On the surface, it would appear that larger brands in the FMCG space have a significant advantage when it comes to marketing their products. Their deep pockets mean that budgeting is rarely an issue. Sometimes, this does lead to effective campaigns - think of Procter & Gamble’s celebrity-filled, award-winning ads for Old Spice that reportedly saved the brand. But usually, larger budgets simply mean larger amounts of wasted money.
A recent survey of decision-makers at companies across the UK, US, China, India, and Europe found that around 60% of FMCG brands’ digital marketing spend is wasted – equivalent to almost $50 billion industry-wide. Often, this money is wasted because it is spent advertising products that simply aren’t right for their market.
Even during the kinds of macroeconomic turmoil being experienced today in many countries, marketing expenditure continues to rise. CPG ad spend is expected to increase this year to $36 billion, increasing from $30.5 billion in 2021. The problem is not necessarily with the amount of budget being allocated to marketing - but how it is being used. Without a good product-market fit, it doesn’t matter how much money is spent on marketing - it won’t deliver good ROI.
While larger FMCG brands have seen themselves hampered by bureaucracy and inertia, unable to create new products that take advantage of emerging consumer trends, smaller, more agile brands have shown an adaptability that has resulted in rapid growth - at the expense of their larger competitors. They may not have the scale, but they certainly have the speed. Instead of traditional marketing approaches, they have displayed a willingness to meet the modern consumer on their own terms with products and strategies that are digital, personalized, and authentic.
Larger FMCG brands have been set as a challenge. Can they innovate, moving away from their core products that are increasingly viewed as stale by consumers, towards something more exciting? At the same time, can they leverage rapid prototyping to optimize the performance of existing products and slow the decline of their core business? Working with Innoleaps, they can.
For decades, growth in the FMCG market followed a pretty consistent formula. Mass-market brands had strong relationships with retailers and consumers, allowing them to dominate the market and generate reliable proceeds. But that market no longer exists.
Consumers want more sustainable, personalized, and authentic FMCG offerings - the kind that are more readily supplied by smaller, more agile brands. They are not content with generic, mass-produced goods. This behavior change is reflected in market growth rates. While large manufacturers of food and beverages achieved a marginal average growth rate of just 0.3% per year, midsized companies have seen sales grow by 3.8% annually. Small companies have experienced growth of 10.2%.
Examples of smaller FMCG brands that have experienced huge growth in product sales are not hard to find. They have been quicker to adapt to consumer needs around sustainability, wellness, and direct distribution. The likes of Austrian micro drink-maker Waterdrop and Inclusive, the first deodorant brand designed for people with disabilities, are testament to the agility of smaller FMCG brands.
As these brands do not have budgets as big as more-established brandsplayers, they market their products differently. For example, Grove Collaborative focuses on clarity of messaging for its cleaning and care products - “100% plastic-free by 2025; Plastic neutral today.” The company was started by just three friends but is now worth over $1 billion. Clearly, its marketing strategy is working.
How bigger brands can fight back
Overall, the failure rate for new products in the FMCG space is staggeringly high. Statistics vary, but generally claim that between 70 and 80% of launches fail within their first year. As such, corporates often become scared of innovation. Last year was particularly bad for brands stepping away from their core offerings, with new product development in the FMCG space falling to its lowest level in over a decade.
This risk aversion is proving to be a misstep. A lot of growth in the sector today isn’t being necessarily driven by larger companies but by challenger brands that have already carved out a significant market share, such as the ethical confectionary brand Tony's Chocolonely.
The good news is that the FMCG industry has identified that there is a problem and is working on ways of reinvigorating the performance of larger brands. Investors certainly expect better performance - CPG firms need to achieve 1.0 to 1.5 percentage points higher organic growth rates than they did in the last decade if they are to meet investor expectations. Consumers are willing to help meet these expectations - but only if the right product-market fit can be found.
At Innoleaps, we can help larger companies compete in terms of both speed and scale. We extend our end-to-end process for launching new products with consumers, validating assumptions, and adding new production capabilities like faster sampling, on - and offline shelf testing, iterating, and scaling. With our growth hacking capability, we test the product format, benefits, how to position it, price points, and brand performance. With our partners, we can produce products from kitchen scale to manufacturer's scale and put the product on the shelf fast in Europe. All to be tested and developed - reducing risk before going big.
As we discussed in the second pillar of our “6 Strategic Pillars for Corporate Innovation,” adopting a portfolio approach to innovation is essential. As with investments, a portfolio approach helps to reduce risk. Rather than focusing all your attention on one idea, an innovation portfolio takes a broader view that accepts some product launches work - and others don’t.
We support larger brands in creating a product portfolio strategy. We can help achieve launches of between 12 and 15 products every year. Given that confectionery manufacturers take 9.2 months on average to develop new products (and 45% of all product launches are delayed), this is a significant increase in speed. We know that some products will fail, but we find this out quickly. With our product portfolio approach, we assess launches using strategic KPIs, create new products, place them on shelves or make them available using a D2C approach, and scale quickly when consumers are on board (or move on to a different product, if they’re not).
This approach is more efficient than spending huge sums of money on marketing to launch an untested product. Instead, brands can de-risk their investments by following the data each time they iterate their product. Our product improvement skills are based on rapid prototyping and co-creation, working with consumers to optimize the performance of existing products. At the same time, our performance marketing expertise helps companies to revamp their core business - so they can sell more products for less media spend.
Innoleaps can help large companies move as fast as their challenger brands. Our proven methodology has been shown to deliver more successful product launches and higher ROI than traditional approaches to product innovation. The old model isn’t working for larger FMCG brands anymore. See how Innoleaps can breathe new life into your company by leveraging the scale of multinationals and the speed of a startup.