How marketers are embracing 'lean innovation' and what it means for brands

The notion that consumers might put commercial-size rolls of toilet paper on stands in their bathrooms, so they don’t have to change the roll as often, was odd enough that Procter & Gamble Co. might not have pursued it. But last year, the Charmin development team forged ahead without a concept test and put the Freedom Roll online in Facebook and Instagram ads. Enough people bought the product that they expanded the test, then tweaked the name to Forever Roll, which worked better. As more sales and customer feedback come in, P&G plans to scale the launch further, possibly into stores. There’s a method to this madness, one that drives a growing share of product development at P&G and other packaged-goods marketers these days. It’s called “lean innovation,” where the big companies act like the direct-to-consumer startups that have been eroding their shares by getting to market faster and dealing directly with customers. Now P&G is operating in similar fashion, getting products or prototypes in good enough shape to sell limited quantities online, harvesting consumer feedback in the form of sales, reviews and comments, then refining the product and market approach for subsequent rounds of expanding distribution. The Forever Roll is among the more whimsical of the 180 products P&G has launched using lean innovation. Brands spawned so far include Zevo, a pest-control system using plug-in bug traps and essential-oils sprays that kill bugs without harming humans or pets. Another, Opte, is a $599 system that uses a blue LED light to scan and detect even subtle age skin spots, an algorithm to analyze them and an applicator that applies lotion to camouflage imperfections. After nearly two years of d-to-c development Opte is set for a broader rollout by early next year. P&G isn’t alone. Other consumer packaged-goods players such as Johnson & Johnson and Unilever also have used the lean innovation approach, which involves bringing small multi-functional teams together with minimal resources to launch “minimum viable products,” refining them and their marketing in waves of d-to-c tests. But P&G’s shift to lean innovation appears to be the most extensive among its competitive set, and the company sees it as a lifeline for an innovation program that struggled in the prior decade. Innovating innovation “We needed to innovate how we innovate, because we clearly were not delivering against our growth goals, and we needed to make an intervention,” says Kathy Fish, chief research, development and innovation officer for P&G, who led the shift toward lean innovation three years ago. For professional help, the company turned to lean-innovation proponents Steve Blank and Eric Reis as well as Bionic, a startup studio that pairs entrepreneurs with big companies. P&G’s traditional innovation approach had relied on a process akin to the Stage-Gate development model, a trademarked system of product-development “stages” and testing “gates” involving considerable upfront research into consumer needs via surveys and field interviews, followed by a series of survey-based concept tests that had to hit volume-prediction benchmarks, before moving to the next set of concept tests. P&G had its own trademarked version of the process, SIMPL, which some insiders joked was anything but simple. Lean innovation is still a process with stages and gates, Fish says, “But it’s not as onerous. We’re moving faster through it.” In the case of Pampers Pure diapers, for example, lean innovation helped cut the category’s typical three-year development cycle by more than half. The key component is making real products to sell in early stages, mainly online, though in some cases an even earlier qualifying step involves using digital ads for conceptual products to see how people respond, then telling them the product isn’t available yet if they do. “Once we have a proposition that makes sense, we want to move through creating and incubating a business,” Fish says. Initial success can then lead to putting products in physical stores and distributing to outside online retailers on a limited scale. In essence, direct online sales replace the old test markets P&G and other CPG players used to run in places like Cedar Rapids, Iowa, a practice from which the industry turned away in favor of running concept tests such as Nielsen BASES (for Booz-Allen Sales Estimating System). The latter were faster, cheaper and less likely to expose ideas to competitors in the early going. Falling in love with the problem Fish says the process engages consumers in a wide range of research to help identify problems, which are described and explored using lean innovation’s own set of catchphrases, some of them popularized by “Lean Startup” author Eric Ries. Among them: 1. Falling in love with the problem, not the solution. 2. Getting really clear on your leap-of-faith assumptions about how to solve that problem. 3. Creating a minimum viable prototype for d-to-c sales to test those assumptions. 4. And, as Fish puts it, “Continuing to learnand pivot until you get to where the consumer loves your proposition and you have a viable business model.” Charmin Forever Roll began as an exercise to address the growing urbanization of the U.S. market, Fish says. The problems the team “fell in love with” were that people don’t like running out of toilet paper or changing rolls but don’t have much room in urban apartments to store big packages. The “leap of faith” was that people would put big commercial rolls on stands as an alternative. Among the pivots was changing the name from Freedom to Forever Roll after a few months. “It’s done incredibly well direct-to-consumer,” says Fish. “The appeal is broader than just the urban consumer, and we’re going to scale that.” In the old P&G process, much more R&D work happened up front, and marketers often weren’t involved until a product was close to market and mass production, Fish says. “We are now bringing commercial [brand] and technical people together at the very beginning” with small teams getting feedback early on from consumers buying the products. Not just small brands The approach is spawning plenty of new small brands, and affecting P&G’s core existing business, too, says Fish. Some bigger successes of lean innovation, as Fish sees it, are on some of P&G’s biggest brands, including developing Pampers Pure, a natural-positioned diaper made with cotton and other plant-based material (albeit also with some synthetic ingredients like super-absorbent polymer). Pure has doubled the size of the natural diaper segment since its launch last year and is now the leader within it, says Fish. Aside from speed, lean innovation helps overcome doubts about survey research described by the work of behavioral economists Daniel Kahneman, Amos Tversky and others, who’ve documented the difficulty survey respondents have in articulating what they do in real life. “Moving from attitudinal data to behavioral data, the learning is just much more robust and gets you to a better place faster,” she says. Plus, it’s also more fun. “People love to work this way, because we’re putting together small multifunction teams, and they sort of own their space,” she says. “They get to run as long as they’re delivering, and then they come back to leadership if they get stuck.” New take on failure That does change how failure is viewed. “You really need to place enough bets, because most of them are going to fail, and you really only need a couple of big ones to make a difference,” says Fish. “We are finding all the time that our leap-of-faith assumptions are not correct. What makes failure very tolerable is when it’s done fast and cheap, and this sets you up to do that.” Previously, even ideas that made it through the more painstaking survey-led process often failed in market. “And when a big idea fails, you have so much money spent on R&D, capital and marketing that it’s really hard to recover and makes your leaders hesitant to do it again,” says Fish. “If you fail in a direct-to-consumer test, it might cost you a couple million dollars, but that’s not a lot of money in the grand scheme of what we do here. So it makes failure tolerable.” P&G hasn’t entirely done away with survey-based concept testing. “Our goal is to make sure we’re managing risk appropriately for the size of the investment,” says Fish. “With North American Tide, we’re more likely to run the confirmatory BASES test just to make sure we haven’t missed anything.” Nielsen BASES tests measure how panelists respond to a product idea, which allows sales forecasts to be adjusted based on how consumers historically overstate purchase intentions and the expected impact of marketing plans. Concept testers adapt Concept testing firms have seen lean innovation impact their business and are pointing out the risks. But they’re also adapting. “If you’re talking about software, ‘minimally viable’ has a very different definition than a cereal,” says Jenny Frazier, senior VP of innovation at Nielsen. “You can update an app, but if you put out a cereal that doesn’t taste very good, that’s a problem.” Nielsen’s BASES has created streamlined testing products that turn around results overnight rather than weeks, says Frazier. She also sees a role for Nielsen’s concept tests to get product ideas farther along before d-to-c trials start. “I haven’t seen validation comparing predictiveness” of transactional lean innovation trials and the sorts of concept tests AcuPOLL does, says Jeff Goldstein, president of the Cincinnati-based firm. AcuPOLL also has developed quicker-turnaround tests, as well as Spark MCR Multi-Cognition Research, that draw on behavioral economics by crafting queries to capture impulse and emotion rather than just consumers’ rational—and often wrong—predictions of what they’ll buy. Goldstein says lean innovation provides some valuable in-market learning and “fills a void, because test markets went away.” But he says d-to-c sales tests also can have trouble reaching a representative population sample or finding segments that may unexpectedly respond favorably or unfavorably to an idea. Fish agrees that d-to-c tests fill a void left by the old test markets but at a much smaller cost. It’s possible, in part, because retailers have grown used to their CPG suppliers occasionally bypassing them by selling direct to consumers. Despite the appearance, the goal for most P&G d-to-c efforts is to learn for the sake of broader rollouts, not to develop d-to-c as a selling channel, according to Fish. “I think where we are with most of our [retail] customers is that we’re learning, and therefore what we bring them is more likely to be successful,” say Fish. “They’re getting to be very willing to be part of the learning journey, which is fun to watch, so they’re willing to give us a few stores to work with.” All these mini-rollouts do make it easier for competitors to see what P&G is doing, she acknowledges, but most things don’t go d-to-c without having solid intellectual-property protection, she says. “Second, there are so many experiments going on, it’s hard for people to know exactly which direction you’re going.”

How marketers are embracing 'lean innovation' and what it means for brands

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