L.R.Natarajan, Partner- Strategy and Systems Consulting

 LRN has worked at senior level positions in companies like Eicher Motors, Hero Motors, Greaves Cotton, Ashok Leyland, and Hindustan motors. His last employer was Titan Company limited. Eleven years in Titan Company limited (eight years in Tanishq) and retired as CEO for the new business division. LRN was also heading the innovation council at Titan and was an active member of Tata Group Innovation Forum.

LRN had successfully spearheaded the TOC implementation in Tanishq retailing.LRN had started a school for Innovation in Titan and the school had produced over 400 trained innovators.

LRN also undertakes consulting assignments from corporate companies on Strategy, Retail excellence and Innovation. He has recently authored two books, a book on Innovation titled “The 9 Nuggets of Innovation” and a book on retailing titled “Demystifying Retail” – The Four golden rules.

Prabhakar Mahadevan, Founder Director of Strategy and Systems Consulting & Focus and Flow

Technologies Pvt Ltd

Prabhakar is a certified Theory of Constraints consultant (TOC) by Goldratt Schools Israel, certified expert on TOC by TOCICO (www.tocico.org) & is associated with TOC for the last 22+ years.

 Through his consulting companies,Prabhakar and his colleagues are involved in several comprehensive TOC consulting projects across several industry verticals such as fashion jewellery, fast moving consumer goods, consumer durables, automotive OEM, capital machinery, pharmaceutical, heavy engineering, fashion retail etc.

In continuation of my article titled “The Four Golden Rules for securing retail excellence”, I am detailing through this article, the third Golden Rule: “Processes for New Product Introduction”.

1.     Background

NPI, New Product introduction, is an essential part of any retailing. However, if the NPI is not guided by right processes, NPI process will turn out to be the key driver for accumulation of obsolescence. A wrong NPI process may give room for replacing the fast movers in accommodating new designs which do not have any sale history. Therefore, having the right NPI process will guide one through in which category, in which price point, how much of merchandise is to be introduced. With the right NPI processes in place, the obsolescence can be considerably minimised, and the fast movers can be increased.

2.     New Product Introduction Process

There are four parts to the NPI process as defined below. Having the right processes for each aspect of NPI process, should lead to defining the comprehensive NPI process

1)     What should be the frequency of NPI?

2)     How much of Newness in each NPI?

3)     The understanding of distribution of newness, across category and price points.

4)     Zeroing down on the right set of designs, to maximise the chances of success.   

2.1   What Should be the Frequency of NPI?

It is very important to arrive at the logical answer to this question. While newness is a prerequisite for any retail, it is to be understood that the new products come with Zero sale history. Also, one needs to vacate some of the merchandise from the current inventory mix to accommodate new products. The risk of obsolescence will be high with higher NPI. Conversely the excitement of NPI introduction and its impact on sale will be less with lesser NPI.

How does one arrive at the frequency of NPI?

It is to be understood that the NPI is be done to create excitement followed by desire in one’s customer base to walk in and buy and NPI is not being done to fulfil the Merchandising/ retail teams need. Having very clearly understood this, one should try and understand the customer buying behaviour. A customer buying Jewellery perhaps will frequent the Jewellery showroom (most of the customers) once or twice in a year.

From the customer walk-in data available, one should compute what % of customers are buying once/twice/thrice in a year and arrive at the average per customer repeat walk-ins in a year. Assume this number arrived at is 2 for a given retailer, meaning on an average, the customer walks in twice in a year. Therefore, when the customer walks in for the second time, there should be newness in the showroom.

With this one can conclude that the new products for this retailer, is to be done once in 6 months, and during the seasonal months

2.2  How much of Newness in each NPI?

Having decided that the NPI will happen every 6 months, the next logical question that needs to be addressed is how much of new products to be introduced in each NPI meet.

50% newness once in 6 months, results in the entire merchandise will be new in a year. And with 10% newness every 6 months, in a year 20% of merchandise will be new. Too much of newness, will lead to greater risk of obsolescence and too less newness, will not create the excitement in customer base.

The suggestion here is that key members from Product design / Marketing / Category / Merchandise and retail should understand the ramification of introducing newness and arrive at a consensus on the quantum of newness to be introduced in the NPI event. Based on the impact of introducing the newness based on consensus arrived at, the next year newness % can be fine-tuned.

Our recommendation will be to plan for a newness of 30% every year, 15% during Diwali/ Dhanteras and 15% during Akshaya Tritiya.

2.3  Understanding of distribution of newness across category/Price points

Referring to my earlier article on the second golden rule, Planogram and Replenishment process, I had explained about the 2*2 process. We had compiled the sale and stock turn of each showroom category/ sub-category/ price point wise, and compared the same with the group average sale and group stock turn and arrived at to which of the four quadrants the individual line item in a showroom belongs to, Q1, Q2, Q3 or Q4. I am compiling the 2*2 matrix for one’s ready reference, with certain additional notes.

As can be inferred from the above, for a given showroom, for the category / Sub- category/ price points falling under Q3 and Q4 are the areas where maximum of new products is to be introduced. Here again the quantum of new products will be governed by the newness % arrived at earlier.

To reap the full benefits of NPI, it is recommended that NPI should have more variants (70 to 80%) falling under Q3 and Q4, and less variants to be introduced for the line items falling under

2.4  Zeroing down on the right set of designs, to maximise the chances of success

Having arrived at showroom wise Category/ Sub- category/ Price point wise, number of new products to be introduced, (say 10 for a given line item)

1. For a category/ Sub- category/ Price point if 10 new designs are to be introduced
2. Secure 30 new designs (Three times the final requirement)
3. Let the category/design/retail team choose 20 best ones from the above, by appropriate voting process
4. Show case these 20 to your loyal customer base and have processes in place for short listing the best 10

 Processes described above for NPI will for sure increase the chances of success at the marketplace. However, the caution here is that one needs to prepare a calendar of activities, covering all the processes described above, to ensure that one adheres to the deadline defined for NPI.

Summing up

While introducing new products is essential for any retail business, one should think through and arrive at the appropriate processes, for the four steps given below

1. What should be the frequency of NPI?
2. How much of Newness in each NPI?
3. The understanding of distribution of newness across category and price points.
4. Zeroing down on the right set of designs to maximise the chances of success

New product introduction, done without proper processes, will be the starting point of sludge stock generation in the inventory.