R&D: 2009 New Product Development Survey
R&D expected to hold the line, even in recession
Of those who expect their companies to spend more this year, some say it will be driven by a corporate commitment to innovation, and others indicate the increased cost of raw materials and product trials, and more regulatory documentation will make bigger budgets necessary. The 8 percent of respondents who believe their budgets will take a hit this year cite the economy, layoffs within their R&D departments and a lack of venture capital money.
As they have for the past several years, product developers expect consumers to be most interested in natural and healthful product attributes. Ninety-seven percent of respondents say there is at least a moderate need or interest in healthful beverages, and 98 percent believe consumers are interested in natural products. Thirty-eight percent see the health trend as something of a passing fancy or “the latest trend,” while 44 percent see a “high need or interest.” Similarly, 43 percent say natural products are a high need or interest and 30 percent believe it is a trend.
Despite reports of problems with products imported from China, 23 percent of respondents believe country-of-origin labeling is of low concern to consumers. Forty-eight percent see a moderate level of interest and 25 percent a high level. For their part, 61 percent of product developers say country of origin labeling will have the same level of importance this year as it did in 2008, while 31 percent will be more conscientious of where ingredients are sourced.
Most of those who offered comments on their country-of-origin concerns cited China as the reason, however, longer lead times and higher transportation costs also made the list. And a few indicated that supporting the local economy, along with the environmental benefits of local sourcing are important to them.
“We believe in using and obtaining locally grown, sustainable products to lessen the impact on our environment and promote sustainability,” one respondent said.
Pomegranate was the most-used flavor by survey takers in 2008, and is expected to be a top flavor in 2009 as well, say respondents. Thirty-eight percent of those surveyed said they used pomegranate in their formulations last year, followed closely by mango, which was used by 36 percent. Tried and true flavors vanilla, orange and peach rounded out the top five.
Despite its prolific use in new beverage formulations, pomegranate was not the top-selling flavor at retail for many beverage companies in 2008, respondents report. Coffee, strawberry and vanilla tied for the best-selling flavors last year, followed by green tea and pomegranate, which also tied in the number of votes. But beverage-makers do expect their penchant for pomegranate to be copied by consumers in the coming year, and predict pomegranate and tea flavors will be their top sellers in 2009.
Natural flavors again lead flavor use in the beverage industry. Forty-six percent of respondents use only naturally derived flavors, while another 25 percent use at least 50 percent natural flavors. This represents an ongoing trend as nearly 60 percent of survey-takers indicate their use of natural flavors will remain consistent with last year. Forty-one percent plan to increase use of natural flavors.
Similar to flavors, 46 percent of respondents plan to use only natural colors this year. Sixty-two percent said their use of natural vs. artificial colors will remain the same in 2009, while 38 percent plan to increase their use of natural colors.
Of those who shared their reasons for using natural ingredients, many said their customers are requesting them. “These are in greater demand by customers; natural is perceived to be healthier,” said one. “Too many inconsistencies in pricing and flavor profiles with concentrates [and] mixes. We get better control using locally sourced and managed natural items for flavoring,” said another.
What consumers want
Convenience and organic, two concepts that seem to stand in contrast to one another, vie for consumers’ attention, say survey respondents. Convenience strikes product developers as the trend with a little more staying power, however. Fifty-six percent of respondents said convenience is of “high need or interest” to consumers, while 20 percent said it is the “latest trend.”
When it comes to organic, only 28 percent of respondents said it is of “high need or interest,” and 39 percent said it is a moderate need. Slightly more than a quarter of respondents said organic is “the latest trend.”
Ninety percent of product developers see low-calorie products as at least a moderate need or interest to consumers, with equal numbers giving moderate and high rankings to calorie control needs. Twenty-one percent said low-calorie is merely the latest trend.
More respondents saw low-sugar as a more pressing consumer need than low-calorie. Nearly three-quarters of respondents said low-sugar is either a moderate or high need or interest for consumers. Only 13 percent said it was merely the latest trend.
Fifty-nine percent of respondents said consumers are the primary influence on idea generation for new product development. An equal number say their company chief executive officer or upper management has the most influence on development. A little more than half said retail customer requests help generate ideas for new products.
It follows accordingly that market research most often relies on consumer panels, with 59 percent of survey respondents indicating they use these consumer test groups. Focus groups follow closely at 56 percent and one-on-one interviews are used by 53 percent of respondents. Only 19 percent of respondents incorporate home use testing in their market research processes, while 44 percent use in-store testing.
Ninety-three percent of those who use in-store testing say it is very important to their understanding of consumer needs, while 7 percent give it an average rating on how much it impacts their companies’ product development. Focus groups and home use testing scored equally on the importance test. Eighty-three percent said each of those research methods were very important, and 17 percent said they both were about average in their impact.
Central location testing, one-on-one interviews and consumer surveys via the phone or Internet proved the most divisive research methods, generating a wide range of opinions on their effectiveness. Seven percent of respondents who have used phone and Internet surveys said they were not at all important, and 53 percent said they gave average results. Forty percent said they were very important to the product development process.
Sixty-five percent of respondents who used one-on-one interviews said they were very important, while 29 percent said they garnered average results for their companies, and 6 percent ranked them as not at all important.
Similarly, 82 percent of respondents who had used central location testing said it was very important to their companies’ product development process. But 9 percent gave it an average rating and 9 percent said it was not at all important.
Proving that most ideas start at the top, chief executive officers are involved in 82 percent of product development processes. Of those who participate, 39 percent are the leader or chief decision-maker and 36 percent provide oversight or guidance. Fourteen percent of chief executives participate as team members, and 11 percent stay out of the process until the product is done and then give a final stamp of approval.
Based on the team members most involved in product development, it seems idea generation usually begins with sales and marketing goals. Seventy-eight percent of respondents said sales and marketing representatives have a place on their product development teams. Seventy-one percent said R&D specialists are involved in the process, 67 percent indicated that upper management is represented, and 57 percent said members of the production department are involved in the process.
Suppliers also are key members of the product development team, according to survey-takers. Sixty-one percent include suppliers on their product development team. Those who make use of their supplier relationships say they provide samples and raw materials, technical support and formulation advice.
Above and beyond technical formulation expertise, 35 percent of respondents said their suppliers offer consumer research, and 24 percent offer merchandising ideas. A little less than a quarter of suppliers are involved in the product development process from inception all the way through completion. More than two-thirds of suppliers get involved after the product inception, but remain part of the process through the end.
Seventy percent of beverage companies do their own in-house research and development work and 30 percent outsource at least part of the process. Companies that outsource cite prototype development, market research, concept and product testing, and ideation as the most common areas in which they use outside help.
The average new product development team includes 22 employees. On the low end, 16 percent of respondents said their research and development work is conducted by only one person, and an equal 16 percent said it’s done by two people. Five percent said it’s possible to find between 30 and 50 people represented on their product development teams, and 8 percent said you might see as many as 50 people involved in the process at their companies.
From concept to shelf
The average time to develop a new beverage product from inception to launch is eight months, say respondents to Beverage Industry’s survey. Forty-one percent take between six and nine months to get a new product ready for launch, while 20 percent can do it in three to five months. Twelve percent take two months or less for the entire development process. On the long side, 3 percent require 19 months or more to ready a new product launch.
On average, it costs a little more than $450,000 to develop a new beverage product, respondents said. Forty-one percent of survey-takers said they could get a new product through development for $25,000 or less, while 9 percent said it costs them more than $500,000.
Fifteen percent of respondents said their new product development process has gotten faster than it was in years past, but the majority â€” 79 percent â€” said development time has remained the same.
More than half â€” 57 percent â€” of survey respondents said their companies have a definitive plan for new product development. But interestingly, the remaining 43 percent said their product development is a less organized process, with no definitive plan for the company.
Post-launch assessment, however, appears to be a more formal process. Sixty-nine percent of respondents said their companies use a post-launch assessment process.
Beverage companies participating in the survey said they developed an average of 18 new products in 2008, and eight of those were released to market. On average, six of those products were considered successful by their companies’ standards. However, 41 percent of respondents said two products or fewer had successful launches in 2008. Eighteen percent said five to nine of their products were successful, and 13 percent reported success for 10 to 24 of their new releases.
The economy does not appear to be hampering new product launch plans for the coming year either. Forty-six percent of survey-takers said they will introduce more new products in 2009 than last year. Forty-seven percent plan to maintain the same number of rollouts, and only 7 percent have plans to slow down their product launch pace this year.
Several respondents cited consumers’ fickle tastes as the reason they will roll out more new products this year. Others said distributors and retailers are pushing them to come up with new concepts. “Consumers are not brand loyal; we need to engage them,” said respondent. “Consumer demand and [the] need for new markets to increase sales,” is the reason another respondent will step up product development this year.
Those who plan to release fewer products in 2009 said costs are weighing heavily on their development plans. The “slowdown in the market and the economy,” will keep one survey-taker from launching as many products this year, while another said, “costs and decrease of market space,” have put a damper on rollouts.
Marketing in 2009 will rely heavily on sampling, with 41 percent of respondents saying they will increase sampling in the coming year and 44 percent saying they will maintain 2008 levels. Twelve percent of respondents said they do not use sampling to promote their products. Online marketing will get more play from almost half of the survey-takers, while 30 percent plan to stick with the same amount of Internet marketing as last year. Twenty percent of respondents do not even try to reach Web surfers with electronic promotions.
Retail promotions and point-of-sale displays will each get more use in 2009 from 30 percent of respondents. Even more respondents said they will hold on to last year’s numbers â€” 43 percent will invest the same amount in retail promotion, and 39 percent will remain consistent in their point-of-sale use.
Radio and television advertising are the least-used methods for beverage marketers, according to survey results. A little more than 60 percent said they use no television advertising, and 54 percent said they do not use radio ads. Only 8 percent of those who use television plan to increase the amount of airtime they buy in 2009, and 10 percent of those who use radio will invest in more marketing there.
Beverage Industry’s New Product Development Survey was conducted by Clear Seas Research. The online survey was completed in November 2008, and included a systematic random sample of beverage companies based on Beverage Industry’s domestic circulation base.
Twenty-eight percent of respondents were from larger beverage companies â€” those earning more than $100 million in annual sales revenue. Twenty-one percent fell in the mid-size company range â€” $10 million to $100 million. Fifty-one percent were from smaller companies â€” those with less than $10 million in annual revenue.
On a regional basis, 79 percent of respondents have a product presence in the western part of the United States, 75 percent have representation in the South, 59 percent said their products can be found in the Midwest, and 59 percent in the Northeast.
Forty-one percent of survey-takers represented upper management positions within their companies. Twenty-five percent worked in research and development capacities, and 25 percent were in sales and marketing. Purchasing, QA/QC and production representatives each made up 3 percent or less of the respondent base. BI