NIELSEN Breakthrough I nn o vat i o n R E P ORT

JUNE 2013

THE BREAKTHROUGH INNOVATION REPORT

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B R E AKinG THROUGH
This report presents the story of this year’s Breakthrough Innovation Winners. Given the long odds and paramount importance of breakthrough innovation, our first purpose is to celebrate the winners – and in the pages that follow we’ll recognize high achievement. Second, we highlight some essential themes and takeaways that can help marketers improve their innovation performance and win in the marketplace. Finally, we have interviewed the winners to learn from their experience – enabling us to share their stories, discoveries, and transferable insights. Readers of the popular press may be forgiven for thinking that breakthrough innovations generally have an “i” at the beginning or a “.com” at the end. But, as this year’s Breakthrough Innovation Winners demonstrate, success is rooted in the three core disciplines of Demand-Driven Innovation – none of which has much to do with technology.

Demand-driven insight Demand-driven development Pervasive leadership
This framework is a distillation of our research on more than 14,000 launches over a four-year period. For this 2013 report, we evaluated over 3,400 consumer products launched in 2011 – identifying 14 Breakthrough Innovation Winners. Each of this year’s winners illustrates the power of embracing the demand-driven disciplines, and several of these stories are shared in greater detail in the Winner Spotlights incorporated in this report. There is, of course, no shortage of successful incremental innovations that generate compelling returns for their managers and owners. They keep brands fresh and relevant. But, however necessary they may be to the growth and vitality of enduring brands, these closer-to-the-core efforts are not the ones that create new platforms for growth or unleash $200-million brands.

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Celebrating the Winners
Allegra Allergy Downy UNSTOPABLES™ In-Wash Scent Booster Fiber One ® 90 Calorie Brownies Milo’s Kitchen ® Home-Style Dog Treats Reese’s ® Minis Special K ® Cracker Chips

Colgate ® Optic White™

MiO Liquid Water Enhancer

Skinny Cow™ Candy

Velveeta Cheesy Skillets ®

Dannon Oikos ® Greek Yogurt

Magnum ® Ice Cream

Monster Rehab ®

Sparkling ICE ® = See Winner Spotlights

THE MAKING OF WINNERS: Nielsen Breakthrough Innovation Criteria
Nielsen analyzed 3,439 consumer products that were introduced in the U.S. in 2011 to determine which products yielded truly breakthrough results. To be a Breakthrough Innovation Winner, a product needed to satisfy three requirements: Distinctiveness Deliver a new value proposition to the market. Ingredient reformulations, repackaging, size changes, repositioning, and other minor refinements to existing brands are excluded. Relevance Generate a minimum of $50 million in year-one U.S. sales.1 Endurance Achieve at least 90% of year-one sales in year-two. This measure confirms a sustained level of consumer demand while allowing for some drop in revenue during the transition from trial to adoption.

Three core disciplines of Demand-Driven Innovation
Demand-driven insight
Uncovering latent demand – lurking in the unmet needs and poorly performed jobs in consumers’ lives – is at the core of breakthrough innovation.

Demand-driven development
From beginning to end, the innovation team must pursue the demand-driven insight faithfully and fully. The concept, product, and go-to-market execution all must align – free from the constraints of established processes, existing resources, or marketplace assumptions – in order to realize a breakthrough proposition.

Pervasive leadership
Driving the innovation process with rigor and passion over the countless hurdles that must be cleared from idea to launch to years of in-market support requires topdown, bottom-up, outside-in, and inside-out leadership throughout a committed organization.

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DISCIPLINE #1

DEMAND-driven INSIGHT
IDENTIFYING UNMET DEMAND
This is where the quest begins: the search to identify the unarticulated desires, partially expressed needs, and recurring frustrations in consumers’ lives. Rarely does latent demand pop neatly from customer surveys or focus groups. As Henry Ford famously observed, if he had asked people what they wanted, they would have said faster horses. More recently, Steve Jobs noted that consumers can’t describe what they’ve never experienced.2

Six Approaches for Identifying Unmet Demand

1 Synthesize and refine megatrends through the lenses of your brands. Consider how these megatrends might create new consumer demands and new opportunities for your brands and organizational capabilities – whether it’s aging populations, personalization, mobility, changing palates, health and wellness, and on-the-go eating just to name a few. Tapping multiple trends, Fiber One created a brownie that promised a deliciously indulgent treat while delivering a large helping of fiber – and kept the whole thing at 90 calories. 2 Walk in your customers’ shoes to understand deeply the circumstances in which they pull your brand into their lives. Consumers resolve any recurring need in a variety of different – and sometimes unexpected – ways. These surprises can challenge accepted category boundaries and presumed competitors – and reveal opportunities. Alternatively, search for the “pain points” and nuisances that recur in consumers’ lives. These are the pulses of unmet demand. As soon as researchers at Monster Beverage Company observed

customers pouring energy drinks into their workout bottles, they knew there was an opportunity for a noncarbonated energy+hydration offering. The insight eventually led to Monster Rehab. 3 Identify nonconsumers or circumstances of nonconsumption: identify groups of potential customers who due to lack of wealth, expertise, or access find consumption impossible, inconvenient, or unsatisfying. These populations can be ripe for category expansion. Downy Unstopables dramatically expanded the laundry detergent additives category, for example, by drawing in a neglected pool of consumers seeking long-lasting fragrance. The journey to launch Reese’s Minis began with research to identify “barriers to consumption”: What did candy eaters consume when they were not choosing Reese’s? 4 Identify over-served consumers and develop a suitable offering. More often than you might think, opportunity lies in neglected pools of demand where simpler, less expensive, or

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Breakthrough Winners painstakingly sift through extensive research and complex data to identify the weak signals and map the hazy contours of latent demand. Expertise, curiosity, and persistence are required for this work. In studying this year’s winners, as well as those from the prior three years, we’ve learned that there is no simple demand-driven insight cookbook. However, we have identified six successful approaches, which we share below. Searching for opportunity by exploring the landscape of latent demand is no simple task. It’s a voyage of negative discovery: searching for what’s missing and imperfect in consumers’ lives. Insights that uncover latent demand require hard work and the courage to challenge convention. They require looking at the things everyone sees – and noticing things that others do not. The search pays off: as innovation authority Clayton Christensen observed, “Creating new markets is more rewarding and less risky than entering established markets against entrenched competitors.”3

more convenient offerings can thrive. This does not necessarily mean low-end. In many cases, this involves tailoring a “professional grade” product to mainstream demand. For consumers seeking effective teeth whitening without the cost or inconvenience of strips or professional services, Colgate’s Optic White product line was a game-changer. 5 Find consumer desires for which your distinctive brand equity would provide value. Are there emerging growth categories to which certain consumers would be attracted by qualities powerfully associated with your brand? Are there “missing benefits” in a category – or perhaps in a particular region – that you can deliver? It would have been all too easy to cede the Greek yogurt market to Chobani, but Dannon perceived that a great product with their brand could expand the category and fuel growth. They moved very quickly with a taste-testwinning product, broad distribution, and their powerful brand, propelling Dannon Oikos past $275 million in first-year sales.4 Dannon also found that Greek was an attribute that could profitably expand established brands such as Activia® and Light & Fit®. Critically, Dannon did not allow Chobani’s

impressive results to define the category or constrain their thinking. Certainly, they did not consider ceding the space. If anything, Chobani’s success expanded their horizons and energized their efforts. 6 Challenge assumptions about what consumers value, growth drivers for the future, true competition and alternatives, category boundaries, and the prevailing business model. Roll back the accepted barriers limiting what the organization “can” and “cannot” do. Recognize that product attributes constitute just one dimension of potential value creation. Revisit your “dead letter office” of innovation. Upon witnessing competitor success, marketers are heard to exclaim, “We thought of that” as frequently as, “Why didn’t we think of that?” Be relentlessly curious and keep asking why. As the Winner Spotlights reveal, Del Monte acknowledged, “You can’t do transformation half way…it’s riskier to go slow or partially commit…and everyone from marketing to sales to finance has to fully commit and go all in.”

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DISCIPLINE #2

DEMAND-DRIVEN DEVELOPMENT
From Insight to L aunch and Beyond
Demand-driven insight is a prerequisite for breakthrough success, but it often challenges accepted category boundaries. Consumers don’t live their lives within the crisp confines of existing UPC classifications. Latent demand rarely organizes itself neatly into demographic buckets or aligns with other familiar proxies. When demand challenges companies’ traditional ways of thinking, managers often yield to the powerful process disciplines, stage gates, timelines, incentives, and cultural forces that compel conformity. Breakthrough Innovation Winners achieve uncommon results because they pursue, shape, develop, and activate insights with faithful adherence to the specifications of consumer demand. They eschew false comforts and advocate for the consumer in the face of intense organizational pressures that might compel a more conventional path. The main – and often only – advantage that many successful startups wield against large and entrenched competitors is what they lack: organizational and operational constraints that mold the future in the image of the past. Del Monte’s VP of Innovation, Geoff Tanner, recalled the challenge the Milo’s Kitchen team faced in staying true to their core insight. “From the outset, we were committed to launching a new-to-the-world brand that would transform the category and deliver topline growth. This led to our establishing the Milo’s team almost as a skunk works, with considerable autonomy and decision-making authority.”

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Breakthrough innovators don’t shy away from opportunity, even when another brand has historically dominated. Kraft’s Velveeta Cheesy Skillets did not succeed with a dinner mix by “beating” the category leader. Rather, the Breakthrough innovators company opted to expand the category by leveraging don’t shy away from Velveeta’s strengths, opportunit y, even when overturning internally held truths and addressing another brand has latent consumer demand historically dominated. for exciting and easy dinner solutions. These winners challenged convention and triumphed by expanding or transforming categories – a Breakthrough Innovation Winner hallmark. Through unencumbered, demand-driven development, Breakthrough Innovation Winners create visible separation from the pack. The Winner Spotlights featured in this report showcase successful, transferable approaches, but there is a common theme: no shortcuts. As Thomas Edison remarked, “Opportunity is missed by most people because it is dressed in overalls and looks like work.”5 Given the high stakes involved and the monumental challenges that demand-driven development faces, success to and through implementation is effectively impossible without the third, essential pillar of the Demand-Driven Innovation framework: Pervasive Leadership.

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DISCIPLINE #3

PERVASIVE LEADERSHIP
The DNA of Breakthrough Success
The annals of Breakthrough Innovation Winners are rich with leadership qualities of many types – of vision, of persistence, of creativity – and at many organizational levels, from the executive suite to R&D labs, to retail store floors. The core, transferable leadership lesson from the Breakthrough Innovation Winners is that leadership is not merely present, it is pervasive. It is top down and bottom up. There is a perceptible alignment with the innovation mission independent of any organization chart or reporting lines. What we have discovered is a version of Andy Grove’s maxim that “only the paranoid survive.”6 Breakthrough Innovation teams exhibit a charged awareness of the hazards posed by the pressure to conform to established processes and entrenched beliefs. This iconoclastic mindset is highly unusual. There is an audacity to Breakthrough Innovation as it does not work without a real disregard for the status quo. Without leadership at all levels to identify, shape, and fulfill demand-driven insights through to their fullest, uncompromised realization, breakthroughs will never have a chance. We identify three essential dimensions of Pervasive Leadership.

Leadership that bridges boundaries
Integration and alignment among all functions touching on the innovation process is essential. Leadership in this context manifests as ownership of outcomes and an eagerness to collaborate in the interest of achieving goals. We’re all aware of how important CEO involvement is, but seeing is believing. As Kraft Foods Group, VP of Innovation Barry Calpino recalled, when Chief Executive Officer Tony Vernon made it a regular practice to participate in quarterly innovation meetings, people noticed. Pervasive leadership always emanates from the top, but real alignment and commitment require more than chief executive exhortations.

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Leadership that drives focus and sustains execution
Winners apply a process rigor that has much more in common with a world-class manufacturing operation than with a freewheeling idea factory. Leadership must actively establish clear priorities, decision-making criteria, responsibilities, and timelines. There is urgency and constant communication. Leadership is the heart, pumping the oxygenated blood of innovation through the operational and executional limbs. There is little rest. Leaders embrace a three-to-five year timeframe that encompasses development, launch, support, and extension. Absent active and persistent leadership, the gravitational forces of established processes, entrenched beliefs, and “satisficing” stage gates will bend innovation towards conformity rather than transformation.

Leadership that cultivates shared core beliefs
Leadership instills the belief that innovation is essential. Breakthrough Innovation Winners redefine the impossible as possible – otherwise they would not be able to “do the impossible.” Del Monte’s journey to launch Milo’s Kitchen dog treats began by acknowledging “if we were going to innovate in dog treats, we were not simply going to copy the competition. We were not going to be a follower. We wanted to define the category on our own terms – to expand the category, not just take share.” Winners have attitude and take ownership. If that sounds exaggerated, spend some time with the Skinny Cow team at Nestlé, or the Velveeta or MiO teams at Kraft, the Milo’s team at Del Monte, or the Magnum team at Unilever. It is impossible not to see that Breakthrough Innovation Winners systematically stretch the limits of possibility. Winning requires more than believing, but there is no greatness – or breakthrough – without belief.

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Profiles in Activation
The Marathoner and Sprinter Approaches
Consistent with our findings from the Breakthrough Innovation Winners of 2012, this year’s winners followed one of two activation strategies: Sprinter or Marathoner. One can think of Sprinters as following a strong “push” strategy, while Marathoners trust consumers to “pull” brands into their lives. Sprinters accelerate distribution of their new products, rapidly reaching their maximum penetration. They also spend heavily on advertising support during the first year. The result is that they achieve very high levels of trial and sales in year-one. Then Sprinters pull back on advertising

2013 Winners - Sprinters
Two-Year Revenue

2013 Winners - Marathoners
Two-Year Revenue

Allegra Allergy
$680–$690 million

Reese’s ® Minis
$230–$240 million

Colgate ® Optic White™
$250–$260 million

Magnum ® Ice Cream
$225–$235 million

Milo’s Kitchen ® Home-Style Dog Treats
$175–$185 million

Skinny Cow™ Candy
$115–$125 million

Dannon Oikos ® Greek Yogurt
$735–$745 million

Monster Rehab ®
$535–$545 million

MiO Liquid Water Enhancer
$265–$275 million

Velveeta Cheesy Skillets ®
$170–$180 million

Downy UNSTOPABLES™ In-Wash Scent Booster
$145–$155 million

Sparkling ICE ®
$215–$225 million

Special K ® Cracker Chips
$180–$190 million

Fiber One ® 90 Calorie Brownies
$210–$220 million

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support by almost one-half in the second year – and both distribution and sales levels remain stable through the second and third years in market. This year’s Sprinters include Allegra, MiO, Reese’s Minis, Milo’s Kitchen, Skinny Cow Candy, and Velveeta Cheesy Skillets. By contrast, Marathoners take a more deliberate approach. They spend one-third less than Sprinters on advertising in the first year, and build distribution more gradually. Consequently, their sales levels in year-one – while impressive – are typically only 60% of what Sprinters achieve. However, they continue to build distribution in years one, two and three, and maintain relatively consistent levels of advertising support. The result? Marathoners’ sales grow at a 46% annual rate, matching Sprinters in year-two and surpassing them in year-three. And they achieve these sales levels with less than one-half the advertising spend than the average amount allocated by Sprinters. Marathoners include brands from smaller companies that lack the resources to adopt a Sprinter model, such as Monster Rehab and Sparkling ICE, as well as launches from larger companies – often when launching further-from-the-core brands (i.e., Optic White, Magnum, Unstopables, and Oikos).

2012 Winners
AVERAGE SALES LEVELS IN MILLIONS OF DOLLARS
$200

$150
SALES LEVEL

$100

$50

0
YEAR 0 YEAR 1 YEAR 2 YEAR 3

SPRINTER

MARATHONER

Source: Nielsen ScanTrack, 2008–2013

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WINNER S P OT L I GHT S
SPOTLIGHT 1 : Reese’s® Minis SPOTLIGHT 2: Magnum® Ice Cream SPOTLIGHT 3: Allegra Allergy SPOTLIGHT 4: Milo’s Kitchen® Home-Style Dog Treats SPOTLIGHT 5: MIO LIQUID WATER ENHANCER SPOTLIGHT 6: Skinny Cow™ Candy

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SPOTLIGHT #1

Reese’s Minis
The Perfect Combination of Chocol ate, Peanut Butter and Innovation
Mike DePanfilis was the VP Shopper Marketing responsible for the Reese’s franchise in 2011 and, as he assessed the venerable brand’s situation, the findings were concerning: growth was lower than the category, and recent innovations had relied on close-in extensions and short-term “limited editions.” DePanfilis pulled no punches, “We had a leaky bucket and were failing badly. Recent launches had been margin-dilutive, cannibalistic, and off-equity. Our process systematically underperformed and that poor performance reinforced a mindset of underachievement.” In short, Reese’s recent innovation track record showed no expansion of the category – just a zero-sum game that failed to deliver excitement for customers or results for Hershey’s. Like many Breakthrough Winners, Hershey’s march to greatness began with four elements: • • A clear-eyed assessment of the current reality A clear sense of ownership – “Ours is a ‘what have you done for me lately’ culture, so solving our growth problem was on me and my team. Failure to innovate and failure to grow were simply unacceptable outcomes.” A compelling call to action – “We set clear criteria for innovation ideas in an effort to break with our past. From here on, innovation proposals had to deliver on a new usage occasion or bring new users into the category.” A recommitment to the brand’s core value – “We reaffirmed our core brand equity as ‘the perfect combination of chocolate and peanut butter,’ and we required all innovation ideas to reinforce and leverage that core equity. Again, looking at our recent past,” DePanfilis elaborated, “there was a pattern of straying from all that we had built up, and we had to embrace our strengths.”

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DePanfilis also challenged his team to think beyond product-centric innovation. “Our solution had always been a new color or flavor or product tweak. Specifically, we started thinking about packaging and marketing as innovation levers to pull.” With a clear diagnosis, urgent sense of purpose, and exacting criteria, DePanfilis and his team began the insight process: a search for unmet demand that would address neglected usage occasions or engage new customers.

We had the insight, but the technology to produce a perfect Reese’s miniS did not exist.

“We had a hypothesis that we wanted to explore with qualitative research,” DePanfilis began. “The specific hypothesis is now unimportant, but we had committed to 24 focus groups to flesh out our idea. Well, 10-minutes into the first session, a participant speaks up: ‘So here’s the way I see it: you want me to buy a solution to a problem that doesn’t exist.’” The room went silent. The focus group moderator called a break to huddle with the Reese’s team: “Now what?” the moderator asked. “We had to think quickly on our feet and develop an alternative plan,” DePanfilis recalled. “What were we going to do? Scrap the research? We returned to our core criteria around new usage occasions and new consumers for a quick brainstorm. We instructed the moderator to explore what the group members consume when they’re having candy and not choosing Reese’s or simply hold a ‘barriers to usage’ conversation.” What unfolded was electrifying to the Reese’s team: “Basically we heard people describe all the ways that Reese’s provided an inadequate solution to major usage occasions – notably, in the car and at work. Unwrapping was a hassle, eating was messy, and the paper liners created a guilt-inducing tally of consumption. By identifying all these barriers to consumption, consumers were revealing latent demand and scripting our innovation brief.” DePanfilis acknowledged, “Truth is, we got lucky in what we came up with because we were asking the right questions, looking in the right places based on our criteria around category expansion. I had a talented team of brand marketers and consumer researchers that knew the consumer inside and out to assist me,” said DePanfilis. “All the arrows were pointing at a theme we’d tried but never fully embraced: what the industry refers to as ‘hand-to-mouth’ consumption.” “Hand-to-mouth was a familiar theme to us. We had this ‘Pieces’ concept that we’d tried with York, Almond Joy®, and Special Dark, but there were inevitably compromises in delivering the full taste experience. We knew from our research that Reese’s delivers a unique emotional experience, not just a physical product. In short, our prior efforts with these other items were not totally leveraging the powerful equity of these great brands. They were compromise solutions that delivered middling results.

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The opportunity was for a hand-to-mouth offering that delivered an uncompromised solution to these neglected usage occasions consistent with the eating experience of the brand.” “We had the insight, but the technology to produce a perfect Reese’s Minis did not exist. There is a ratio of peanut butter to chocolate, quality specs for ingredients, viscosity parameters for the peanut butter, and myriad variables that define the real Reese’s. We pushed on the Product Development team, and they really rose to the challenge. This was not a simple manufacturing fix, and solving it required collaboration across Sourcing, Innovation, Logistics and Sales as well as R&D and Manufacturing. This was an organization-wide collaboration, a massive undertaking, and a major team accomplishment.” Product attributes were part of the consumer requirement, but DePanfilis coaxed his team to activate additional innovation levers: “We sought innovation in the packaging and the marketing in addition to product. Delivering unwrapped Reese’s in a resealable bag that stood up at shelf was an essential dimension of fulfilling the consumer requirement and reinforced the hand-to-mouth eating experience. From a marketing perspective, it was about alignment and execution: getting the creative, the media weights, the frequency, and the seasonality in seamless alignment with the functional and emotional experience our customers desired.” Breakthrough success didn’t come easily to the Reese’s team. Their clear initial criteria, their willingness to adapt to new information, their relentless adherence to demand-driven insight, their organizational alignment, and their sustained in-market execution all proved essential to a brand launch that generated over $100 million in yearone sales.

Furthermore, Reese’s Minis success provided an operational blueprint and innovation platform that Hershey’s successfully leveraged to launch “Minis” versions of other brands with confidence and impact. The success of this initiative was made possible by a broad cross-functional team consisting of Operations, Packaging, Engineering, Research, Sales and Marketing, which worked together collaboratively supporting one another. It wouldn’t have occurred without the support of everyone. Sometimes you can make it big by going small. Reese’s Minis: a huge win for Hershey’s and a bigtime Breakthrough Winner.

“This was an organization-wide coll aboration, a massive undertaking, and a ma jor team accomplishment.”

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SPOTLIGHT #2

Magnum ICE cREAM
Putting Some St yle into Ice Cream
Unilever’s Magnum brand generated year-one sales of $95 million and year-two sales of $136 million. While success may look straightforward in hindsight – bringing a stylish, high-end offering into a relatively quiescent category – that’s not the real story. For starters, and despite Magnum’s success in other markets, U.S. entry plans met significant internal skepticism. Responsible for the Magnum launch, Alfie Vivian, VP Refreshments U.S., Unilever, recalls the initial reception to the idea, summarizing, “Let me get this right, you want to come to the largest ice cream market in the world and introduce chocolate-covered vanilla as ‘new’?” As Vivian noted, the first major challenge was to break Unilever’s “internal paradigm” of the ice cream category. That paradigm was rooted in product-centric notions of innovation. From inexpensive family gallons to ultra-premium varieties, the historic category focus was primarily on the physical product and packaging. What the Unilever insights team uncovered were three core findings: • • The category had lost excitement in the U.S. grocery business Glamour, decadence, and sexiness were powerful, relevant emotional dimensions of indulgence – qualities more fully explored in the super-premium chocolate business, but largely absent from the ice cream category Unilever’s global insights team further identified a compelling pool of consumers who seek style, indulgence, sexiness, and decadence in their lives

The Magnum team concluded that nothing in the U.S. market was delivering sophisticated elegance and high style. While Magnum was bringing product innovation and a super-premium product to market, the success formula was not only rooted in the functional characteristics of the physical product. From the beginning, Magnum was about transforming a category by creating a lifestyle brand that would employ luscious and decadent ice cream as its vehicle for satisfying pleasureseeking consumers.

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“We wanted to take satisfying indulgence not only to a new level,” Vivian gushed, “but to a whole new space. This was never just about ice cream. Magnum was never a market-share play. From the beginning we wanted to transform, energize, and expand the category.” The Magnum team was convinced that the emotional and social elements of a true lifestyle brand were not just absent in the category but were powerfully relevant to a rich pool of latent consumer demand. Extensive research and global experience supported their confidence. Notably, and as with many other Breakthrough Winners, the Magnum mindset was, “How big can we make this?” Not an idle question or aspiration, it was a motivational force that flowed from the top of Unilever and throughout the entire organization: Magnum would be big, it would delight American consumers, and it would transform the category. Magnum’s launch strategy reflected the objective of transforming the ice cream aisle with an entirely new brand energy. Creative direction was entrusted to fashion icon Karl Lagerfeld in the context of a high-visibility engagement with the fashion industry. Since when do you see ice cream on red carpets and runways? Magnum was clearly no ordinary ice cream – or run-of-the-mill brand. But image isn’t everything. Retailers were essential collaborators, and Magnum engaged them with a three-pronged promise that the product would: • • • Energize the freezer aisle Expand the ice cream category Increase margins

We wanted to take satisfying indulgence not only to a new level, but to a whole new space. This was never just about ice cream.

Aligning Magnum’s strategy with the economic incentives of retailers was a critical success factor. And this is just the beginning. Platform extensions and new launches are already in the market for 2013 and in the works for 2014 and 2015. Again illustrating a Breakthrough Innovation Winner hallmark, the Magnum launch is a sustained, multiyear commitment. As sweet as the Magnum success is, and as we know from Breakthrough Innovation Winner findings as well as from years of client work, the popular press often gets it wrong when the high-gloss story of innovation is told from 30,000 feet. Innovation is hard, hard work and success is a function of breaking through walls and overcoming setbacks. As Vivian remarked, “I can give a long list of all the things we struggled with: from scaling the supply chain to getting the pricing right to agreeing on the branding strategy to balancing the demands of different channel partners...it would be a long list.” But, for Breakthrough Winners, the only “impossible” is failure.
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SPOTLIGHT #3

Allegra ALLERGY
Nothing to Sneeze At
When you’re a prescription brand moving to a crowded over-the-counter (OTC) marketplace, success is far from certain. That was the case when Sanofi/Chattem introduced Allegra to consumers in 2011. Entrenched brands such as Claritin®, Zyrtec®, and low-cost Benadryl® were already crowding the allergy relief aisle. That didn’t stop Richard Spangler, Senior Director of Marketing, Chattem, and his team from boldly betting big that Allegra would be a success. Despite the myriad products available, many allergy sufferers still found themselves making an undesirable trade-off – one that Chattem’s insight team had identified. Either their medicine was too slow-acting when they first took it or it caused drowsiness. No matter what choice sufferers made, they felt that they were “sacrificing,” and it was that word from the consumer that energized and focused the Allegra team. The problem in context: allergy symptoms peak in the spring seasons when people are active and outdoors. Existing solutions that addressed their symptoms made them feel drowsy and listless, so consumers had to choose between “living in the moment” and suffering, or taking a medication and feeling drowsy. In addition to providing complete relief without drowsiness, “living in the moment” meant that solutions needed to work fast when symptoms first appeared, so this was another essential element of the ideal solution that Chattem knew they had to deliver. Despite a crowded market, Chattem saw a huge opportunity if they could introduce a brand that resolved the persistent consumer trade-off.

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Chattem saw a huge opportunit y if they could resolve the persistent consumer trade-off.
While Chattem R&D was confident they had the benefit bundle nailed, the consumer engagement plan was no less critical. The allergy relief category was not only crowded with brands, it was also crowded with claims, so simply making a promise through advertising was not enough. The Allegra team worked with research, creative, and media partners to develop a well-tested campaign that connected with allergy symptom sufferers with empathy and relevance. The creative fully captured the circumstances of the sufferer and the tension of the trade-off. Like all Breakthrough Winners, Allegra took root in a poorly addressed consumer demand. The team developed a message that incorporated all the essential benefits desired by allergy sufferers. Brand imagery and advertising messaging spoke to the emotional and social dimensions of consumers’ needs – how they wanted to feel and how they wanted to be with those around them. As Allegra illustrates, being a late entrant to a crowded market can nonetheless prove highly lucrative if established players are failing to address essential dimensions of consumer demand, and if the late entrant addresses the functional, emotional, and social dimensions of the consumer need, and if the late entrant activates in market with an engaging, effective communication and channel strategy to bring the brand to life for consumers on a grand scale.

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SPOTLIGHT #4

Milo’s Kitchen Home-St yle Dog Treats
Transforming a Category
“In recent years, Del Monte has been focused on building its innovation DNA,” said Geoff Tanner, Del Monte’s Vice President of Innovation. “We’ve been looking at how we can better support it organizationally, structurally, and philosophically – really wire it into our culture.” “Back in 2010 a small group of us started working on a big idea. Not exactly a skunk works, but pretty close,” Tanner described. “We put a few stakes in the ground from the outset,” Tanner recalled. “We decided that if we were going to innovate in dog treats, we were not simply going to copy the competition. We were not going to be a follower. We wanted to define the category on our own terms – to expand the category, not just take share.” The small team of highly talented, entrepreneurial cross-functional leaders on the Milo’s Kitchen team had a total belief and commitment to the opportunity and vision. According to Tanner, “This was probably the single most important factor in the success of the launch.” The insights team went to work, and one finding was that while the pet food category had seen a steady increase in premium brands and, specifically, “human-quality food,” the pet treats category lagged. In fact, pet accessories and services such as insurance and grooming had all seen successful, premium offerings – in step with a well-understood trend of “pet as family member.” This was one of the early signs that the latent demand pool could offer a significant opportunity. Tanner’s colleague and Vice President of Insights, Courtney Moore, led the research to get to the truth. Arguably the breakthrough insight came from a unique research methodology in which the company observed the behaviors and underlying thought processes of consumers when they

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were told they could no longer use their favorite treats. What they learned in the research, in combination with numerous supporting studies, led to Milo’s Kitchen’s successful brand position of “wholesome like human.” The defining characteristic of the consumer-demand pool was that pets held equal or near-equal status with other family members. Armed with a disruptive insight, the team then worked to bring it to life across every touch point. The brand name was carefully chosen, with “Kitchen” connoting not just careful preparation and high quality food, but increasingly the place where family members – both two-legged and four-legged – spend time together. Activating the insight also led to a window on the packaging that visibly showcased the product, the use of a real person with her dog on the front panel (a first for the category), and a TV spot that deliberately showed the dog and her “person” at an equal level, with the snack proudly displayed in serving bowls. The team had their insight and proposition, but as is the case with most disruptive ideas, they faced many significant challenges and obstacles on the road to making their vision a reality. The team’s dogged persistence and grit paid off, and Milo’s Kitchen went from concept to shelf. Tanner and Moore were confident enough in their research findings and their executional capabilities that they convinced management to bet big – believing that the opportunity should be executed with huge support or not done at all. As Tanner recalled, “You can’t do transformation half way. We were convinced that it was riskier to go slow or partially commit. We really felt that we had the chance to transform a category and build a powerful new brand. This meant doing the media campaign, putting the team on a plane to meet with our channel partners, executing in-store, and engaging the sales force. It was all part of a single strategy. There was nothing to hedge, no optional elements.” At a breakneck pace – 14-months from idea to launch – a Breakthrough Winner was in the market. Year-one sales exceeded $75 million and year-two sales grew past $100 million. Today, with new ownership committed to consumer understanding and investment in growth, there is now an internal expectation and strong support for transformational innovation. “I believe that the success of Milo’s Kitchen has played a part in building a more robust innovation runway at Del Monte,” said Tanner.

We were convinced that it was riskier to go slow or partially commit. We really felt that we had the chance to transform a category and build a powerful new brand.

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SPOTLIGHT #5

MiO Liquid Water Enhancer
Kraft’s Innovation Revolution and how to build a pl atform for sustained growth
It’s amazing what’s not possible if you believe it’s impossible. If an organization “believes” that it is incapable of breakthrough innovation, the prophesy will be fulfilled. If the lore of innovation within an organization is the memory of epic failure, dollars wasted and careers shortened, who’s likely to aspire to lead that futile charge? This pessimistic mindset about innovation can take hold even in a company as successful as Kraft Foods, with some of the best-known food brands on the planet. Where one might expect to find swagger, there was fatalism: it was a “can’t do” innovation culture stuck in a cycle of failure, small ideas with even smaller levels of support behind them. What’s even more surprising? This is not ancient history, this was 2010. So how do you, in the words of VP of Innovation at Kraft Foods Group, Barry Calpino, go from “worst to first”? How do you move from launching 130 tactical, uninspired, half-efforts to bankrolling 12 big initiatives with confidence – and unprecedented success?

Step 1: Face reality
If your company is underperforming in innovation, acknowledge it openly and bluntly. In Kraft’s case this required the courage to declare, “Right now we are at the bottom of the pack at innovation.”

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Step 2: Take an “honest look in the mirror”
Identify the enemy. It might be a resource issue. Sometimes a process flaw is to blame. Occasionally metrics and analytic tools need to be changed. For Kraft, the honest look revealed the biggest detriment was a mental model grounded in failure: thinking small, not investing, and a resulting culture of “we can’t” – and subsequently that “innovation doesn’t matter here.” Self-created and self-fulfilling. Belief is essential, and belief in failure is devastating. One quick check is to collect the innovation mythology and lore of an organization: are tales told of crowning achievement or of serial defeat? Belief is destiny, and innovation success cannot take root in a culture convinced or in a rut of failure.

Step 3: Start the revolution
“We will transform our innovation capabilities, our success rates, and our mental models. It is simply unacceptable and unsustainable to fail at launching successful growth products.” Having a CEO leaning in helps, as CEO Tony Vernon’s involvement illustrates.

Step 4: Think Big
When the goal is breakthrough innovation, ask, “How big can this be?” and “What type of support do we need to put behind ideas to make them truly big?” – not “What is the minimum threshold of acceptability or spending?”

Step 5: Take a long-term view of success
This doesn’t mean being too patient for impact. It means committing to supporting successes for two-plus years. “Launch and leave” is not a winning strategy for breakthrough innovations.

Step 6: Recognize your organization’s strength
Embrace and energize them! In Kraft’s case this meant: • • • • • Great brands Powerful R&D organization Extensive, skilled sales force Retail partners clamoring for innovation Unexplored insights

Kraft had some pretty powerful innovation assets for an organization convinced of the improbability of innovation success.

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Step 7: Design and implement an end-to-end innovation process
The innovation process needs to be as rigorous and data-driven as other operational processes. This does not imply that the fuzzy front end of innovation is no longer fuzzy or that strategic pivots based on marketplace feedback disappear. To the contrary, these essential process steps are defined with appropriate tolerances for variation. Consistent with the operating process paradigm, it is not permissible to skip steps in a well-designed innovation process. Too many organizations approach innovation with a scorecard, presuming that if they hit most of the elements on the checklist, a concept is market ready. That’s not how processes work, and organizations employing a scorecard approach to innovation are unlikely to find themselves in this report. Finally on process: extend it. Reach upstream to generate insights about emerging and latent consumer demand. Look for struggles, nuisances, compromises, work-arounds and nonconsumption in consumers’ lives. At the other end of the process, “We used to launch ’em and leave ’em,” Calpino observed. “Now we know that that is unacceptable. We try to take a multiyear perspective to supporting all big-bet launches.”

Step 8: Insist that every innovation idea include a “category story”
The path that led to Kraft pushing 130 middling launches into market was acceptance of almost mindless tweaks and changes to existing product features and attributes. Categories exist in the lives of consumers and are defined by the jobs they need to perform in their daily lives. By insisting that all innovation ideas present a category story framed by the circumstances of the consumer – rather than by the attributes of the product – Kraft made a clean break with historic incrementalism and embraced a more expansive and ambitious mission for innovation.

Step 9: Embrace retailers as partners, not distribution pipes to push product through
By bringing retailers into the innovation process, a consistently successful shopper experience is far more likely.

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Step 10: Set goals and define success
Kraft decided that they wanted fewer, bigger, better launches that received the best talent and ample resources. Success was defined as year-one sales of $30 million and margin-accretive. As Calpino said, “You’ll never do anything big if you don’t think big – and act big by the investment you put behind the ideas you believe in the most. You need a culture of ‘How big can we make this?’ – and a culture of truly investing big behind our best ideas – rather than what we historically had, which was ‘This will never work,’ or ‘Can we launch ideas with little to no investment?’ ” In the case of MiO, the idea of a liquid-concentrate flavor pack for water had been around for years, but it was a small idea without a bigger story or ambition. Fueled by insights into generational trends towards customization, the concept evolved into a “your drink, your way” positioning that had managers saying, “Let’s create an entirely new brand and new category.” In other words, the “how big can we make this” mindset was as essential as the insight into latent consumer demand. By pushing the idea as far as possible and investing very heavily in supporting the launch – in years one, two, and now three – MiO generated cumulative first- and second-year sales of $268 million. Moreover, more than 30% of buyers were totally new to the category. * * * *

Unsurprisingly, Edison was right. Opportunity not only “looks like work,” it is work. The good news is that it isn’t magic or blind luck. As Kraft’s innovation transformation shows, putting on the overalls and rolling up sleeves can make the grunt work glorious.

You’ll never do any thing big if you don’t think big – and act big.

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SPOTLIGHT #6

Skinny Cow CANDY
Thinking Outside the Aisle
For Nestlé’s Skinny Cow, what started in the ice cream aisle found a fast following in the candy section. It was a big, bold leap – enabled by compelling demand-driven insight and realized by relentless pursuit of consumer requirements through a comprehensive and insight-driven go-to-market plan. For the Skinny Cow team, the good news is that they had identified a compelling pool of unmet demand. The challenge remained: could they fill it? The marketing team gave the R&D powerhouse the demanddriven product specification and they delivered with excellent products validated by consumer research. Even with a clear brief for the benefit bundle, huge marketing challenges remained. Notably, how to succeed in a low-traffic aisle? No easy task. The Skinny Cow plan: “We gotta make sure that shoppers literally fall over our product. We need to get the product to other areas of store.” This was a big move and a gutsy investment: custom displays were built to merchandise Skinny Cow chocolates in other parts of the

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store – notably, in front of the Lean Cuisine section of the freezer bank. Sounds crazy, but what the insights team uncovered was that, though the products were wildly different in terms of their specific attributes, they were closely aligned in the core benefits they delivered and in the vital job they performed in consumers’ lives. Specifically, for consumers looking for assistance in living healthier lives without undesirable sacrifices, inconvenience, or cost, Skinny Cow and Lean Cuisine brands presented compelling solutions. In short, they go together. Demand-driven innovation process continued through launch. From the success of Skinny Cow ice cream, the marketing team had curated an active group of loyal consumers on a variety of social platforms. The consumers were energized, engaged online influencers – and fanatics of the Skinny Cow brand. At launch, the Skinny Cow team gave these consumers the two things that research shows influencers value most: recognition from brands they love and status amongst their peers.

By energizing and activating their fan base, Skinny Cow created buzz and demand for the product before it even hit the stores.

The marketing team executed a comprehensive social engagement strategy that enlisted the consumers in the launch: providing advanced scoops of the coming release, coupons for free trial boxes, and e-coupons for sharing with friends. By energizing and activating their fan base, Skinny Cow created buzz and demand for the product before it even hit the stores. In the end, Skinny Cow went outside the candy aisle to bring new users and, ultimately, “making it safe” for shoppers to walk down the aisle without fear of temptation. Skinny Cow changed the game and racked up a big-time Breakthrough Winner. Sweet.

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AN ENCOURAGING WORD
You want to do this
On average, Breakthrough Innovation Winners generate over $100 million in first-year sales and sustain annual growth of 23% through year three in-market. Nothing breeds success like success: the majority of Breakthrough Winners go on to launch extensions that fuel additional growth at comparatively low risk. Growth also has a way of attracting top talent and boosting stock prices. To put a new spin on a Hollywood classic, “Growth is good.” Breakthrough Innovation Winners offer a wealth of guidance, but the map is, famously, not the territory. Every brand and each team must find its own way. Demand-Driven Innovation provides a valuable approach for planning your breakthrough journey. The accompanying Winner Spotlights showcase the framework – and the winners – in action. Most importantly, “Congratulations” to this year’s winners! We reiterate our sincere thanks to those who participated in this report, as well as embracing our belief that an idea shared is an idea improved. While the odds of innovation success remain daunting, we can make the risks more manageable and the path to success less hazardous by accelerating the cycle of sharing, learning, and improving. Nielsen Breakthrough Innovation Report is the annual synthesis of our daily, global commitment to marketers – helping them thrill consumers and create vibrant, valuable growth businesses. We look forward to a year of innovation successes and to working with leaders to advance the state of innovation knowledge.

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Authors
Taddy Hall Senior Vice President, Nielsen Innovation Practice – North America taddy.hall@nielsen.com Chris Casey President, Nielsen Innovation Practice chris.casey@nielsen.com Rob Wengel Senior Vice President, Nielsen Innovation Practice – North America rob.wengel@nielsen.com

FOOTNOTES
1 2 3 4 5 6 Nielsen ScanTrack (Food, Drug, Convenience, Dollar, Club and Mass Merchandise) Walter Isaacson, Steve Jobs, 2011 Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, 1997 Nielsen ScanTrack, 2011–2013 Thomas Edison, Wikipedia, http://en.wikiquote.org/wiki/Thomas_Edison Andrew S. Grove, The Paranoid Survive: How to Exploit the Crisis Points that Challenge Every Company, 1996

DISCLAIMER
The information contained in this report is based on compilations and/or estimates representing Nielsen’s opinion based on its analysis of data and other information, including data from sample households and/or other sources that may not be under Nielsen’s control. Nielsen shall not be liable for any use of or reliance on the information contained in this report.

About Nielsen
Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com. Copyright © 2013 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies. 13/6243

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