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The Trouble with Innovation Presented by: David Soulsby April 2013

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Innovation is the ‘go to’ strategy to deliver against stretch financial expectations

Today’s Base Business

Tomorrow’s

Target

Today’s Base Business

Tomorrow’s Identified

Opportunities (incremental)

Growth Gap Tomorrow’s Identified Risks

to Base

?

2

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What do the Best Innovators Do? The TNS view

“If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative”

Woody Allen

1. They create a culture which accepts honest risk and failure

3

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What do the Best Innovators Do?

Entrepreneurs help big brands hatch new models of innovation

Pharmaceutical giant GlaxoSmithKline (GSK) signed a deal with the McLaren Formula 1 team last September to try to learn from a company known for its world-class racing and super quick tyre changes.

“The idea is to work with McLaren and learn how it operates such a leading-edge, fast-paced innovative company” says Kerry O’Callaghan head of GSK’s global brand communications team.

“There’s a culture at McLaren about being open about mistakes – a philosophy of constant innovation and learning. From a cultural point of view, that’s a great thing to bring into the business”

Marketing Week 22 March 2012

1. They create a culture which accepts honest risk and failure

4

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What do the Best Innovators Do? The TNS view

1. They create a culture which accepts honest risk and

failure

2. They create a consistent flow of good ideas

5

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They create a consistent flow of good ideas “The best way to have a good idea is to have lots of ideas”

Linus Pauling: Chemist and multiple Nobel prize winner

TNS think he was only half right

Having lots of ideas is a great start, but it won’t get you very far unless you can recognise which are the good ones

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What do the Best Innovators Do? The TNS view

1. They create a culture which accepts honest risk and

failure

2. They create a consistent flow of good ideas

3. They ruthlessly screen and prioritise

“Do the right projects, not just do projects right”

7

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What do the Best Innovators Do? The TNS view

1. They create a culture which accepts honest risk and failure

2. They create a consistent flow of good ideas

3. They ruthlessly screen and prioritise

4. They are first to get it right in the market

Developed at Hendry Corporation

Normal Order-of-Entry Shares are:

First 70% 57% 50%

Second 30% 25% 22%

Third 18% 16%

Fourth 12%

8

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What do the Best Companies Do? The TNS view

1. They create a culture which accepts honest risk and failure

2. They create a consistent flow of good ideas

3. They ruthlessly screen and prioritise

4. They are first to get it right in the market

5. They overplan and overmanage launches

9

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What do the Best Companies Do? The TNS view

1. They create a culture which accepts honest risk and failure

2. They create a consistent flow of good ideas

3. They ruthlessly screen and prioritise

4. They are first to get it right in the market

5. They overplan and overmanage launches

6. They embrace systematic learning to create best practice throughout the innovation process

10

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But generally failure rates for innovation are unacceptable….

1 Delivering successful innovation

©TNS 2012

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What is the definition of a successful innovation?

13

• Survival?

• Providing growth to the business that is stronger than the category development = “successful growth”

• To understand what drives successful growth TNS have undertaken R&D across a range of categories based on Kantar WorldPanel data, ie household purchase panel.

• We looked at the importance of:

• Total sales for the new product

• Incrementality = 100% - Cannibalisation %

©TNS 2012

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Incrementality has a strong impact on the chance of successful growth - Savoury snacks category

14

0%

20%

40%

60%

80%

Hi VOL - Hi INC Med VOL - Hi INC Hi VOL - Low INC Med VOL - Low INC Low volume

Probability of successful growth

Source: Kantar WorldPanel

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So TNS believe incrementality must be built into the way we assess new products throughout the process

Biggest is not always the best

Overall potential doesn’t necessarily measure the growth potential of an idea

Product A Product B Product C Product D Product A Product B Product C Product D

Sales six months after launch (€m)

Cannibalisation Incremental volume

15

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Once the decision has been made to invest in product development it is difficult to ‘put the brakes on’ a project

Source: Cooper & Kleinschmidt

29%

Prelim market assess

Idea screening

Prelim tech assess

Market study

Financial analysis

Product development

In-house prod test

Customer prod test

Test market

Pilot production

Business analysis

Production

Market launch

Average % of innovation spend

16

And, you need to know you are backing growth ideas early in the process

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At TNS, we don’t think it’s good enough to keep getting innovation wrong, so we do things differently

17

The research industry needs to look at its track record and reject the status quo

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An innovation process that ensures you take the best growth opportunities to market

Corporate goals & capabilities

Ideation Market opportunities Concept prioritisation Concept /product development and

refinement

Volume estimation/launch

18

Matrix NeedScope

U&A

Concept eValuate

Product eValuate

Launch eValuate

SuperGroup Workshop

2 Identifying the innovations which can deliver growth

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The current norm – biggest is best ….but trial potential is only part of the story

20

Trial potential High Low

STOP REWORK PROGRESS

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% Incremental

Low

Our database shows considering incremental growth potential provides a better perspective

Concepts that could grow the business, but would be traditionally screened out

High

Low

Should we progress these cannibalistic concepts?

High

Trial potential

21

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Understanding incremental growth potential provides better advice

Traditional categorisation based on highest trial potential

Progress

Stop

Rework

22

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Understanding incremental growth potential provides better advice

When we build in incrementality, in 40% of cases you would make a different screening decision

Progress

Stop

Rework

23

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Winning cannibal?

Initiatives with broad appeal that will cannibalise the existing franchise.

Incremental winner

Initiatives with strong growth potential

De-prioritise

Initiatives with narrow appeal and limited growth potential

Investigate

Initiatives with moderate growth potential which have stronger appeal among Early Adopters

24

Concept eValuate identifies the new product ideas that will drive growth early in the innovation process

Cannibalisation isn’t always bad:

• Better margin (but rare)

• Defensive when you have a weak

parent

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Understanding incremental growth potential means better advice

New categorisation taking account of growth potential

Incremental winners

Investigate

De-prioritise

Winning cannibals?

25

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Uniqueness does not guarantee incrementality In fact, you cannot predict incrementality from other traditional measures

Correlation (R) with: Purchase intent -0.32 Uniqueness 0.21 Liking -0.24 Value for money -0.02 Believability -0.05

26

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“Definitely would” buyers are more important than “probably would” buyers

To predict incremental growth accurately you need to understand people as individuals

Aggregate analysis treats all respondents as equals - but

Heavy buyers of the new product are more important than light buyers

27

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Proof that individual modelling doubles the accuracy of the incremental growth estimate

More

accura

te

Less

accura

te

Salad dressing Toothpaste Dishwasher

tablets

Snacks CSD Shower gel

Traditional aggregate model TNS individual model

Accuracy of cannibalisation estimate

28

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Individual modelling isn’t easy. TNS has 20 years experience and validation that our models are predictive

In-m

ark

et

tria

l ra

te

Trial index weighted by marketing plans

29

3 Reducing the time to being market-ready

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Diagnostics support fast decision-making to get the right products to market faster

SHOP

31

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It is important not to test products in a vacuum To get the concept-product fit right you need to test the product versus expectations

Repeat

pote

ntial

Synergy

High

Low

Product weak vs. concept expectations

Product strong vs. concept

expectations

32

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To check we have met consumer expectations we calculate a Synergy Index by comparing individual concept and product purchase probabilities

33

100% asked at

p r oduct stage

100% asked at

concept stage

25

45

30 Other

P r obably buy

Definitely buy

11

8

6

17

24

4

2

8

20

30

40

30

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We know what good looks like….

34

Database analysis for key measures: concept, product, synergy

Summarised by the Launch Health Check score

Healthy Unhealthy

50-25% Top 25% Concept Bottom 50% Synergy Product

4 Case study

TNS © 1.24.2013

Test project

The purpose of this research was to:

Assess consumer acceptance and growth potential for each of these concepts

Prioritize and provide guidance as to which to take forward to the next stage of development

N=200 category buyers per concept

Questionnaire covered key dimensions:

Purchase intention, Source of Trial, Value for Money, Uniqueness, Relevance, Excitement, Liking, Credibility, Clarity

Context

Four new Snacks ideas were tested in a standard Concept eValuate

4.1 Key screening and prioritization criteria

TNS © 1.24.2013

Test project

Assuming 100% awareness and distribution. Based on Total Category Buyers

% Trial Bottom 50% 50 - 25% Top 25% Bottom 50% benchmark Top 25% benchmark

Trial

50

0

37

Concept 1

32

Concept 2

21

Concept 3

21

Concept 4

30

36

Identifying the concepts with strong trial potential is only part of the story

TNS © 1.24.2013

Test project

Assuming 100% awareness and distribution. Based on Total Category Buyers

Incremental Non-incremental Bottom 50% 50 - 25% Top 25% Bottom 50% benchmark Top 25% benchmark

Trial

50

0

26

Concept 2

21

Concept 3

19

Concept 1

18

Concept 4

20

25

Winning cannibal?

Incremental winner

Investigate De-prioritise

To maximise your chance of success you need an understanding of incremental potential

4.2 Development plans

TNS © 1.24.2013

Test project

Concept 2 Incremental winner

Development guide

Product expectations:

Natural ingredients Spicy flavour Price point:

€2

Target

Brand X buyers

Watch out

Weak credibility

Growth

6

26

32

Topspin

45

Uniqueness

35

Early Adopter trial

42

Excitement

Based on Total Category Buyers

Incremental growth Brand cannibalization Bottom 50% 50 - 25% Top 25%

Precise development plans aid speed to market

TNS © 1.24.2013

Test project

Concept 1 Winning Cannibal?

Growth

19

19

38

Development guide

Product expectations: Strong flavour , crispy texture

Price point: €1.50

Target

Watch out

Topspin

56

Uniqueness

35

Early Adopter trial

55

Excitement

Based on Total Category Buyers

Incremental growth Brand cannibalization Bottom 50% 50 - 25% Top 25%

Low excitement

Households with children under 10

4.3 Recommendations

TNS © 1.24.2013

Test project

Growth potential

De-prioritize Investigate Winning Cannibals? Incremental Winners

Concept 4

I T

Concept 3

I T

Concept 1

I T

Concept 2

I T

Based on Total Category Buyers

I Incrementality T Trial Bottom 50% 50 - 25% Top 25%

TNS © 1.24.2013

Test project

Recommendations Fast track

Fast Track Diagnosis Rationale

Concept 2 Incremental winner Strong trial and high growth potential Product must deliver against expectation of natural ingredients

TNS © 1.24.2013

Test project

Recommendations Proceed

Proceed Diagnosis Rationale

Concept 1 Winning Cannibal?

Concerns over cannibalisation Product development must focus on at least retaining margin versus existing product

Concept 3 Investigate Strong interest among Early Adopters plus high incrementality suggest this idea should be nurtured

TNS © 1.24.2013

Test project

Recommendations Stop

Stop Diagnosis Rationale

Concept 4 De-prioritize Weak incrementality. Resource can be better focussed on ‘winners’

5 Successful growth through innovation

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TNS identifies winning ideas and products for growth

Biggest isn’t always best. Incrementality provides the key to growth potential

Individual-based modelling provides more accurate screening and prioritisation based on incremental growth potential

Back the right projects early in the innovation process

Concept Product Synergy is vital for in-market success

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TNS-Sifo Consumer & Retail Contact Information

50

Astrid van den Brink Erlandsson +46 70 184 23 85 astrid.brink@tns-sifo.se

Maria Rönnberg +46 73 358 63 12 maria.ronnberg@tns-sifo.se

Petra Laru +46 701 84 21 85 petra.laru@tns-sifo.se