality, uncontrollability.

Makes sense: habits are about behavior, going unnoticed, and gives the reward of efficiency.

The efficiency of forming habits might be the most important point. Habits simplify our lives that would otherwise be incredibly complex.  As Gregory Berns, author of Iconoclast says, “the brain is fundamentally a lazy piece of meat”.

Deciding how we will decide. So, our habits might not refer to always making the same choice in a given situation, but to making choices the same way.  The way we decide what to have for breakfast could be habitual, even if we eat different things some mornings.  I might have a different brand of coffee some mornings but there is no thought…I must have coffee! The decision about how you will shop a product category is critical for marketers of branded goods who are fighting commoditization. Will a shopper buy a brand they perceive as right for them or will they continue to adopt a more functional “fit for purpose” approach and increasingly gravitate towards store brands? Marketers need to learn about the opportunities inherent in influencing what Cass Sunstein, co-author of Nudge, calls second-order decision strategies (or deciding how we are going to decide.)

InsightsNow President Dave Lundahl refers to the behaviors of sensing vs. seeking.  If people are sensing, they are responding in a semi-conscious way to cues and not really thinking much about their behaviors.  There is little room for getting a new product into the mix if there are no new behaviors…if people are sensing. Adoption of new choice-making requires breaking habits and getting consumers into seeking mode. In this way, marketing is fundamentally about disruption.  When you launch a new product, you must disrupt either the choices that a consumer perceives or the very way in which they make those decisions.

Disrupting habits. Why would someone give up their habits regarding a given behavior when they need to simplify decisions for their lazy piece of meat?  Again, let’s go to Wikipedia…

The habit–goal interface is…characterized by the slow, incremental accrual of information over time in procedural memory. Habits can either benefit or hurt the goals a person sets for themselves. Goals guide habits most fundamentally by providing the initial outcome-oriented impetus for response repetition. In this sense, habits often are a vestige of past goal pursuit.

So, here’s where all this takes me.  Five guidelines for disruption marketing:

1. Consumers are creatures of habit
2. Habits are more often about being on auto-pilot regarding how we make shopping and consumption decisions than the specific choices we make
3. Marketing is about finding ways of disrupting those habits
4. The potential for disruption is greatest when the habits are out of synch with consumers’ contemporary goals or when the cueing system is disrupted.
5. Traditional new product research methods are not useful for disruption marketing and must change as they bypass the study of how we decide, and force respondents into choices assuming they are already in seeking mode.

These ideas will be discussed at an upcoming webinar on May 25^th that I will participate in.  Check this blog or here for details.

I will then moderate a panel of other leaders, Gayle Fuguitt Vice President, Consumer Insights, General Mills;  John Forsyth Principal, McKinsey & Company, Inc.; and Susan Wagner VP, Strategy & Insights, Johnson & Johnson who will demonstrate that Stan is not alone; other leaders also believe the time is now.

Research transformation isn’t just about changing a department; it’s about being an agent of change for the culture and beliefs of the whole marketing organization:

1. Stop thinking of people as consumers and start thinking of them as humans.  The word “consumer” is marketing-ese for slicing off that part of daily living that relates to what you can sell someone and throwing away the rest.  That keeps you thinking in the box.  Stan from Coke says, “When you study consumers you get incremental ideas; when you study humans you get breakthroughs”.
2. Move from a control mentality to an influence approach.   Brand teams no longer control brand messaging thanks to the web-based social media infrastructure. Ask Motrin, or now Toyota.  Research departments no longer control the flow of information about consumers.  Marketing teams can search Twitter, or go to digital analytics, or…  Are you ready to do what Vitamin Water did, where they let their fan base in Facebook design the next new flavor?  Are you ready to let go?
3. Think of research as a source of anticipatory insights rather than just testing and measuring.  The risk reduction and measurement parts of what research does are important but those are downstream activities. The insights team needs to be thought of as an insights engine that builds strong brands and durable customer relationships.  We do more than quantify the expected; we also listen for the unexpected, bringing breakthrough ideas that inform strategy.  If the insights team is thought of this way it will be brought into to business issues at the start and regarded as an investment in the future of the business, rather than just an expense to be managed down over time.

What a different corporate environment!  Creating a fast learning organization where ideas can come from anywhere and where every test has a learning objective not just an action standard!  A way of working together where the insights team is integrated into business leadership teams, where we are part of and potentially lead the social media cross-functional teams, and where the voice of the human is brought by research into every marketing decision.

We are not just being quixotic about this.  The ARF is launching a Research Transformation Super-Council and along with those speaking on March 23^rd, we have leaders from great organizations like Unilever, Kraft, MTV, Cambridge, Cambiar, Colgate-Palmolive.  The super-council will have working committees to map out the transformation blueprint for organizational impact, creating insights-led strategies, and a working committee that will tackle engagement/talent/process.

This is our time, but with it comes the responsibility to up our game, to become leaders rather than just technicians and analysts, and to leverage what we know about humans (cognitive science, behavioral economics, anthropology) to bring insights that shape the strategic glide-path of the organization.

I hope to see you on March 23^rd at the ARF annual Re:Think conference, Succeeding in the New Normal for the start of this phase of our journey together.

However, brand extensions are not always a good idea.  Through the years, I have been involved with forecasting the sales potential of hundreds (maybe thousands) of line and brand extensions and wanted to share what I think are some important insights.

Insight #1—a brand extension strategy for launching a new product only works if your existing brand has high enough parent brand penetration.

The success of a brand extension as has much to do with pre-existing brand equities as it does with the characteristics of the new items.

In the early 80s, General Mills launched a new flavor of Cheerios called “Honey Nut Cheerios”.  Concept test results were good but not off the charts yet when this new flavor was launched, it got an unpredictably high level of purchase trial given its modest advertising and promotion budget.

When I analyzed actual in-market results regarding trial rates for Honey Nut Cheerios and many other line extensions separately by those who bought the parent brand buyers vs. non-buyers, I found that parent brand buyers had a 2-6X HIGHERHIGHER trial rate (e.g. 18% trial among parent brand buyers vs. 3% among non-buyers).  Furthermore, it was only partially explained by higher purchase intent.  The big factor was that the conversion of positive purchase intent into trial among parent brand buyers was much higher.  In fact, the knife cut both ways; people who did not buy your brand were LESS likely to try the new line extension relative to their stated purchase interest than if it had a new brand name.  Hence, overall trial for your new brand is the mixture of trial rates (one much higher, one a little lower), weighted by what percent of households buy your existing brand.  It’s easy to envision that there is a tipping point that denotes when your parent brand is big enough that a brand extension approach makes sense to consider.

Insight #2—Brand extensions that are not connected with the meaning of the base brand are destructive even though they might hit year one sales targets.

If you launch brand extensions that don’t reinforce the parent brand image you might be turning your brand into a Frankenstein’s monster of spare parts. That’s why naming Spaghetti Sauce “Prego” rather than “Campbell” or calling a premium line of autos “Lexus” rather than “Toyota” made so much sense.  It’s also why I question Starbuck’s instant coffee. What the marketer thinks is a brand extension the consumer might not view the same way. Here is how you can tell. In concept testing, if positive purchase interest towards the new product isn’t at least 30% higher among parent brand vs. non-parent brand buyers that means that your buyers are not seeing the connection between the new product and your existing brand.  This is a warning sign that, while the sales potential for the new product might be acceptable, unconnected products will share the same brand name.

Insight #3—Emphasize brand-building (e.g. advertising, social media) to build the master brand and shopper marketing and couponing to sell the brand extension.

The key point is that line extensions are bought out of preference for the brand and acceptability for the line extension, not preference for the line extension.

An extension of a brand someone buys enjoys instant credibility because users trust anything they connect with that brand. For new flavor and size line extensions you might not need anymore than to be visible in the store or offer a coupon.  Because line extensions are bought out of acceptability, there is random component to whether they buy it or not.  Therefore, the more SKUs your brand already has, the lower the trial rate will be among your own parent brand buyers.

Marketers want to use brand extension strategies as much as possible today because it is a more affordable way to introduce products but the key is having enough rocket fuel, i.e. brand equity, to get the rocket (i.e. brand extension) off the ground.