Background
This simple blog uses the example of Red Bull (innovator) vs Coca Cola (incumbent) to help explain shopper led innovation. Red Bull physically is a very similar product to Coca Cola. To make both products requires water plus ingredients and carbon dioxide for effervescence. So why is Red Bull an energy drink? Original Coca Cola contains caffeine and sugar so why is it a soft drink and not an energy drink?
It is normal in a high inflation environment for shoppers to trade down to cheaper P/L (Private Label) SKUs thus decreasing sales / profitability for suppliers and supermarkets. In this environment FMCG suppliers and supermarkets normally focus on ‘innovation’ to trade shoppers up to premium products / experiences. However most new products fail.
‘in the fast paced FMCG World, data shows that over 80% of product launches fail’
Nielsen, The value of failures in the world of SMB, Sept 22
So, what does the example of Red Bull vs Coca Cola highlight about shopper led innovation to minimise failure rates for new products / innovation?
Shopper led innovation
Red Bull is successful as they implemented shopper led innovation. Shopper led innovation could be described as a product or experience that is perceived to be new by shoppers and meets a shopper demand. Innovation can be as simple as changing packsize / format or as complex as developing a new business model for online sales.
Red Bull and Coca Cola are physically similar products. Both are made with water plus ingredients and carbon dioxide for effervescence. Importantly Red Bull is perceived as an energy drink vs Coca Cola being a soft drink. Why? Importantly Red Bull has been marketed as an energy drink and not a soft drink. The marketing message ‘gives you wings’ implies the product provides energy to consumers. This highlights the important fact that shopper led innovation is how shoppers perceive the product.
On a personal note I suggest FMCG businesses focus too much on trying to create physically superior products vs the competition during NPD / innovation. The key is creating products that meet a shopper demand.
Why shopper led innovation?
“If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the internet, they can each tell 6,000”
Jeff Bezos, Founder Amazon
My blog, Who has the power?, highlights the increasing power (ability to influence) of shoppers, hard discounters, e.g. Aldi, and smaller manufacturers, e.g. Red Bull. Due to disruption in the marketplace many major supermarkets and manufacturers, e.g. Coca Cola, have declining sales / share in the long-term.
“From 2017 to 2019, large brands (more than $750 million in revenue) in the US lost volume at the rate of 1.5 percent a year. At the same time, small brands grew 1.7 percent, and private label grew 4.3 percent”
What got us here won’t get us there : a new model for the consumer goods industry, 2020
My blog, Why customer satisfaction is more important than profit, highlights how focusing on historic numbers, e.g. sales / share / profit, does not ensure long-term financial success. The key is meeting the ever-changing demands of shoppers. For example, Blockbuster shoppers switched from hiring videos to other services such as Netflix.
Due to the increasing power of shoppers plus disruption in the market, FMCG businesses are focusing on customer centric / customer obsessed strategies. Part of this strategy is to have shopper led innovation. Simply put shoppers are always demanding new products, e.g. Red Bull energy drink, and new services, e.g. direct to boot deliveries. To ensure long-term financial results means meeting those ever-changing demands.
Big data vs big idea
As explained by Wikipedia the idea for Red Bull came to one of the founders, Dietrich Mateschitz, whilst travelling in Thailand. He consumed a similar style of drink, Krating Daeng, that he believed cured his jet lag. He then thought this style of product could work in Western markets with some changes such as carbonating the product.
Coca Cola and other major manufacturers have access to a lot of data (big data) – both quantitative and qualitative. However, they struggle to create and launch innovation. As explained by Clayton Christensen in his book ‘The Innovator’s Dilemma’ major manufacturers use their vast resources to serve their current customers with known products / technology.
Similarly my blog, Does big data create big results in the supermarket industry? , suggests that big data is not key to grew sales and share. I suggest having a category management mindset is more important.
So, shopper led innovation does not require big data / deep dives into shopper insights etc. It requires a mindset that seeks solutions to shoppers demands. In this case Red Bull has made an energy drink for shoppers wanting more energy. In doing so they have created a new category.
Target market
Shopper led innovation starts with defining your target market and their demands.
For Red Bull the target market is younger consumers (15 – 30 years old) that live an active lifestyle. This group of consumers require energy drinks so they can complete more tasks in a day. The Red Bull consumer is also more likely to be an adrenaline enthusiast. To connect with this group of shoppers Red Bull regularly sponsors extreme sports.
In comparison the Coca Cola target market is broad, young through to middle aged. Importantly the product is consumed for its good taste / refreshment and also as part of lifestyle, e.g. Coca Cola at children birthday parties.
So, for the target market Red Bull is different to Coca Cola (i.e. innovation) as it is consumed for a different reason (energy) rather than taste.
‘Red Bull is an energy drink that doesn’t do well in taste tests.’
Selling Power, Red Bull Sales Strategy and Marketing Success
Innovation vs Me Too
Much has already been written about how Red Bull has a different marketing strategy to Coca Cola. Wikipedia even suggests Red Bull has created a ‘brand myth’. Some examples of how Red Bull is different to Coca Cola include premium pricing, unique shape / style of can, use of logo. In marketing speak all these touch points reinforce the shoppers perception that Red Bull is an innovator.
The key message here is that Red Bull has an innovation mindset. They have not copied the incumbent (Coca Cola) for their product / shopper experience. They have deliberately created a unique product / experience to meet shopper demands.
Unfortunately, many in the FMCG industry do minor tweaks to existing products that does not meet shopper demands. For example, in food and beverages, shoppers’ perception of ‘sugar free’ is different to ‘reduced sugar’ formulation.
Summation
This simple blog has highlighted that shopper led innovation is key to long-term financial success in the FMCG market. Importantly to achieve this outcome does not require big data, lots of money etc. Many small businesses, such as Red Bull, have successfully launched innovative products against incumbents, such as Coca Cola. What is key is having the correct mindset. Shopper led innovation is based on understanding and meeting ever-changing shoppers demands …
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation. Contact details
