New Products Through the Decades

October 1, 2006

We're now in a decade where new products and innovations are seen as being smart investments. Some context will show that

• It wasn't always the case
• It took us a long time to finally come to this conclusion

In the 1950s, mass marketing was driven by the mass media-more specifically, television. All you had to do was create a product, and the medium was almost the message. You just needed to create toothpaste, put it in a tube, advertise it on television, and it sold incredibly well.

Starting in the 1960s, we saw the concept of segmenting introduced, driven in large part by a statistical technique called cluster analysis. In cluster analysis you survey people about their needs, wants, and desires and the literally cluster the results based on the pattern of response. Everyone who responds the same way will be put into one cluster. At the end of the process, you'd have four, five or six clusters, and you then set out to create products designed specifically for each one.

So, to stay with the toothpaste example, based on the cluster analysis companies like P&G would create a product geared to the people who wanted fresher breath, one for people who wanted whiter teeth and another for those who were looking for therapeutic properties such as cavity fighting.

The 1970s were the heyday of new products and new product marketing, in large part because we had identified all these segments and we had more sophisticated tools-such as simulated test markets-to help predict demand.

Thanks to simulated test market research, you can sample a group of people in your target market. You can show them an ad which causes them to buy, and you can forecast from their reaction how well the product will sell out in the real world.

The 1980s are the period of Gordon Gekko, the main character from the movie Wall Street. (Remember his catchphrase: "Greed is good?") The stock market is soaring and so it is cheaper to acquire (using your stock) someone else's brands than it is to build your own from scratch. The rationale becomes that the brands themselves have value-which, of course, they do. So during the decade we get all these mergers and acquisitions and the notion of brand equity emerges. In the process, we take our eye off the idea of innovating internally.

In the 1990s the worm turns and now it is all about cutting costs and eliminating people. Creating a new brand completely from scratch is seen as too costly and too hit or miss, so the focus in on line extensions which are seen as having less risk. Line extensions are products that are new-sort off- but you are not spending huge sums to create it, which makes all the people in the finance department
happy.

Now what's important to note is that when you extend the line, you stretch the brand, and in the process you begin to sap the value of it. If you had started with soft drink product that had built up some equity in the marketplace, and then you come out with a diet version, and a no-caffeine version and a zero calorie version and several flavored versions, the value of the original soft drink itself decreased by the time you were done expanding it to death. You had diluted its equity. You had undermined the very value of the original product. And that was the net result of all the cost cutting andbrand extensions that we saw in the 1990s.

When you think about it, you realize that we have had more than two decades where innovation wasn't viewed as important. In the 1980s it was cheaper to acquire a brand than build one and in the 1990s trying to create something new was seen as too risky (and so the focus was on brand extensions instead).

But we finally got to the point where there was nothing more to wring out of existing products. And that is why innovation is once more-correctly-seen as important.

Source

"New Products: The Next Big Marketing Revolution." Robert S. Shulman. New York: ANA, 2006.