Wal-Mart’s New Products

20 March 06

          More than 32,000 new consumer products are introduced annually.  Most of these products do not survive.  Estimates of the one-year mortality rate of new products range between 93 and 96 percent.  In other words, only between 4 and 7 percent of the consumer products introduced this year will still be on the shelves in 2008.

 Src: Productscan

          This low rate of new product success is very expensive for consumer products companies, who spend billions of dollars each year to advertise and promote money-losing new products.  

          It is also expensive for consumer retailers, like supermarkets and discount chains, who know that many of the new offerings will not sell.   Retailers’ valuable shelf space gets tied up with products that are generating low revenues. 

          Wal-Mart executives think they can improve this situation.  They have access to detailed data on store purchases, and their employees interact more frequently with consumers than do the employees of consumer goods manufacturers themselves.

          So Wal-Mart is taking an increasing role in formulating new branded products. 

Case Example: Diet Coke with Splenda

On 7 Feb 2005, Coca Cola announced that it would be offering a new version of its best-selling Diet Coke soft drink – Diet Coke with Splenda.  At the time, Dan Dillon, the vice president of Coca Cola North America’s Diet Portfolio, told The Atlanta Business Chronicle that consumers were the driving force behind this new product:

"Many consumers told us they liked the taste of Splenda and wanted a Splenda-sweetened option under the Diet Coke brand, so we're obliging them.”

Dan Dillon, Jr., VP of Coca Cola North America,

quoted in The Atlanta Business Chronicle, 7 Feb 05

Diet Coke with Splenda

             This is the classic way in which consumer-based companies are supposed to decide on their new product launches.  Using a variety of market research approaches, the companies talk to consumers and formulate new products to address their emerging desires and needs.

          Except that, in this case, that’s not quite what happened.

          According to a story published in The New York Times on March 3, 2006, the idea for Diet Coke with Splenda came not from consumers but from Wal-Mart. 

Coke had originally planned to launch a diet soda called Coke Zero, sweetened with Aspartame.  It was Wal-Mart’s suggestion which bumped Coke Zero to a later launch and resulted in the new Splenda-sweetened diet drink.

          Pepsi is innovating along the same lines.  This month, Pepsi is launching a new line of diet sodas, sweetened with Splenda, called Slice One.  These products were formulated to meet the requests of Wal-Mart executives, and will initially be available only at Wal-Mart.

          Wal-Mart dominates grocery retailing with around a 16 percent share of all grocery purchases in the United States.  Pepsico gets 11 percent of its North American Sales from Wal-Mart.  When a retailer is such a big part of a supplier’s business, it makes sense for the supplier to create new products based on the retailer’s suggestion.  Pepsico says that it will design to spec for other retailers as well. 

''Pepsi is willing to undertake similar efforts for any retailer interested, provided it makes economic sense.''

Pepsi Spokeswoman Nicole Bradley in The New York Times, 3 March 06

          Taking direction from a large and sophisticated retailer like Wal-Mart may result in more successful new products for manufacturers.  Wal-Mart and Coke share the same consumers, but Wal-Mart may have a better understanding of what these consumers are actually buying.  With their store-specific scanner data, Wal-Mart can see how products with a particular ingredient, like Splenda, are performing across a variety of different food and beverage categories.  In this case, for example, Diet Coke with Splenda looks like a hit.

But Wal-Mart is not the end-consumer, and their interests may not always align with those of their customers.  For example, the company is asking detergent manufacturers like P&G and Unilever to develop new detergent powders that are more concentrated.  This may or may not be a consumer need, but it certainly benefits Wal-Mart – more concentrated detergents mean smaller packages, which translate to higher revenue per foot of shelf space. 

More Information:

1.      Here’s a link to the Diet Coke with Splenda product announcement in the Atlanta Business Chronicle.

2.      The New York Times story on Wal-Mart was published on 3 March 06. 

3.      Data on new product launches traditionally comes from ProductScan, www.productscan.com.

4.      Thanks to Michael Svetchnikov at PR firm Schneider Associates for sending me the Wal-Mart article.