Matthew Miller
Dec 17, 2014

Why 96% of new product launches in China fail

GREATER CHINA - Although most marketers see new products as critical to their success, only 4 per cent of launches in China deliver significant incremental revenue gains once cannibalisation is taken into account, according to just-released research from TNS.

Force-fitting products to the market and focusing on premium launches are areas where MNCs go wrong
Force-fitting products to the market and focusing on premium launches are areas where MNCs go wrong

“That’s quite low when you consider the number of launches that are happening as well as the thought that you can launch anything in China and be successful,” Ray Crook, APAC director of innovation and product development for TNS, told Campaign Asia-Pacific.

While 19 per cent of new products generate revenue, 15 per cent merely take revenue away from existing brands within the same portfolio, according to the market researcher’s review of more than 200 mainland launches. Nor are new products attracting droves of new shoppers. “Only 31 per cent of buyers are new buyers of the portfolio,” Crook said. “Rather there’s a lot of switching into new brands that are being launched.”

Brands also make the mistake of staying loyal to losing propositions. “We see that after three years, 45 per cent of new products actually stay on the shelves, even though not many of them are actually making money, and are definitely not helping their portfolios grow,” Crook said.

Granted, product development is difficult everywhere, but that 4 per cent figure for China stands out as particularly abysmal. For example, in the UK, where TNS has studied more than 3,000 new products, 15 per cent of launches deliver significant, lasting gains. In Malaysia, the equivalent statistic is 9 percent. (Research in Indonesia is underway, Crook added.)

Worldwide, more than a third of new product launches actually decrease the parent company’s market share because they encourage heretofore loyal people to start exploring other options, according to the TNS white paper on this topic (written by Crook and entitled To innovate or not to innovate).

How can brands develop new offerings that successfully navigate this minefield? Crook offered several instructive examples from China, as well as some guiding principles for brands that want to beat the statistical trends.

Of Snickers and Oreos

Crook cited Snickers’ introduction of a 20-gram format as a success. The launch, which targeted cost-conscious consumers and “quick occasion” eating, attracted 51 per cent new buyers, he said.

Even more impressive, an "unheard of" 99 per cent of those who bought Schweppes Plus C were new to the brand, he said. By contrast, Master Kong’s Daily C failed to stand out or communicate a clear benefit to consumers, so it only attracted 22 per cent “incremental consumers”—lower than the 37 per cent average in the beverage sector, Crook said.

And while admitting he loves Oreos as much as the next person, Crook said the brand’s much-heralded product innovations (ice cream flavours, birthday-cake flavours) are delivering less and less gain as time goes on.

Problems and advice

One place brands in China trip up is in believing that given the huge population, any launch is likely to work. “So there is less research into the product before it’s launched, and in some cases there is no research,” Crook said. Companies simply fail to do an early assessment of innovations to determine their potential profitability in light of factors such as cannibalisation.


Ray Crook

Attempts by multinationals to drop products from elsewhere into China are also problematic. “MNCs have different ways they innovate, and one of them is an import strategy,” Crook said. “But when ‘force-fitting’ to China, the key benefits may not fit the needs of the Chinese consumer.”

Another issue for MNCs is a tendency to focus on premium product launches. Launches by MNCs fit a premium profile 54 per cent of the time, versus 27 per cent for local companies. However, local companies are better at it. “Even though the MNCs spend at least half their time on premium products, it’s actually the local companies that do premium products better, delivering incremental growth 30 per cent more often,” Crook said.

This is not to say MNCs should not focus their efforts on premium products, he added. They just have to get better at it.

Much of Crook’s advice falls into the category of things that are easy to grasp but difficult to pull off:

Understand the key elements/benefits that need to be delivered, and deliver on them exceptionally.

Ensure that if it's a line extension (as more than 90 per cent of new products are) that the key elements of the product have synergy with the brand. “The equity of the brand has to complement the new product,” Crook said, citing Bic’s attempt to sell women’s hosiery as a negative example. “There is a lack of synergy there, between what people know them for and what they were trying to deliver,” he said. “Women didn’t want cheap and disposable hosiery. Harley Davidson perfume is another example.”

Know what it’s going to take to support the launch. “Too many times the spend in terms of advertising and support on the shelf isn’t there,” Crook said.

Be aware of time. Brands must try to develop reasonable expectations for how long it will take for success to occur. This plays out internally, because failure to demonstrate expected success can doom a new product to premature plug-pulling.

Stay true to the opportunity. This is about understanding what the consumer wants and not changing the plan during the production stage, whether it’s due to cost of formulation, legal constraints, lack of marketing budget or the capabilities of production. “When it comes out looking quite different from the initial concept, it may not work,” Crook said. For example, he cited the example of an unnamed MNC that worked on a new chocolate bar for nearly 10 months based on positive research. However, one senior stakeholder forced a last-minute ingredient change based on a gut instinct, and the product failed.

Avoid “ghost innovations”—new products that a CEO or MD wants to push through, but which should be killed off earlier in the process when evidence shows they are doomed to fail.

 

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