Warning! Brands at Retail – Your Product Development Process Is Harmful To Your Health

By Vincent Young

WARNING: YOUR PRODUCT DEVELOPMENT PROCESS IS HARMFUL TO YOUR HEALTH

Your company/brand has spent many years attempting to honor a classic “product development” process. You have flowcharts in conference rooms and in PowerPoint decks that detail each of the steps (along with owners, stakeholders, approvers, etc). In many companies, that process has some variation of five steps or “stage gates” that the product marketing team tries to follow religiously:

5 Typical Product Development Stages / Gates:

1. Discovery/Scoping
2. Building the Business Case/Plan
3. Development
4. Testing & Validation
5. Product Launch

Each of these gates typically is completed when a series of deliverables, criteria, and outputs are defined by the collective meeting of the minds between Marketing and R&D.

THE TRAGIC FLAW:

This process has one major flaw if you are a brand whose business case is primarily built on accessing the consumer through the world of retail – the retailer is predisposed to prefer a private label solution to compete with your new product type or class.  In today’s product development process, the supplier brand diligently takes the retailer through all of the consumer insights upon which the new product is based, showcases the research & development capabilities of the company that make the new product possible, and shares the market research around all aspects of the new product ranging from the product name, packaging design and predictive demand models based on various price options and advertising/promotions investment levels.

Shortly after launch (assuming successful national brand sales), a funny thing happens – the retailer plans a private label derivative of your new product (without so much as a “thank you” for your efforts in hand-delivering them all of the upfront inputs that they need in order to launch a lower-cost version of your branded product). You didn’t account for such copy-cat behavior in Gate 2 (Building the Business Plan) of your product development process. So in the end, your branded unit sales, revenues, and gross margins are lower than anticipated and your advertising expense dollars are higher because you have to more aggressively compete against the very retail “partner” with whom you enthusiastically shared your new product marketing inputs in the first place.

Any Parallels To The Story of The Scorpion & The Frog?

In the story, a scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, “How do I know you won’t sting me?” The scorpion says, “Because if I do, I will die too.” The frog is satisfied, and they set out, but in midstream, the scorpion stings the frog. The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp “Why?” Replies the scorpion: “Its my nature…”

How could this be the fault of your company’s product development process? Because if a retail reseller model is your primary path to market, then you have the wrong people in the room as you are managing through the product development process as a supplier brand and you have the wrong requirements to move a product from gate to gate.

YOU MUST OWN THE CAPABILITY:

Today’s stage gate process breaks down for many consumer brands at retail between Stages 2 (Building the Business Plan) and Stage 3 (Development). For brands at retail, it is no longer good enough to defend your offerings against private label through product differentiation alone – your company must also “Own the Capability” around making the product or supporting it in the market while also being different in terms of feature and/or performance.

Brands at Retail must seek to “own the capability” associated with their new products in one of three ways:

1. Patent the Product/Process – If your brand is planning to launch a new flavor, color, or functionality to your line-up and your company cannot patent these differentiators, then odds are that you will never generate the profits from the R&D investment that you are anticipating. Adjust your future profit expectations downward or STOP the product from moving through the stage gate process to launch. Add your legal department as a key input to the development process to assess the level of legally defensible/ownable aspects to your new product while in Gate 2.
2. Control Production Capacity – If, between Stages 2 and 3, your company concludes that it has the ability to own and/or manage most of the production capacity required to make a product with your new features on a global basis, then you can also expect minimum private label threats. If not, then expect a private label derivative within months and adjust your outlook accordingly.
3. Dispense the “Kill Pill” – Some business models prevent private label or knock-off brand alternatives by building products that simply won’t work unless branded products are purchased. For example, many desktop inkjet printer companies build printers that simply won’t fire unless original equipment manufacturer cartridges are loaded.

RECAP:

If your brand depends on retail and your company cannot “own the capability” associated with making or supporting your new products based on one of these three methods, then DO NOT MOVE THE PRODUCT THROUGH THE STAGE GATE PROCESS. Your marketing insights, research and development, and marketing investments will only become inputs to a retailers’ new private label growth strategy.