Beware the Next Big Thing
Six questions retailers should ask before stocking any new item
Every retail buyer hears it twice a day, every day of the year: “This product is the next big thing.”
My response is that Red Bull was the next big thing of the past 1,000. For every Red Bull there are 1,000 silly new products for which there is not now nor ever will be a significant market. Marketers at large, prestigious companies spend millions annually on new-product development only to watch these ideas die a horrible death in focus groups and on retail shelves all over America.
Depending on who is counting, what they are counting and when they start counting, the new-product survival rate is tiny to minuscule. Fewer than one out of 50 presented at retail survives for more than 18 months. Most never get out of the idea lab, and fewer still ever get produced and shipped to a retailer.
For human beings, something like 70% of the lifetime expenditure on health care occurs in the final six months of life. For products, it’s exactly the opposite: A huge percentage of the funds ever expended occur in the first year of life, buying shelf space and generating initial trial.
What can retailers do to separate the wheat from the chaff, the SKUs with a chance of being the next Red Bull from the next strawberry-mango-low-fat-gluten-free-frozen-yogurt bar?
At the Category Management Association we recommend that every retailer ask six simple questions when someone comes in with the next big thing.
No. 1: What segment of the category is it in?
This provides a basis for understanding the true potential of an item. How big is the segment currently? Is it growing? What was the share of the last item introduced into this segment? What kind of market share of this segment does the item have to attain to reach the claimed volume levels?
No. 2: What is this item’s point of difference?
Millions of dollars of market research indicates that the next big thing has to demonstrate a credible point of difference vs. any competition. If you can’t see it, then shoppers won’t either, and the next big thing will wither and die on your shelf.
No. 3: To which shopper segment does this item appeal?
Who will buy this item? Men? Women? Young people? Specific ethnic groups? Will young males buy this item to eat as a between-meal snack? Will this attract a purchase from a new or underserved shopper segment? Ask the vendor to explain who will buy it.
No. 4: How much incremental volume will it generate?
Will it simply replace volume from another item, or does it appeal to a different shopper need? Does the vendor have any evidence that this item generates new volume for your store, or are you simply trading dollars from a current item to this new one?
No. 5: What’s the effect on total category profit?
Does this item increase gross margin dollars? Does it source volume from lower gross-margin-dollar items? What is the vendor’s profit model for the category with this new item?
No. 6: What is the introductory marketing effort?
Generating trial is the most difficult task in marketing, so ask the vendor what they are doing to gain trial. What happened the last time the vendor introduced an item into the category? What was the marketing support, and what results did it generate?
Some new-product peddlers will be able to answer only a few of these questions, but most vendors will not come close to answering all six thoroughly. My advice is simple: If their shiny new object is really the next big thing, they will be able to answer the questions. Otherwise, keep your hands on your wallet.