Product Research

Hershey and Mars continue to engage in all out warfare to be first in the more than $8 billion a year candy market in the United States. During the 1970s Mars pushed ahead of Hershey and by the early 1980s held a lead of some 14 share points. In recent years Hershey has made a dramatic comeback largely on new products coupled with heavy advertising.

A major reason for Hershey’s emphasis on product innovation was that company research revealed that consumers rarely bought the same candy bar twice in a row. Of the 60 best selling bars, Hershey has 17, versus 9 for Mars. About 20 percent of Hershey’s candy sales come from new products versus only 7 percent in 1979. Hershey targets the adult market for many of its new products because people older than 28 consume more than 55 percent of all candy sold. Thus, it introduced two new 35-cent bars that contain less chocolate and were, therefore, less sweet. One of these – Skor – is a chocolate covered toffee bar that now outsells the health bar.

Hershey has also launched its Big Block line, which contains thicker versions (50 percent more) of some of its standard items (such as its milk chocolate and almond bars) These thicker bars are particularly appealing to adult males. The company has ventured successfully into premium candies (e.g. Golden Almond and Golden Pecan bars), which contain whole rather than chopped nuts and a smoother blend of chocolate. Hershey has also launched a new granola bar (New Trail). For the most part these new products have moved Hershey into product categories that Mars has largely ignored.

As the above illustrations notes, the single most important activity of any firm is the developments of a product of a product line that meets the needs of certain groups of consumers. No other activity has a greater long run effect on a firm’s profits and, hence, its survival. Evidence of management’s concern with new products is found in the large amounts spent on research and development. Over the past 20 years US companies have increased the amount spent on new product research by 17 percent per year. In 1987 they spent nearly $60 billion, while the Pentagon spent $44 billion. Further evidence of management’s concern about new products is that marketing managers spend about 21 percent of their time on this activity.

The number of new products launched annually seems to be increasing (9,895 in 1984 versus 9,132 in 1980) according to New Product Development. The AC Nielsen Company, however, reports a much greater number of new food items – nearly three times as many in 1984. Why the substantial difference between these two estimates? A major reason lies in how a product is defined. One of the easiest ways of classifying new products is to divide them into four major types. These along with the relative importance of each, are shown below. Note the very small percentage of truly new products.

Percentage of New Products by New Product Type: 1976 – 1981

Type Percentage
New to the world 12
New to the firm 24
Product line extensions 32
Product improvements 32
Total 100

New Product Success

There are a variety of estimates regarding the percentage of new product failures, ranging from as low as 15 percent to as high as 90 percent. Much depends on when a new product project is canceled. Booz, Allen and Hamilton estimates that out of every seven ideas that enter the new product process only one emerges as a commercial success. Some 46 percent of the total funds spent on new products by US industry go for products that fail or are abandoned. Crawford estimates that 30 to 35 percent of marketed new products fail, while Hopkins reports that about 40 percent of industrial new products fail in the marketplace.

Differences in the various estimates of failure in the marketplace are influenced by how the new product is defined, the type of new product involved, and the criteria used to measure commercial success. For example, the failure rate for new food items is substantially higher than for other types of products—for example pharmaceutical. There is every reason to believe that failures rates will increase in the future given the maturing of many basic technologies shorter product life cycles, and increased government regulations.