Expert Column: Field-testing New Concepts Can Save Retailers Millions
Retailers typically follow two approaches when finding ways to drive progress and business growth: They repeat historical programs and hope for improved results, or they introduce new ideas and innovations through hypotheses, research, focus groups, leadership mandates -- and even gut feelings.
Either way, most retailers don't integrate much, if any, investigative rigor into their activity in this space –- something that leaves them seriously exposed to downside risk. Indeed, on countless occasions we've seen retailers roll out new products, pricing or merchandising plans indiscriminately, with many finding out the hard way that mistakes can be costly.
Don't Fall Into Temptation
Grocers and retailers can lose a lot of money if they launch a program that subsequently fails -- and failure is a common occurrence. An estimated 70 percent to 90 percent of all new items and ideas flop each year, with "overestimating demand" named as the single greatest contributing factor.
Human nature is at the heart of many of these failed programs. A lot of time, money, sweat and tears can be invested in perfecting new products, pricing or merchandising plans, and people's reputations can be put on the line. With pressure mounting both on individuals and whole businesses, a tipping point is often reached where it's tempting to jump the gun and launch a new program across a company's entire network in one go.
As we've seen all too often, taking the big gamble doesn't always pay off. A large, high-profile failure can significantly impact a business' immediate bottom line, but it can also cripple its ongoing appetite for innovation and -- ultimately -- its future development and growth.
Dipping a Toe in the Water
The simple solution to much of this is for retailers to field-test and refine new concepts in a targeted set of in-store trials before rolling them out across their entire networks. Implementing this kind of "test and learn" mindset across a business introduces an element of discipline and due diligence, which effectively negates the downside risk associated with mass rollouts. Simply put, it allows companies to stop speculating whether new concepts will work by adding "science" to the "art" of innovation.
Field-testing new products, pricing or merchandising plans provides hard evidence to validate concepts, without significantly lengthening the rollout process. Retailers can jump into test phases quickly, and results can be measured simply with point-of-sale data, or alternatively combined with in-depth customer data and analyzed further.
Either way, "test and learn" is a cost-effective way to ensure that only the best ideas get through to market, providing a number of valuable insights and strategic lessons that can save a retailer an enormous amount of money down the line.
Bringing Retailers, CPGs together
"Test and learn" brings even further benefits when the process becomes a partnership between a retailer and a CPG supplier. CVS' work with Procter & Gamble in creating the "guy aisle" is a great example of this type of collaboration.
P&G had previously produced research suggesting that regrouping several personal care categories (including shaving and deodorant products) into separate gender-specific aisles would make shopping easier and generate increased sales. While the research looked promising, CVS tested the findings first to ensure they stood up in market.
Targeted in-store trials followed that showed a significant uplift in sales for the key categories. However, the trials also immediately identified further categories that would benefit from the gender-specific merchandising strategy and could be incorporated into the new aisle design, as well as categories that were closely related, but would not be able to be split entirely by gender (e.g., hair care).
The field tests therefore confirmed the basis of P&G's original research, but allowed for deeper insight that ensured the opportunity was maximized.
A Long Way to Go
CVS is a good example of a national retailer that's embracing "test and learn" -- and we recently heard that Walmart followed the philosophy when refining its electronic receipt service -- but despite all the associated benefits, surprisingly few large retailers have formalized the process of trailing innovations with this kind of commonsense methodology. It's currently much more the norm to see "test and learn" being employed by Silicon Valley startups, which are traditionally more comfortable with the concept of refining key ideas as they go along.
Instead, large retailers continue to roll out new concepts indiscriminately and fall into the same traps. More needs to be done to help "test and learn" become recognized as a cost-effective way for these companies to have the right items, in the right place, at the right time, at the right price -- and to ensure that retailers don't gamble big and lose.