Learning from Smaller Competitors: A New Approach to CPG Product Innovation

Source: https://insight.kellogg.northwestern.edu/article/cpg-product-innovation

In a market dominated by big players like Procter & Gamble and Unilever, a surprising insight emerges: smaller consumer-packaged goods (CPG) companies are outshining their larger counterparts in terms of product innovation. Recent research suggests that the secret lies not in grandiose breakthroughs but in incremental yet meaningful improvements.

Incremental Innovation Over Blockbusters

Large CPG companies invest heavily in research and development (R&D), with annual expenditures surpassing $1 billion. Yet, these investments often fail to produce the anticipated blockbuster products. In contrast, smaller firms such as Reckitt Benckiser and L’Oreal achieve significant sales boosts through modest R&D spending focused on addressing specific consumer needs.

For instance, Reckitt Benckiser, renowned for its health and hygiene products, continually improves its existing products. They introduced a dishwasher detergent, later enhancing it with a rinse agent, and eventually adding a glass protection chemical. These small, targeted changes resonate with consumers and lead to higher product value without the need for hefty expenditures.

The Power of Collaboration

A key takeaway from this research is the importance of collaboration between R&D and marketing. Smaller firms succeed by ensuring that their R&D efforts are deeply informed by consumer insights, often provided by the marketing department. This collaboration fosters a continuous cycle of improvement based on real consumer needs.

Gregory Carpenter, a marketing professor at Kellogg, emphasizes that larger firms should not reduce their R&D efforts but rather enhance collaboration within their teams. By integrating R&D more closely with consumer insights, larger firms can shift from seeking rare blockbusters to making steady, meaningful improvements.

Embracing External Innovation

Another strategy for large CPG companies is to look beyond their own walls. Borrowing a tactic from pharma and tech firms, collaborating with academia or startups can introduce fresh, innovative ideas into the development pipeline. This openness to external innovation can help large firms adapt and grow in a rapidly changing market landscape.

In summary, the success of smaller CPG companies offers a valuable lesson: incremental innovation, driven by close collaboration between R&D and marketing, and an openness to external ideas can lead to sustained growth and consumer satisfaction. For more insights on this research, visit Kellogg Insight.

Discussion

The findings suggest that large CPG companies should re-evaluate their innovation strategies. By focusing on incremental improvements and fostering internal and external collaborations, they can better meet consumer demands and achieve sustained growth. This approach not only maximizes the impact of R&D spending but also ensures that innovation is continuous and aligned with market needs.