New-Product Pipeline Clogged

Testers and Packaging Firms Feel Pinch of Fewer Consumer Package Goods

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BATAVIA, Ohio (AdAge.com) -- Consumers are as receptive to new products during recessions as they are in good times, Procter & Gamble's Chairman-CEO A.G. Lafley told investors last month, citing data from Nielsen's Bases concept-testing service dating back to the early 1980s.

P&G Chairman-CEO A.G. Lafley
P&G Chairman-CEO A.G. Lafley
And there's lots of evidence to suggest he's right. As Ad Age's recent White Paper, "Downtime Opportunity," showed, the recessions of the '30s, '70s and '80s spawned many of the most successful innovations of the 20th century, including the soap operas, synthetic laundry detergent, the personal computer and MTV. But the question might be whether marketers are brave enough to keep the new products coming.

There are indeed signs suggesting that package-goods players are creating fewer new products and concepts as the economy falters -- and ironically, one indicator may be a sharp decline in sales for Bases, which is the dominant service for testing new package-goods product concepts. Another is the fact that Schawk, a publicly held business that does extensive prepress, packaging and retail point-of-sale design work for package-goods marketers, has reported sliding sales in the past year.

The company noted in November that consumer-product packaging sales were down just under 1% through the first nine months of 2008 and worsened as the year progressed. (Sales of packaging work for CPG players still held up better than packaging work for entertainment marketers, which was down 18.1% through the first nine months of the year.)

CEO David Schawk said on a conference call with investors that the slowdown came in new design and innovation as opposed to "maintenance-type work," though he said new-product work is only being delayed, not canceled.

End-of-year slump
Package-goods product launches were still up 5.9% in 2008, according to Datamonitor. But they fell off at the end of the year, when the recession started to bite, with fourth-quarter launches flat vs. 2007, said Tom Vierhile, director of Datamonitor's Prouct Launch Analytics.

Some of the slowing in the fourth quarter may be from a data-entry delay as the unit moved offices in December, Mr. Vierhile said, but he's seeing fewer preshow press releases than usual in advance of the Fancy Food Show later this month, and fewer new products in stores. "December was pretty disappointing," he said. "I didn't see anything out there."

New products have long been a primary driver of ad spending for package-goods players, so a downturn in product launches presages a downturn in ad spending. But it's unclear how much of a slowdown the indicators portend, and some believe product development will have to return to normal levels soon.

At Bases, sales were "down sharply" in the third quarter, Nielsen Chief Financial Officer Brian West said on a November conference call. But through a spokeswoman last week, he ascribed part of that pullback to particularly strong results a year earlier, adding: "There have been no noticeable differences in terms of sea changes in new-product development."

Others in the research industry said competitors such as Ipsos, Aegis Group's Synovate and independent AcuPoll have launched rival offerings in recent years to a widely used Bases service that was once practically a monopoly for CPG: using consumer surveys and historical data to forecast volume for new and existing products.

That's forced Bases to reduce prices recently, said one industry executive.

Pricing analytics
Overall, Nielsen's research business, including both media measurement and other consumer research, has been growing -- up 3% in the third quarter, with the segment devoted primarily to package-goods marketers up a robust 7%. More than balancing the loss of Bases business, marketers spent a lot more on pricing analytics as they grappled with commodity-related price hikes and private-label incursions, Nielsen CEO David Calhoun said on the November call.

But Jack Gordon, CEO of AcuPoll and a veteran of the business since the recession of the early 1990s, said much of the research business -- though not his own -- has been slumping since the middle of last year as marketers tested fewer ideas or found cheaper alternatives.

"Initially, companies start pulling back to preserve money," he said. "The longer a recession lasts, the more likely they are to go back to their old way of doing things, because one of the most effective ways of countering a recession is offering new products."

On the other hand, John Hall, CEO of new-product consulting firm Spencer Hall, said he's seen no let-up in product development. "But there's a lot of push for value-added things," he said, "trying to set products apart by adding more to core offerings."

Mr. Lafley, at least, appears to be rooting for competitors to ease up. "Our capability to innovate and invest gives P&G even greater competitive advantage when other companies pull back, because consumers' purchase interest and value perceptions for new, innovative products don't change," he said last month.

He cited Bases data showing remarkably constant consumer purchase intent and value perception for new products throughout the recessions of 1980-82, 1991-92, 2001 and 2008.

One factor in those scores, Mr. Gordon said, may be that marketers tested fewer concepts, so consumers were rating higher-quality ideas during recessions. "When the economy is bad and people are looking for value, you have to have a significant new benefit," he said. Incremental benefits, line extensions ... those kinds of ideas struggle. ... When the economy is good, you'll test 20 ideas to come up with one or two good ones. When the economy is bad, you'll try to weed out 10 before you even test."

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