Brands that grow: the compelling logic of innovation; The onus on all brands in an area like consumer goods, where the scope for growth is limited, is to innovate in order to grow. If brands fail to innovate then they face the prospect of falling behind their rivals and declining shareholder value creation.(In-depth: brand innovation)

In today's competitive markets for branded consumer goods, growth carries a premium. Everyone seeks it, yet only a few are able to attain it. Even more of a rarity is a brand's ability to sustain its growth over an extended length of time.

This article, based on a major research project undertaken at IMD in close collaboration with PIMS Europe and the European Brands Association. It argues that a key driver and accelerator of brand growth are innovations that create novel consumer values. Brands that innovate, and do so more actively than their rivals, grow. Those that fall behind in the race to create and maintain a relative innovation advantage do not grow, or may actually decline. The innovation imperative applies to both brand leaders and their smaller rivals, but the penalties for failing to innovate are harsher for the leaders.

Pressure to Grow

Managers are preoccupied with growth today, or at least the stock market is making sure that they are. Shareholder value creation, the new mantra of every modern CEO, is in large measure a function of future growth--in sales and, as a consequence, in earnings. Growth is back on the agenda.

But here is the challenge: How can you achieve significant growth in markets where organic growth is minimal or non-existent--a situation that describes most of the world's markets for consumer goods such as food, household products, and durable goods?

Research

For the research underpinning this article we surveyed 34 companies operating in 26 different consumer product categories in Europe. More than two thirds of the sample were of European origin: the rest were American firms operating in Europe. The product categories covered by this study encompass a wide scope of branded consumer goods ranging from food to detergents to personal care products. In each company we interviewed a minimum of three managers with general management, marketing, and product innovation responsibilities. A total of more than one hundred managers were interviewed.

We used two different instruments in our survey. First, we collected a wide range of quantitative company-specific data using an extensive questionnaire that focused on the scope of business strategies and operations, as well as a firm's practices and track record in new product activities. Altogether we examined 60 primarily product innovations using this instrument. Second, from this larger base, we developed 22 case studies on specific product launches, both successes and failures, which allowed us to examine in useful detail the opportunities and pitfalls in innovation.

To broaden the scope of our investigation beyond the survey, we also interrogated a large database consisting of 180 branded consumer goods businesses of both European and American origin. This exercise allowed us to bring into focus additional parameters on innovation and its impact on growth.

What follows are highlights of our findings as they pertain to the role of innovation in generating brand growth. The quantitative results are presented along with the summaries of relevant case studies as close-up illustrations.

Value Creation

Our survey suggests that for an increasing number of branded consumer goods, companies' product innovation is seen by management as possibly …