Think Innovation Doesn’t Matter? Think Again.

A story in a recent issue of Advertising Age (adage.com), “Packaged Goods Suffering from Dearth of Innovation” by Jack Neff (October 25, 2010), contains a striking message, one that ought to strike at any complacency that may exist in the minds of those who are responsible for developing consumer products, particularly in the packaged goods (CPG) sector.

Here it is:

“According to some industry watchers. . . Tech companies are innovating; CPG companies aren’t.

“’Only four in 10 CPG companies are investing more in product research than they were 10 years ago,’ said Pat Conroy, vice chairman and U.S. consumer products leader at Deloitte.  ‘They’ve lived on product extensions as opposed to developing truly innovative products.’”

Think about that for a moment.  If you watch television—or even go to movies nowadays—you see commercials for smart phones, one after the other.  Arguably one of the benefits of the iPhone and one of the things that is keeping BlackBerry in the game is the fact that someone can say, “I want to buy an iPhone or a BlackBerry” rather than “I want to by a Samsung Solstice/Strive/Magnet/Flight/Rugby II/Mythic/Eternity II. . .” and I am only citing one company and just scratching the surface of its offerings.  Providers of electronics devices are rolling new products out at a velocity that seemingly dwarfs all other categories.  And people are buying them.

What’s interesting about this is another observation in the Ad Age story: “As people cut back on packaged goods, they are still doling out for such things as smartphones and tablet computers—many of them coming with steep monthly tariffs on top of three-digit price tags.”

And what’s making matters more difficult for the CPG companies is that an increasing number of consumers is beginning to think that store brands are just as good as labeled brands.

Back in 2006, Michael J. Silverstein observed in his book Treasure Hunt: Inside the Mind of the New Consumer: (Portfolio): “In the United States and around the world, the consumer markets are bifurcating into two fast-growing pools of spending.  At the high end of the market, consumers are trading up, paying a premium for high-quality, emotionally rich, high-margin products and services.  At the low end, consumers are relentlessly trading down, spending as little as possible to buy basic, low-cost goods that still deliver acceptable quality, reliability, and, increasingly, elements of fashion and current design.  In between the trading-up and trading-down pools lies a vast expanse of mediocre, often low-margin, goods that offer neither distinctive emotional appeal nor better value than cheaper competitors.  Whenever they can, consumers steer clear of them.”

Arguably, this is precisely what’s happening in the CPG sector right now.  Without innovation, without distinctive advantages, many companies are finding that their appeal isn’t what it should be.  People are paying for Kindles and iPhones.  They’re not paying for existing products that seem to have nothing more to offer than a few more works on the label—“Now with even more unobtainium for a richer experience”—or a new package with the same old, same old inside.  (And in some cases, they’re putting less inside the packages without reducing the price.  Think the consumer won’t notice?  Think again.)

The challenge is to bring innovation.  Meaningful, distinctive, useful, sellable innovation.  It is something that, apparently, some companies have figured they could get by without, that they could scrimp on.  They probably rationalized this by figuring that the Great Recession was holding down things across the board, so they could skip the R&D and simply try to get by with what are essentially smoke and mirrors.

Guess what? It isn't working. Innovation matters more than ever, regardless of what you make.