As we explored previously, there’s no doubt that small brand success stories are captivating. A new brand emerges, seemingly with minimal resources, and quickly starts stealing share from established players. It’s understandable that manufacturers would be keen to understand what made these small brands successful and attempt to replicate their “start small” approaches. That, however, isn’t a dependable recipe for success. That’s because for every startup that captures the hearts (and wallets) of consumers, there are hundreds that never gain traction. We refer to this tendency to focus on the few success stories as “survivor bias.”
There are good reasons why certain products might start with limited or ecommerce-only distribution. Those reasons rarely include a preference for a limited path to market. Most brands that start small have to because they don’t have the ability to broadly distribute or don’t have broad retailer acceptance. These products have to prove their potential in other channels before they can achieve mainstream distribution. Start-small strategies take several forms, but the effectiveness of these strategies is questionable when applied to large fast-moving consumer goods (FMCG) manufacturers, at least as a repeatable formula for success.
E-Commerce Launches Are Not Risk-Free
A common chapter in the agile playbook that many large FMCG brands have adopted focuses on in-market iteration, whereby a brand places a product in an e-commerce environment after identifying a potentially promising need state to target. Then, through rapid A/B testing or actual transactional learning, the brand gathers insights to validate the consumer need and provide direction on how it can improve the product. The fact that these incubated launches are small in scope and seem to have no opportunity costs suggests that there are no financial consequences to failing fast and learning.
On the contrary, using e-commerce to test-launch a below-average product can carry similar risks to long-term success and brand equity as a full-scale launch. In a recent BASES case study, we compared the impact of exposure to both negative and positive reviews with a no-review scenario. The results showed that exposure to negative reviews caused a 54% drop in purchase intent, while positive reviews caused a 33% increase in purchase intent. These findings suggest that if you launch a poor product online without testing, you set yourself up for failure simply because you won’t know beforehand if the product isn’t a good one.
Furthermore, success in an online market is not indicative of success in brick-and-mortar stores. Many innovations might be appropriate online but not viable offline due to differences in shopper profiles and consumer demand. Consequently, the ranking of top-selling brands online and offline for the same category is often different across categories and markets. While e-commerce purchasing is growing rapidly in specific categories within select markets, the vast majority of global FMCG sales move through brick-and-mortar stores and require innovation strategies that are tailored to that environment.
Launching with Limited Distribution May Limit Potential
Similar to an e-commerce approach, limited distribution or test-market launches are designed to facilitate learning without investment in consumer research or the commitment of a full-scale launch. Limited launches, however, face their own cost and time limitations, and they introduce additional risk:
- Finding a feasible and representative test market creates logistical challenges.
- Sufficient purchasing (trial) is required to create a readable base size.
- Producing and distributing a test product incurs cost and iterations add significant time to the process.
- Consumer feedback from limited launches can be difficult to interpret (benchmark) and may not applicable to a general population.
- Products in a test market are immediately exposed to competition.
- Velocities achieved in a limited launch are not representative of a national launch. True potential may not be visible in the limited time allotted for a test market.
Perhaps most importantly, data suggests that launching with limited distribution actually decreases a new product’s chance of success. Recent BASES research found that new products were about 2X as likely to sustain sales in year 2 if their year 1 distribution levels were over 25% total U.S. all commodity volume (ACV).
Failing Fast Still Carries Significant Risk
The logic of failing fast, which may also apply to e-commerce and test-market strategies, centers on minimizing upfront investment in order to improve the ROI of innovation. What failing fast cannot address, however, is the opportunity cost of launching with ineffective strategies. What if your fast failure could have been a sustainable success with some simple tweaks to messaging or formulation or marketing support?
Some of the inherent risks of a fail fast approach include:
- Unsuccessful products damage credibility with retailers and consumers. If a consumer didn’t like Brand X when they first tried it, why would they spend money to try Brand X 2.0? And if a retailer delisted Brand X due to poor velocities, why would they give Brand X 2.0 the same shelf space and support?
- Minimal insights are available to diagnose the cause of failure. Was trial interest too low? Were we spending enough on marketing to generate broad awareness? Did we optimize our marketing plan? These questions and more are all addressable pre-launch. Volume forecasting can diagnose causes of lagging sales and quantify opportunities for improvement.
- At what point should we consider a product a failure (when do velocities typically mature)? In a cross-category analysis of sales velocities, we’ve found that if you start small, you typically stay small. Products that grow and products that decline typically reach their maximum velocity in the first two-four months. That means that even if you start with a low sales velocity, it’s likely to decline instead of increase. Discovering a poor sales velocity four months into launch means you’ve wasted valuable time that you could have used to perfect your launch strategy.
The largest drawback of failing fast is having to fail in the first place.
When it comes to achieving sustainable velocities, the bar for success is higher than one may realize. BASES research indicates that new products that achieve velocities (velocity = sales / distribution) in the top 40% of the category are 3X more likely to sustain sales and distribution into year 2.
As you may imagine, that threshold is not easy to achieve: Only 30% of new products generate velocities in the top 40% of the category.
By forecasting sales and predicting velocities, a product’s likelihood of sustaining sales can be determined long before that product is launched (or even produced).
Failing fast promises freedom from the cost and timelines of pre-market research. However, if you apply this fail fast methodology to in-market launches, the benefits fade and a suite of new, formidable risks emerge. The correlation between strong velocities and sustained success allows you to fail fast in a less risky environment (or fail safe), likely reducing costs, timing, and risk to equity. Through rigorous pre-market consumer feedback on simulated test markets and forecast simulators, you can virtually fail safe (and even faster) and open up opportunities to win safe in reality (and even bigger).
Contributors: Laura Casi, Ryan Pearson, Chloe Mark and Anna Campbell