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Innovation

Innovating beyond consumers’ imaginings

“The willingness – or perhaps the ability – to envision the new and then create it is all-too-rare in the food and beverage industries. Marketers, often highly risk-averse, fear doing anything that cannot be justified by consumer research….” … some food for thought on innovation from Julian Mellentin of New Nutrition Business.

An editorial published in New Nutrition Business, November 2010, by Julian Mellentin

This month we take as our prism for thinking about innovation the work of the late CK Prahalad, one of the most influential business thinkers and writers of the past 20 years and also professor at the Stephen M Ross School of Business at the University of Michigan.

Prahalad authored many works jointly with Dr Gary Hamel and together they originated the concept of core competencies, which is now hard-wired into how many companies think. In a paper they wrote together called Corporate Imagination and Expeditionary Marketing, they wrote that: “A company must also have the imagination to envision markets that do not yet exist and the ability to stake them out ahead of the competition.”

For companies such as Apple, Microsoft, Nokia and Google, it is this willingness to envision new markets and create them that has been key to their success. And the same willingness to envision that which does not yet exist and then to create it is also key to success in food and beverages, as Quorn and Valio – the Apple and the Nokia of our industry – have demonstrated. The former created a new type of protein and built a $270 million brand based on this technology, the latter pioneered probiotic dairy and went on to give birth to a new market for probiotic fruit juice.

Unfortunately, the willingness – or perhaps the ability – to envision the new and then create it is all-too-rare in the food and beverage industries. Marketers, often highly risk-averse, fear doing anything that cannot be justified by consumer research – yet there was no consumer research which could have guided anyone to create a new protein (Quorn), create new markets for probiotic dairy and juice (Valio), or reinvent the beetroot as a sports and heart-health drink (Beet It). All of these innovations required a leap of imagination and a leap of faith – backed by the persistence to make faith into a reality.

The strategies of these three companies are a stark contrast to the practices of 95% of the food and beverage industry. Mostly managers choose to deliver one close-to-the-core-business line extension after another, persuading themselves that they are innovating, all the while steering as far away as they can from anything that looks like risk.

And yet, according to researchers as diverse as Mintel and PriceWaterhouseCoopers, less than 5% of new products from our industry can actually be classified as innovative in any way. Perhaps that is the reason why 90% of new product launches fail. Prahalad and Hamel provide checklists which are a useful way of thinking about innovation.

Prahalad and Hamel outlined a number of elements which they described as essential for enabling the type of active corporate imagination which can envision and create the new. Here are three of them:

Escaping the tyranny of the served market

Instead of viewing every newopportunity through the lens of existing businesses, managers must think outside of current boundaries and explore the white spaces which lie between existing businesses. This is where the core competency mindset helps.

In our industry this usually means “new category creation” – creating markets which are new to the companies concerned (as science-based probiotic dairy and probiotic juice was for a company like Valio, which prior to that was only a traditional dairy business in milk, yoghurt and juice) and indeed creating categories that are new to the consumer (as probiotic juice still is in most countries). This conscious decision to create a new market is what lies at the root of the creation of most of the biggest successes of the last two decades, from probiotic dairy to the energy drinks market and the success of brands like Red Bull.

Overturning traditional price/ performance assumptions

Thinking about price and performance in linear terms limits the potential for radical innovation. Instead of using existing product concepts as the starting point for new product development, managers might do well to challenge existing assumptions in the category about price/product trade-offs. In the case of Valio this meant marketing its Gefilus probiotic juice at a 30%-50% premium to its regular chilled juices – which proved no barrier to Gefilus gaining a 32% market share. Beet It, the start-up, has not shrunk from creating a super-premium price product with its “concentrated dose” product – and has found that the elite athletes it targets are willing to pay a premium for an effective product.

Getting out in front of customers

“Simply being customer-led is not enough,” say Prahalad and Hamel. Particularly in categories that rely on technology, customers often can’t even imagine what is possible. Companies must lead customers where they want to go – before they even know it themselves.

Valio, Quorn and Beet It are all examples of companies creating product concepts that consumers did not know they needed. They are not led by consumer demand, they create consumer demand.

CK Prahalad has a message that is relevant to beverage companies who question the viability of the probiotic juice concept that has now been so well proven by Valio in Finland and by the ProViva brand in Sweden: “With the tremendous turbulence and the speed with which industries are changing today, you can’t just sit around and wait. While high levels of profits from existing businesses are a must, companies need to be reinvesting in a consistent fashion to create new businesses, and new products, and to shape the pattern of market evolution. They need to imagine new markets for tomorrow, and to build new core competencies that will give them an advantage in those markets.”

In this case the turbulence will come from Danone’s decision to license both the ProViva technology and brand for global roll-out. The risk for beverage companies is that Danone will reinvent juice in the same efficient way it has reinvented – and so now dominates – the dairy cabinet with its probiotic brands such as Activia.

Companies can’t sit around and wait for this to happen. “Senior managers,” says Prahalad, “should therefore be spending less time looking inward and backward, and more time looking outward and forward. They need to be thinking about the implications of new trends and technologies, and about how their industries might be different in five or ten years. Of course, operational issues are important and legitimate – how to reduce overheads, how to respond to a competitor’s last move, how to improve quality or reduce cycle time – but unless you are growing new markets, new businesses, new sources of profit, you will find yourself on a treadmill, always trying to improve the ever-declining margins and profits from yesterday’s businesses.”

All of our case study companies have also behaved in ways that score well on another of Prahalad’s points. He says: “It’s not enough to imagine the future – you also have to build it. Many companies have had incredible industry foresight, but they lacked the capacity to execute it. In order to build the kind of future business which you have imagined, you need to develop this capacity for execution. You need to make a strategic blueprint for turning the dream into reality – a link between the present and the future. You need to carefully work out which new competencies you should be building, which new customer groups you should be trying to understand, which new distribution channels you should be exploring, in order to create a winning position for yourself in a new opportunity arena.”

And finally, our chosen companies also meet all of the following criteria: “Two things seem to characterize most of the companies that succeed in capturing future opportunities. First, they have aspirations which lie outside the resource base of the company, and they manage to stretch and enlarge their resources in order to succeed in this new market.

“Second, successful companies have come to a view of the future that provides a sense of direction, a sense of common purpose, a sense of destiny, a single-minded and inspiring challenge which commands the respect and the allegiance of every person in the organization. The role of senior management is to make sure that the company develops this broad aspiration, and in addition that it is clearly articulated, understood and continuously reinterpreted. Every two or three years, management should again interpret its aspiration and say, ‘This is what it means to us in the next two years’, so the challenge is always renewed but the overall strategic intent remains consistent.

“Go back and look at the Fortune 500 or the Fortune 100 over the last 50 years, and ask yourself how many companies have disappeared from the list, and what the survivors do to stay in that league. You will find that they are continually looking forward, not backward. They are continually changing the rules of competition, rather than following the accepted rules. They are regularly defining new ways of doing business, pioneering new product concepts, building new core competencies, creating new markets, setting new standards and challenging their own assumptions. They are taking control of their future.

“You can’t do that if you are not willing to change and to move from where you are today. The opportunities are out there for everyone, but capturing new business opportunities is like shooting flying ducks – you can’t do it with fixed gun positions.”

To innovate successfully, you too must take your cues from companies like Valio Dairy, Quorn and even the start-up Beet It, and employ vision, purpose and flexibility to capture new opportunities.

Case Study Products

GelfilusValio

The juice drink market looks set to be transformed, worldwide, by the advent of probiotic products. One of the pioneers in the field is innovative Finnish dairy company Valio, which has spent the past decade turning its probiotic juice drink brand into a major success. Valio now ready to use the same model which has proven so successful for the company’s dairy probiotics, taking its technology to market through a network of global partnerships.  Read more here

QuornQuorn

It’s been described by one senior food industry executive as “the greatest food innovation of the last fifty years”, while another has dubbed it “the first new food since the potato”. It’s on sale in 10 countries and has retail sales in excess of £170 million ($269 million/€194 million) and it’s a profitable business. Its massive potential in the Asian market has yet to be developed.

Quorn boasts the perfect nutritional profile for today’s consumer – it contains no allergens, it’s low in fat and high in fibre, is an easily digestible protein that’s on a par with meat in terms of essential amino acid content – and it’s supported by a growing body of evidence that regular consumption can lower LDL cholesterol and promote a sense of satiety. What’s more, in a world in which demand for protein is on the rise and is forecast to outstrip supply, it’s a perfect source of high quality protein. 

Beet ItBeet It

James White Drinks’ development of its innovative juice drinks is a text-book example of how to commercialise nutrition science. Central to its strategy is marketing the intrinsic health benefits of the humble beetroot. The company has begun with a focus on supplying elite athletes, coupled with distribution through health food stores, with a convenient “concentrated dose” package. Meanwhile, it’s deepening its collaboration with scientific researchers to put in place the science that can justify an approved health claim, and it’s looking for partnerships to rollout the concepts internationally. The benefits of the company’s Beet It brand are based on beetroot’s naturally high nitrate content. Read more here

“If you’re a marketer, the last thing you do at this point is take a stand on this issue, especially if you’re a large company.”


NNB CoverAbout New Nutrition Business

Julian MellentinNew Nutrition Business is a London-based research, publishing and consulting company which specialises in researching, analysing and forecasting developments in the business of food, nutrition and health around the world.

The strategies and success factors it  has identified in the 1990s have become the benchmarks for strategy development and brand positioning in the worldwide nutrition business. It works with companies all around the world, from the United States to Australia and from Sweden to South Africa.

New Nutrition Business is headed by executive director Julian Mellentin (right), one of the world’s very few global specialists in the business of food, nutrition and health.

He is the editor-in-chief of New Nutrition Business and Kids Nutrition Report, the only industry journal in the world on the rapidly developing kids’ nutritional marketplace. See www.new-nutrition.com

email: julian.mellentin@new-nutrition.com

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