60pc of new products fail to reach market

PUBLISHED : Friday, 05 November, 2010, 12:00am
UPDATED : Friday, 05 November, 2010, 12:00am

About six out of 10 new products on the mainland never reach the marketplace even if they have already reached the final development stage, according to research by Nielsen.

This is significantly higher than elsewhere in the world, where the rate averages between 35 per cent and 45 per cent.

The study also found that 70 per cent of the new products that made it into the market either failed or were withdrawn within two years of their launch, which is in line with the average elsewhere in the world.

Nielsen carried out research after collecting data involving more than 100,000 new products globally, including 2,000 in China, mainly focusing on the food and beverage sector, electrical appliances and other consumer goods.

Mitch Barns, Nielsen's Greater China president, said the relatively high failure rate for new products on the mainland largely reflected intense competition. 'Every company in the world is trying to make a future in China. And their investment for new products is huge,' he said.

'In China, a company may have seven or eight new products in their pipeline at the same time, and probably only three or four of them can survive at the end of the day. However, in some other countries, companies may only have one or two on their plate for the whole year.'

In some sectors such as beverages and personal care products, it would be harder for new products to succeed because there were too many brands competing for the same group of consumers, Barns said.

On the other hand, new products may have a better chance of surviving in industries requiring significant capital spending because the barriers to competition are higher and there are fewer players in the market. 'In our observation, the key to success for new products in China is pretty much the same as elsewhere around the world,' he said.

The success factors include a distinct market position, a clear and focused message to consumers, affordable prices, a strong distribution network, reliable quality and good user experience, Barns said.

He said Wong Lo Kat, a herbal tea developed by Hong Kong-based JDB Group, was an example of a successful product.

The product reaped as much as 1 billion yuan (HK$1.16 billion) in sales on the mainland last year after the drink manufacturer changed its packaging and adjusted its marketing strategy.

'The company has a fantastic distribution network, making their products available from big supermarkets and restaurants to small groceries on the street,' Barns said,

'It has only one size and one flavour. You always know what you will get. And the red-coloured package can attract people's attention from far away.'

The total investment on research and development by mainland enterprises has been growing steadily in recent years but still remains low compared with the spending in developed countries.

According to statistics from the China Enterprise Evaluation Association, the top 100 domestic spenders on research and development put a record 4.59 per cent of their sales revenues on new product development, up from 3.8 per cent a year earlier.

However, the average spending on research and development among the 500 biggest manufacturers on the mainland is only 2.03 per cent of their total revenue, less than half the average for multinational companies in other countries.

Crowded market

Failure rate is higher when there are too many brands in same sector

Percentage of new products that either fail or are withdrawn from the market within two years of their launch: 70%