Surprise the Expectation of Consumer Every Time

When we say we market is changing we should ask ourselves who is changing the market? If it is not you, changes done by your company will not yield significant gain.

I am going to discuss changes in market dynamics with respect to introduction of new products. If a company is not leading the product innovation in the market, company is bound to compromise on the bottom line. In such situation the new product will be new to the portfolio of the company only but not to the market. A real new product introduction means surprise to market.

In one of my earlier post I discussed the correlation between new product introduction and market share. I listed some variables like working capital of channel, rotation of working capital and pace of introduction of new products should be properly planned well before laying out the product road map. It seems theoretical but I convincingly suggest to focus on following parameters at the time of introducing a breakthrough product to make sure that the planed gains are intact:

1. Pace of introduction. It is a philosophy of a company’s strategy which defines dynamism and youthfulness. High risk with high returns. If executed properly, it will establish a product leadership image of the company. Every successful introduction will fetch a yield, during its life cycle, much more than the cost incurred in ten mediocre or failed introductions. When we say pace, it’s important to assume the competition will copy it in no time. Pace is introduction of real products in the market, consistently with a motto to surprise expectations of the customer every time. In competitive environment it will give you a first mover advantage with better sales realization and in monopolistic environment it will increase barriers on entry of competition. The pace of introduction can be decided based on the intensity of existing competition.

2. Working capital of channel. Only new product introduction may not give the desired growth. Think this in a way that if cumulative working capital of all the channel partners is constant, the retail will only replace the existing portfolio with new one. This may give better top line because of higher realization from new product but overall volume will remain constant. If a company’s thrust is to expand, the sales volume will increase only with increase of selling capacity of the channel. This can be done with penetration into untapped market. More distributors or more retailers means more working capital. If such distribution plans are in place the real volumetric growth of new products can be assessed.

3. Cycle time: Or the speed of rotation of working capital of selling channel. This is the area which any company in any industry will love to improve. This is also a measure of supply chain performance. With the proposed implementation of GST (in India) we will see a radical shift in collaborative supply chain management with better distribution at lower cost. A longer term strategy on depot and inventory planning in line with product road map and futuristic capacity planning is required.

Correlation between new product introduction and share of market

Lot of companies use new product introduction as their key strategy to increase there market share. Recently two companies LG and SONY announced same strategy. (You may refer following links from Economic Times for the news: LG and SONY) . Though the strategy is commonly use by various companies, I tried to validate the hypothesis that new product introductions boost market share and found following parameters (related with new product introduction only ) determine correlation between new product introduction and market share growth:

1. New product introduction helps in companies top line growth as product realization increases with speed of introduction. It is simply correlated with the differentiation till the point when the new variant becomes commodity in market. Companies with strong R&D leverage it with new products all time. Because of differentiation they fetch better price too. However, competition catches very fast especially in consumer durable industry and so the price advantage of innovation starts eroding. New product introduction should be a continuous process for the companies having strong R&D.

2. Even though top line grows in revenue term in point no. 1 above, it does not guarantee growth in market share in terms of volume of turnover. Two factors determine change in market share. One the selling capability of the channel which could be measured by working capital of sellers which in totality remains constant. If working capital of a dealer is constant it will cannibalize existing product in very first stage itself. Two is the cannibalization, which if planned properly, can help to reduce competitors’ shelf share in multi franchise sellers’ network. To increase working capital of selling network, companies should focus on wider distribution by exploring new markets through efficient supply chain management.

3. Whether the new product is introduced in one of the existing categories in which company is present or in a new category itself. If it is in existing categories it should be targeted for better profit than market share. Introduction in new category can give incremental revenue subject to capability of selling network including the organization itself in terms of knowledge, experience, working capital, coverage and branding.

4. It’s not only quantity of new introduction which matters but also the speed at which it is introduced to end consumer. Assuming if the period required by competition to replicate the product after announcement of launch is fixed, a better speed of sampling, consumer awareness activities and distribution will uplift the revenue in launch to uptake period of product life before maturity, the point at which competitor enters with similar product.

There could me many more strategies to define growth in market share, however; the above argument is only limited to issues related with new product introduction only.