Deep-dive on innovation in the consumer products industry
New insights into how innovation leaders create value despite industry headwinds
To deal with ongoing challenges ranging from slowing industry growth to declining brand loyalty and the rise of unconventional competitors, consumer products (CP) companies need to innovate. But despite being aware of this and pursuing ‘innovation’ as a key driver of growth, only a few of these companies are actually creating viable new business offerings that drive value for their customers and shareholders. So what are these innovation leaders doing differently? A recent study by Deloitte among the world’s 44 leading CP companies found that these winners are innovating beyond product, designing for consumer behaviour and developing systematic innovation capabilities.
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- Designing for consumer behaviour
- Developing systematic innovation capabilities
Innovating beyond product
While many CP companies equate ‘innovation’ with developing new products or product extensions, these are rarely sufficient to create a sustainable competitive advantage because they can be easily copied. In Ten Types of Innovation: The Discipline of Building Breakthroughs, we explain that the world’s leading innovators systematically innovate ‘beyond product’ by leveraging ten distinct types of innovation. These range from configuration innovation in the form of partnerships or business models that can change the economics of offerings to enhanced consumer experiences and alternative delivery channels.
The more companies are able to combine the different types of innovation, the more difficult it will be for competitors to copy them and, therefore, the greater these companies’ chances of success. One way to combine the various types of innovation could be on an open online platform leveraging the collective intelligence of the public to help resolve specific consumer challenges. Or a platform that can streamline supply chains, drive operational excellence and allow CP companies to establish a true omni-channel presence across physical and digital consumer touchpoints.
Designing for consumer behaviour
As well as multi-faceted innovation, leading innovators apply lessons from behavioural economics that can help drive consumer trial and adoption by designing in ways that demonstrate meaningful value and make sense within consumers’ existing mental modes. Research by a Consumer Goods company found, for example, that consumers saw the proliferation of the many hair care options as overwhelming rather than delightful. Another example is Allianz’s ‘Save More Tomorrow’ retirement savings program. By using key behaviour levers, such as ‘opt-outs’ requiring employees to explicitly choose to dis-enrol, as well as auto-escalate features to increase contributions in line with annual salary rises, the program was able to reduce the sense of loss associated with higher contributions and boost average saving rates from 3.5% to 13.6% – and so by over 350% – in its first three and a half years.
Developing systematic innovation capabilities
Leading innovators also develop the right innovation capabilities and organizational competence to improve their repeated innovation success. By setting an innovation strategy, these companies articulate and communicate a compelling vision that is supported by specific themes and avoids disjointed efforts. They also develop strong innovation portfolios reflecting different levels of ambition and risk and allowing for continued progress towards ever-greater core improvements, while also supporting big-bet transformational initiatives. Depending on the type of innovation, this may require new processes based on iterative developments rather than strict stage-gate structures, as well as new collaborative models. Lastly, successfully accelerating and amplifying key innovation initiatives requires the right talent, tools and funding to be in place at the right time. In other words, without meaningful incentives and leadership from above, innovation systems run the risk of being inert and ineffective.
By innovating, designing and developing in this way, these CP innovation leaders create substantially higher shareholder and economic value and improved consumer brand perception. You can download the 'Deep-dive on innovation in Consumer Products' report here.