Importance of product innovation in FMCG sector

“Innovation takes birth in sync with the evolution of customer’s expectations and demands or vice versa”

The Fast-moving consumer goods or FMCG industry is one of the ever-expanding and innovating industries to exist in the 21st century. This consumer demand-driven industry is the 4th largest industry in India and is predicted to grow at a CAGR of 14.9 by 2025. Innovation is a key for several industries including technology, healthcare, agriculture, and automobile to name a few. FMCG is no different than others, however, our definition of ‘innovation’ might be. There are different forms of innovation that exist to cater to fulfilling different industrial and organizational objectives.

- Incremental innovation- Small changes are done in the context of existing products, technology, or business model. An average of 5 to 25% improvement in cost, performance, or customer value. It is marketed as cheaper, faster, better with no improvement in revenue growth.

- Breakthrough innovation- Significant changes to existing products, technology, or business model. Built on an entirely new technology or business model, there would be a 25%+ improvement in performance and give a competitive advantage leading to higher than average revenue growth.

- Radical innovation- A notable change in technology and business model, creating new consumer value, new players, and new technologies. This innovation leads to a new competition basis in the market or may create a new market providing consumers with value. It may further lead to generating very high revenue growth rates.

Now that we have understood the nuances of what innovation means in the FMCG industry, let us discuss how innovation takes place in the industry.

Innovation is a broader and deeper process that is not limited to simply creating, launching, and marketing products. There are several checkboxes that a projected successful innovation needs to tick off.

Will it improve customer experience? Will it be economically viable? Will it be a short term or long term innovation? Will it be accepted by the Indian audiences? (In case the products are inspired by western consumer demand.)

The Research and Development wing plays a big and integral role in the whole process of innovation of products, from the inception to the after-sales. The Consumer Goods Technology and Sopheon Corporation’s survey stated that obstacles are found at the early stages of the successful development and launch of new products. As per the companies participating in the survey, product idea generation was a no-brainer. However, only 20% of those ideas could be actually considered of high innovation. One in four professionals working in the FMCG industry said that more than 25 per cent of their ideas get launched.


So, what are the key points which can lead to product innovation?

The improved products must offer monetary value and consumer value.
Up trading in products.
Demand for a new category.
Entry of new brands and products.

According to Nielsen, 45% of FMCG organizations’ innovation process is triggered by improving R and D capabilities or product up-gradation. In 2020, between April-September, FMCG companies launched 9,700 new products as compared to 7,200 launches in April-September 2019.

Product development is significant because it can assist you with making new spaces in a packed market. By distinguishing the holes and forcing yourself into another space, you can discover a group of people and fulfill customer needs in a manner that is new and reviving.

Note that product innovation doesn't generally include the formation of a new item that addresses a new issue. Innovation might happen when you work on a current item or you add another element to a current item.

When we talk about innovation, we don't allude just to items, yet additionally to administrations, cycles, or plans of action. Those are somewhat more subtle; however, they can be simply tremendously rewarding and fruitful.

Let us see some of the path-breaking FMCG innovative products which were launched and were successful.

Pulse candy (DS Group) - Coming straight to the point, due to its unique flavour, the sensational candy managed to gather sales of 100 crore in 8 months! Apart from the packaging advantage, availability, and pricing, the key ingredient to Pulse’s success was its flavour. Extensive research was conducted for over 2 years before finalizing the final product.
Nimbooz (PepsiCo) – PepsiCo kept in mind the Indian audience and their behaviour towards carbohydrate drinks. Nimbooz was launched as an authentic drink, with no frizz and 0% artificial flavours, making it a healthier alternative to drinks present in the market. A pioneer in the market, due to its popularity and favorability, Nimbooz saw competition rising in the form of LMN and Minute Made Nimbu Fresh.

The Indian market is a boon to FMCG players, especially if they want to capture the market with a new innovation. Notable FMCG heads believe that long-term demands and growth are significant to Indian markets. FMCG products have a great opportunity given that India’s per capita consumption is lower than other markets.

Some of the features which give India an advantage include-

What are the biggest barriers to product innovation in an organization?

There is no doubt that product innovation is a tedious, complex, and draining process which takes time. According to Nielsen report, it takes one to two years for one-half of companies (and two-thirds of FMCG companies) to bring innovation from concept to launch.

The four biggest disablers to the product innovation process are-

Conflicting priorities across internal teams

Robust demand- The Indian market is predicted to grow at a CAGR of 18.9% from $110 billion in 2020 to $220 billion in 2025.  
Rural market penetration- Due to the low levels of market penetration in rural India, FMCG players can score a jackpot if they are able to create innovative products keeping in mind the economical and cultural aspects. 
Policy support- The government has approved 100% FDI in single-brand retail and 51% in multiple-brand retail. 
Safe and high investment- Investing in FMCG has been a safe yet secured option, with the sector witnessing an FDI inflow of $18.19 billion in 21 years.
Long lead times from conceptualization to the launch
Prioritizing short term goals over long-term thinking
Limited funds or lack of financial backing

Updated On May 26, 2024