Delivering innovation through product outsourcing

The rapidly accelerating rate of change in the business environment demands adaptability and flexibility. Companies must be able to respond proactively to environmental changes, or ultimately face business failure. Self-generated innovation and creativity from the organisation’s employees is required if proactivity is to exist.

Vital

Seemingly lacking today in so many nationals and EMCs (emerging market companies), creativity and innovation is vital in the areas of new product development.

Companies that fail to develop truly new products, relying on the South African consumer to continue supporting their existing brand portfolio, are exposing themselves to great risk. At the same, time new product development is risky. Successful new product development is handicapped by a lack of new product ideas.

Brands that were once seen by consumers as being innovative and exciting have lost that spark as consumers become exposed to category development in the global marketplace, with offshore brands enticing them on local supermarket shelves.

Financial risk

Technology costs money. So how can South African nationals keep abreast of international trends, delivering innovative solutions that keep consumers coming back for more, protecting their brands without having to incur major financial risk in the process?

Product outsourcing ventures appear to be the answer!

Take National Brands’ recent foray into the rice cracker segment. Reflecting triple digit growth at the time, this category is still in its infancy, with no locally manufactured products on offer. In markets such as Australia, in the space of a few years, rice crackers have grown to represent in excess of 10% of the billion dollar biscuit category.

With the prohibitive costs involved in setting up local manufacture, lack of technical expertise, and with off-shore brands capturing a significant slice of the category, the only realistic options open to South African companies such as National Brands, which wants to remain the leader in its own back yard, are to either import an existing brand from another market, thereby acting as a distributor, or find someone willing to manufacture and pack under the local entity’s brand name.

Minimised

With the former there is no sense of brand ownership. With the latter the dynamics are such that assuming you have a very strong, well-known brand whose core attributes are transferable to the new product category, potential risk of failure is minimised!

I believe that companies launching products into relatively new or undeveloped categories face a tricky challenge. While they may theorise that customers will want their offering, they can’t be guaranteed of success, or how quickly it will take them to achieve results. If, however, they invest heavily in capital equipment, only to see the effort fail, then they’ll also be stuck with a costly fixed overhead, potentially losing millions, if not tens of millions of rands in the process.

Offshore product sourcing overcomes these obstacles. The VitaSnack Rice Cracker range has allowed NBL to expand its product offering into a R30 million plus category previously dominated by an Australian offshore company. And by tapping into the expertise of a product development sourcing consultant, they have been able to offer the product to consumers at a 30% - 40% price advantage to the category while improving quality standards, delivering a true added value offering.

And because VitaSnack is a local brand consumers have come to trust, they can now shop the category with confidence.