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Introducing a new consumer goods category from scratch

Isotonic drinks in Indonesia, branded edible oils in Sudan, soy fruit drinks in Brazil

Nader Elkhweet, Jean-Pierre Felenbok and Mike Booker (The Jakarta Post)
Jakarta
Sat, July 20, 2013

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Introducing a new consumer goods category from scratch

I

sotonic drinks in Indonesia, branded edible oils in Sudan, soy fruit drinks in Brazil. Five years ago, local consumers would be hard pressed to find these categories on store shelves. By 2011, however, they generated sales ranging from US$400 million to $900 million.

For companies looking to grow fast along with developing markets like Indonesia, building a new product category or subcategory from scratch can be a game changer, often delivering success just a few years after launch.

One pioneer in sports drinks in Indonesia saw its sales surge from $140 million in 2006 to $400 million in 2011.

It'€™s also a fast-moving game where anyone has a shot at winning '€” multinationals and local players, incumbents and newcomers, companies selling premium or mass products. By analyzing the strategies of brands that succeeded in establishing new product categories, we identified five characteristics they have in common.

The most successful category creators systematically scout for opportunities and spot market gaps that competitors miss.

They search for products that fit the needs of specific consumer occasions, like a snack to accompany tea. They gather data, conduct focus groups and home visits to gain insights into consumer habits. The research helps them continuously innovate around such attributes as convenience, flavor and use.

In Vietnam, for example, where many consumers purchase unbranded sauces in plastic bags in open-air markets, one company recognized an opportunity for branded table sauces.

Building on its deep knowledge of local taste preferences, the company created packaged fish, soy and chili sauces that consumers quickly embraced.

Successful category creators develop a concept and business model that spells out an entry strategy, with a clear path to profitability.

Having figured out what consumers need, the next step involves determining what they will pay and how to make the proposition profitable.

Among the key considerations: How much would it cost to change the product? How fast can they ramp up volume to break even? What kind of distribution is required and how much would promotion cost?

For the Vietnamese table sauce company, the fastest way to profits was to enter the premium end of the market first. It introduced a succession of premium brands and invested to build awareness, then moved into the mass and value subcategories. By selling to premium, mass and value consumers, the company effectively blocked competitors from entering.

Category creators succeed when they get all four of these critical elements right '€” tailored to their unique business model. Consider packaging.

The sports drink company found success in Indonesia by offering its product in just one flavor, but in multiple-pack formats: cans, different-sized bottles and even powder sachets.

The move allowed it to meet the needs of more occasions '€” during exercise, after exercise, general rehydration and as a soft drink alternative.

When it comes to pricing, some opt to accelerate profits by positioning their brands for consumers who are willing to pay higher prices, as the table sauce company did.

Others develop value-oriented products to be sold at a targeted price. An Indonesian chocolate company expanded the category by initially pricing its compound chocolate bars at a convenient and affordable price point of Rp 500.

Launching a new category requires distributing the product and placing it on the right shelves in a way that accommodates both the market'€™s unique characteristics and the company'€™s own strategic goals.

The sports drink company initially distributed its products through modern retail outlets in Indonesia, to reach targeted middle- and upper-income consumers. Companies take a similar thoughtful approach to promotional campaigns by paying close attention to the needs of priority customers.

For example, one dairy company positioned its calcium-enhanced milk formula around bone health, as a clear point of differentiation.

The company provided education to consumers and health professionals about the brand'€™s bone health benefits and went on to offer free bone scans in shopping malls to encourage consumers to try the products.

Great innovation isn'€™t enough. Companies need seasoned sales, marketing and operations professionals capable of quickly ramping up a local launch.

To fill the gaps, repeat category creators often cycle in expert teams with ground-level experience when launching new categories and tailoring them to local markets.

These pros, typically multinationals, have done everything from product development to pricing tests to quickly deciding key supply chain issues.

They possess distinctive characteristics: An entrepreneurial spirit, drive and determination. Together, their global experience and local know-how provide a powerful competitive edge.

Finally, leading companies also understand that it takes time to achieve profitability with a new category or subcategory.

What looks to consumers like an overnight success usually requires years of advance planning and investment.

Too often, large multinationals lack the patience to wait five or more years to reap a return. They simply pull the plug when certain targets aren'€™t met.

We'€™ve found that independent domestic companies often are more successful at staying the course. Not only are they saddled with less bureaucracy, they'€™re motivated by necessity '€” they know that creating a new category can differentiate them from other local players and help shut out multinationals.

With incomes rising in Indonesia, consumer goods companies hoping to advance along with the growing economy will need to act fast. Innovative players have learned that a fast road to growth is to figure out what'€™s not on the shelves '€” and strategically fill the void.

Nader Elkhweet is a Bain partner based in Jakarta with a focus on the consumer goods sector. Jean-Pierre Felenbok is a partner with Bain & Company and the managing partner of Bain Indonesia. Mike Booker is a Bain & Company partner based in Singapore and leads the firm'€™s Consumer Products and Retail practice in Asia-Pacific.

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