Innovation in the UK Retail Sector - Nesta

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Innovation in the UK Retail Sector on product), ROI from new retail formats, ROI from new projects, ROS targets after product launch, discounted cash flow, etc. (See Figure 7.2). “It’s always return on investment (ROI) - at the end of the day we are here to make a profit. But because of new brand considerations, we are also now starting from their perspective to look at things like web page impressions…” (E-commerce Manager). “We have a realistic Finance Director who is aware of the value of marketing but is encouraging us to qualify everything on an ROI basis” (Marketing Director, Grocery Retailer). • Profit margins: 37% of practitioners considered profit margins as an essential measure for tracking the success or failure of new products and as a contributing factor (among others) in continuing or discontinuing a new product or a category. “I think we measure its performance using all the standard financial matrixes that we use for the mainstream business, but you have to have a more of a relaxed investment targets for it. I think if you expect the same rate of payback or the same rate of return you get from investment in your core business, you’ll never support a new start-up business” (CEO). Figure 7.2. Key financial measures of innovation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 84% 0% Overal financial measures Source: Hristov, 2007 78% ii. Non-financial measures of innovation 7.9 Non-financial measures of innovation have been relatively recently applied in retailing. They are designed to track the share of new activities in the broader context of the business, over a longer period of time, or to measure on a regular basis some of the soft benefits of innovation such as customer perceptions about the retailer and its brand (i.e., levels of satisfaction, awareness, loyalty, perceived quality, image or positioning vis-à-vis competition, etc.). These are of three types: (1) number of (or % of) new products, (2) consumer insights and (3) time-related measures (see Figure 7.3). 65% Sales and market share Rate of return measures (ROI, ROIC, ROS, etc.) 37% Profit margins Page 50
Innovation in the UK Retail Sector • Number of (or %) new products: 59% of the senior managers interviewed gave example of at least one of these: for instance overall number of new products, SKU, categories, or introductions of modified products versus entirely new products. Some referred to these as ‘semi-innovation’ versus ‘true innovation’, others as ‘straight swaps in the range’ substituting old products with new ones, or the percentage of sales coming from new products. One large DIY retailer, for example, tracks the percentage of product purchasing versus the percentage of project purchasing (i.e., a kitchen unit versus a whole new kitchen). Some NPD departments track their performance as percentage of sales of all own brand products introduced in the range for one year period. Some managers see these measures as a fairly crude indication of innovativeness, emphasising the importance of quality over quantity of launches. Other practitioners believed that these measures, when tracked longitudinally, served to highlight the overall rate of innovation. “Percentage of sales of new products is something I measure but we don’t think that big is always good any more. It’s a measure but it’s not a measure that is in proportion to how [successful we are]. We don’t want to see more necessarily in fact we want to see fewer but more successful new products launched … rather than more” (NPID Director). • Consumer insights: 34% of managers believed that customer insights were essential non-financial indicator for levels of successful innovation in the business. Markets change, consumer needs change and retailers need to continuously innovate in anticipation of these changes. “Our customers are changing and so are their needs, innovation keeps us relevant…without innovation our like-for-like growth will not succeed, you get into product life cycle issues, you’ll degrade your margins and profitability, and will end up commoditising your offer” (Commercial Director). Here retailer KPIs include changing levels of consumer acquisition and retention, lifetime value, measures of loyalty such as ‘net promoter scores’, satisfaction, usage rates, conversion rates, frequency of purchase and repeat purchase. • Time-related measures: Time span (pre- or post-launch) will depend on the overall strategic value of the opportunity. These are often referred to as milestones for tracking market penetration levels (for example, the first milestone might be 6 months, then 8 months or 6 weeks from launch). Other measures might include time to market or speed to market. 7.10 59% of respondents gave examples of combining financial with non-financial measures of innovation (see Figure 7.1). Page 51
Page 1 and 2: Report for NESTA December 2007 Inno
Page 3 and 4: Contents Innovation in the UK Retai
Page 5 and 6: Innovation in the UK Retail Sector
Page 9 and 10: 2. The nature and contribution of r
Page 23 and 24: v. Retailers’ reverse innovation
Page 41 and 42: Vignette 5.3: Currys customer recyc
Page 43 and 44: 6. What are the barriers to retail
Page 47 and 48: 7. What are the measures of retail
Page 49: . Types of Measures Innovation in t
Page 65 and 66: . Promoting innovation in sustainab
Page 69 and 70: Conclusion/Next Steps: Innovation i
Page 73 and 74: Recommendation 4: Innovation in the
Page 77 and 78: Appendix 1 Research Methodology 350

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