In this white paper Tim Eales,IRI Industry Insight Director, takes a look at the effects of trading up, new product development, and distribution on new product success or failure; and how the sales rate index can be an indicator of how well products are going to perform in the long term.
1.0 Executive Summary
- Due to increased competition the price paid for everyday goods is falling
- New product development is needed to counterbalance this effect and push prices upwards
- Distribution plays a key part in the success of a new product and levels can vary enormously across countries
- Approximately one in four new products are successful in Great Britain, Italy, The Netherlands, Germany and France
- The sales rate is much higher for the best new products, even from the very first sales period
- Overall across Europe, new products in non-food categories perform better than their counterparts in food categories
- Only 10% of new product launches can be classed as real superstars
2.0 Introduction: The rise and fall of prices
It has long been accepted that successful new products are the lifeblood of a dynamic fmcg category. But not only does new product development (NPD) bring variety and technological advances, it is also critical for price maintenance in an environment of everyday price deflation.
Due to high street competition, growth of discounters and the increased dependence on trade promotions, the price paid for many established, everyday goods is falling. This has been true for some time in Great Britain, as well as other European countries.
However, if this was the only influence on the overall average price trend exhibited at the category level then we would notice a far greater topline deflation than has already been seen. Two other influences are also at work which can contribute to the gradual premiumisation of a category.
These are:
- Trading up
- New product development
Figure one below shows these three factors at work and how they can combine to create low-level inflation as has often been exhibited by many fmcg categories in the past. This process is as evident, and probably more important, at the manufacturer and category level, for value growth to be achieved.
FIGURE ONE: NEW PRODUCTS HELP TO BALANCE TOP LINE PRICING
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The report contains the following sections:
1.0 Executive summary
2.0 Introduction – the rise and fall of prices
3.0 Trading up
4.0 New product development
5.0 A measurement of success
6.0 The effect of distribution
7.0 The average sales rate
8.0 Tracking the sales rate index
9.0 Food vs non-food
10.0 Conclusion
For more information on this report please contact Tim Eales on +44 (0)1344 746038 or email tim.eales@infores.com