Indeed, those who resist the urge to slash R&D budgets and instead innovate through the bad times can steal a march on their rivals. In times like these, necessity really can prove the mother of invention. And not just when it comes to product innovation – the fact bogofs came into their own in the early 90s underscores the effectiveness of innovative promotional tactics. But first, the would-be innovators need to identify what exactly the consumer wants.
During the WWII, for instance, one of those needs was for vitamins. When the German U-boat campaign put paid to British imports of citric fruits, domestically grown blackcurrants became the main source of vitamin C. Bristol company HW Carter may not have foreseen the problem when it launched its blackcurrant cordial in 1938, but it was quick to understand its product’s relevance in wartime and gave the cordial away free to the nation’s children. Afterwards, the cordial was once again sold under its brand name, Ribena.
The cordial’s success is a good example of how in a war – or an economic downturn – customer behaviour and demand change, says Ije Nwokorie, brand consultant for Wolff Olins. “In all sorts of sectors where businesses and consumers are questioning their spend – energy, finance, advice, travel, retail – the winners will be those that stimulate demand by using their brands to create new things that people are happy to pay for.”
Traditionally, brand owners may have been able to rely on a degree of brand loyalty to see them through. Not so these days with the ubiquity of own label and the high level of trust it engenders. “If your brand has a relevance then, yes, strong brands will come into their own in tough conditions. But if the brand is seen as weak, then consumers will become more promiscuous,” says Rune Gustafson, CEO of Interbrand London.
Brand owners can’t afford to stay still. “Anecdotal evidence suggests price becoming important for customers and there will inevitably be some switching between brands and from brands to own label,” says Will Hayllar, associate partner at OC&C Strategy Consultants.
The key is to satisfy consumer demand for value as opposed to price, he suggests. “Brand owners have to work extra hard to justify their price premium, if indeed they have one,” he comments. “What we’re talking about is cost-effective innovation. It’s essential to put sound consumer understanding at the heart of it.”
It’s not just wily suppliers that are looking to ramp up their NPD as the economy tanks. Tesco’s discounter range, Market Value, launched two months ago, ticks all the boxes for recession-proof innovation, believes Nwokorie. “I like the Tesco discounter range. This is not just about low cost. Tesco is very cleverly adopting brand-led innovation to create the value people are looking for. They acknowledge the customer’s need for more value, without compromising on quality or usefulness, because in hard times people want a lower price but not bogstandard or dirt cheap.”
Tesco agrees consumers are more concerned about price today than they have been for 20 years but stresses that the concept has evolved. “Economic events have taught us the importance of innovation,” said Lucy Neville-Rolfe, Tesco’s corporate and legal affairs director, at last month’s IGD conference. “We need to focus more than ever on price. The Value range is great but we found there was a gap for attractive, good-quality, cheaper products.”
Tesco claims initial sales of the 350-line Market Value range have been strong. In the first week alone, it says it sold 50,000 litres of Oak Lane tomato ketchup, 3.5 million Market Value tomatoes and 150,000 iceberg lettuces. Sainsbury's is also aggressively promoting its own-label lines at the expense of branded.
Aside from sending a shiver down the spine of cash-strapped suppliers, this should have acted as a call to arms for branded suppliers mulling over R&D spending cuts. “The obvious priority is innovation that helps families make their budgets go further,” says Gustafson. “This does not necessarily mean slashing prices but putting together packages that make the weekly shop stretch further.”
Arla Foods has done exactly that, responding to the credit crunch by launching the first-ever mini block butter – an innovation that not only ticks the value box but the environmentally friendly box. At 50g, the block is five times smaller than the standard 250g. “We saw there was an issue with one or two-person households for whom a 250g block was too big and there was a problem with waste,” says Arun Prabhu, head of innovation at Arla Foods. “It’s all about understanding the changing needs of the consumer. If anything, innovation becomes even more important during a downturn.”
P&G is another fmcg company that is hoping to benefit from a dual emphasis on value and the green agenda. The household goods giant claims its new Ariel Excel Gel cleans clothes effectively at temperatures as low as 15C and is heralding the product as the biggest innovation to hit the £961m laundry category to date.
At the IGD conference, Irwin Lee, vice president and MD, P&G UK and Ireland, said it was more important than ever to react to changing consumer needs during a downturn. “If we see only the danger of the situation facing the industry today, we will retreat into relationships driven by cost and margin, assuming consumers are only motivated by price. Instead, let’s embrace innovation and the opportunities it brings.”
Products that can make themselves relevant on more than one level will stand out, predicts Gustafson. “Ariel’s new 15C wash is a great example,” he says. “People are concerned about being wasteful. That goes as much for their wallets as their environmental responsibilities. At the end of the day we have to manage our budgets as well. Innovation in areas such as less wasteful packaging and cutting out unnecessary on-pack promotions makes sense.”
By hitting on the right innovation at the right time, companies can achieve a distinct competitive advantage. Hallyar cites a historical example of innovation borne out of difficult times. “The bread category in the latter half of the 1990s was becoming increasingly commoditised. Private label was growing share with supermarkets pushing down the price to as little as 10p. Collectively, the big three brands – Kingsmill, Hovis and Warbutons – raised their game in innovation and repositioned the category by developing omega-3 loaves, multigrain and multi-seed loaves. It revitalised the category and moved it back into growth.”
Technology-led innovation can work, Nwokorie says. He cites the example of PepsiCo launching its own trademarked oil – Sunseed – at a time when the health lobby was taking its toll on Walkers’ sales. But often it’s easy to replicate, so advantage is difficult to sustain in the long term. Innovation should focus on a unique selling point – the brand itself, he argues.
“When times are good, companies can get away with consumer-led innovation and technology-led innovation but these are very easy to copy, especially by own label. Brand-led innovation is how clever businesses create useful products and services that people are happy to pay for.”
These, of course, are also incredibly hard to copy. Ultimately, products that stand alone generate the highest returns.
Nwokorie’s biggest bugbear is companies that bury their head in the sand and do nothing. “In tough times, it pays to take a fresh look at your products and services and use the brand to drive new ideas. Apple, during the dotcom crash, increased R&D budgets, invented iTunes and continues to dominate the category.”
Using Tesco’s brand-led Market Value range as an example of good practice, he identifies a further two mistakes that companies often make when innovating during a downturn. The first, he claims, is to deviate from the central brand idea. “Rather than change what the brand is about, Tesco uses new ranges such as Market Value to reinforce its relevance,” he says. He also rails against retailers who devalue categories through heavy discounting.
It’s worth noting that Tesco’s latest innovation doesn’t gain approval across the board. “I’d put a question mark against the Tesco brand and why it felt the need to create an additional discounter brand that satisfies the need for quality and value,” says Hayllar.
Whether Tesco’s range hits the mark or not, there are bound to be plenty of innovations generated both by retailers and suppliers that fail to resonate with shoppers. But that shouldn’t stop companies trying. Prudence may be the buzzword in government at the moment, but where innovation is concerned, fortune favours the bold.n
Gerber Baby Foods — 1928
Gerber struck upon the idea of putting puréed vegetables in cans at the start of the Great Depression. It maintained its dominance of the market throughout the war years
Ribena — 1938
The drink was launched before WWII but only took off when other fruits rich in Vitamin C became impossible to obtain due to the German U-boat campaign
Lucozade Sport — 1990
Signalled the end of the brand's realignment from drink for invalids to mainstream soft drinks brand. It had achieved a 75% share of the UK sports drink market by the end of 1991
Ariel Excel Gel — 2008
Not only does P&G’s latest innovation promise to cut the costs of laundry, it’s also environmentally friendly.
Innocent Veggie Pots — 2008
Innocent chose a precarious time to make its long-awaited move into food, but at £3.49 will its veggie pots offer the value consumers crave?