By Jen Johnston, CHHC, as seen in Chain Drug Review, July 9, 2018

When evaluating new products to the market, retail buyers and Hamacher Resource Group category analysts look at five factors — innovation, promotion, earning potential, product orientation and category growth.

While manufacturers tend to focus a lot of energy on mastering the first three factors, some neglect to understand the differences between the potential channels in which to launch (product orientation), nor do they tailor their product offering or pitch to match a retailer’s category strategy.

A manufacturer can develop the most innovative product in the category, but launching in the wrong channel can render the process utterly useless. A new line can have strong promotional dollars behind it, but failing to understand the category at a particular retailer can prevent it from being set up and stocked.

Manufacturers would be well served to understand the ins and outs of the channels, the goals of the retailers, and the specifics of the state of the category or categories in which they intend to launch.

The biggest opportunity occurs when the manufacturer has gone through a channel prioritization process and fully understands why the brand will thrive in a particular setting. Once the manufacturers and retail buyers understand each other’s motivations they can develop shared goals that advance both of their businesses.

For example, a manufacturer with a unique vitamin line might be able to build a strong case as to how its products will grow the category and generate healthy margins — an important benchmark — at a chain drug retailer; however, that same pitch will likely not work in the club market, where the buyer’s motivation is less about category or margin and more about number of turns of high-performing items within their “limited assortment” setting. (Any loss of revenue through margins is typically made up through the club’s membership fees.)
The independent pharmacy market’s motivations are different still. With shrinking prescription margins, these stores are concerned with both front-end margins and turns, but typically are not as concerned about category growth as they are with overall store growth. (However, it is important to note that drug wholesale buyers are likely to be more concerned about category so they have enough variety for the independents they supply.)

According to Dave Wendland, vice president of strategic relations and a member of the owners group at HRG, “Making assumptions about category growth across channels or resting on traditional knowledge about shopper preferences are two of the most expedient paths to irrelevance.”

Many factors go into understanding the category or categories in which a manufacturer wishes to play. Buyers expect manufacturers to understand how the category stacks up against the other categories in their stores. Category importance can vary greatly by channel and by retailer.

IRI and Nielsen gather food, drug and mass outlet information data. For the independent pharmacy market, service providers like HRG look at wholesaler withdrawal data and can provide manufacturers with a category ranking report that can be used when presenting to drug wholesale buyers.

Beyond this, it is important for manufacturers to recognize what is happening in the subcategory or segment as well. A retailer with a particular high-performing segment may be willing to expand shelf space to accommodate a new product or line; however, a slumping subcategory or segment can spell opportunity for a brand that demonstrates it can breathe new life into it. In this situation, “me too” products need not apply.

Researching a category also involves understanding what competitors offer in terms of ingredients, pricing, promotions and product messaging in order to tailor the pitch. Manufacturers also need to be aware of their competitors’ market shares. Manufacturers should not assume they know who their competitors are, as these too can differ by channel. Wend-land commented, “As I’ve often chided manufacturers who may think they have a revolutionary item introduction, consumers are likely solving the need the product addresses in some way. If not with a traditional consumer packaged good, there is some solution that must be considered competition.”

For example, a natural nasal spray may not see a homeopathic nasal spray as a competitor in the natural market that it originally launched in, but in the mass market it most certainly would be a competitor.

Calculating the potential for any new product is a culmination of many factors. As this article suggests, two of the most important criteria that must be thoroughly researched and understood include product orientation and category strategy. Overlooking either one of these elements puts a new product launch at significant risk and will be a costly lesson learned.