When businesses evaluate the launch of new products, they traditionally consider four factors: product, price, place, and promotion. Yet companies should add a fifth “P”: people—since the success of a new product often depends on the quality of the managers overseeing its rollout, say Harvard Business School assistant professors Tomomichi Amano and Jorge Tamayo.
We often have a blind spot when it comes to thinking about how much people matter in terms of what happens in stores.
“You spend so much effort developing innovations, but they only realize value if they actually reach consumers. A grocery store shelf is still one of the key places where that happens, which makes rollout critical,” Amano says. “From a marketing perspective, we’re so focused on systems, we often have a blind spot when it comes to thinking about how much people matter in terms of what happens in stores.”
As economic uncertainty continues to weigh on consumer spending, many companies are doing everything possible to avoid product rollout failures. The researchers hope their findings will steer companies to focus more on managerial quality to improve the success of product launches.
“We have a lot of information systems these days that work really well, and yet we still see that middle managers play an important role,” Tamayo says. “The worst thing you can do is be naïve about this.”
Amano and Tamayo cowrote the working paper, “New Product Diffusion Within Retailers: The Effect of Managerial Quality on Rollout,” which was released in February and updated in July.
When a strong manager arrives
To assess both individual store and product performance, Amano and Tamayo studied a large retailer in Colombia that operated more than 200 stores, tracking data on new product sales in 16 categories, including beer, chips, and yogurt, between 2017 and 2019. They found that store and product performance increased after high-quality managers arrived.
“There are a lot of factors that can determine the performance of a store, including location and weather,” Tamayo explains. “If, when a manager comes to a store, performance increases, that’s a good manager.”
Because retailers are often uncertain whether new products will be a hit with customers, a large chain usually won’t roll them out to all stores at once. Instead, it will start selling the products in a small number of stores and slowly expand to others if items do well.
“The key variable behind whether the product will continue to the next store is performance,” says Tamayo. “If you have good managers, we asked, does that increase the likelihood that a product will go to the next store? The answer is yes.”
The impact of better managers
In fact, compared to stores with lower-quality managers, high-quality managers helped new products succeed in several ways. For example:
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Within six months of a high-quality manager’s arrival, revenue per new product increased by nearly 20%.
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Products allocated to high-quality managers reached 31% more stores within 11 months.
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A new product allocated to higher-quality managers was nearly 11 percentage points more likely to survive and last longer on the market.
The difference high-quality managers can make is “massive,” says Amano. Better managers also increase overall store performance significantly:
Deftly handling inventory
What are these managers doing well? By analyzing the data, as well as conducting a survey of managers, the researchers determined that product pricing had little impact on sales. Some decisions, such as where to place a product on shelves, had somewhat more impact.
Retailers should invest in measuring manager quality, so they’ll be better able to assess which products are actually good.
The most significant effect, however, seemed to occur from the way managers handled inventory. Because of the uncertainty around sales of new products, it can be difficult to forecast how many to keep in stock; better managers, they found, were more adept at forecasting future sales and stocking inventory to ensure a steady supply of new products, allowing them to take off better.
“Manufacturers and retailers negotiate all the time over price and promotions, but our research suggests they should also be thinking about which managers are responsible for rolling out new products,” says Amano. “That’s another lever both sides could use to improve outcomes.”
Pushing and pulling new products
While studying the retailer, Tamayo discovered another tactic savvy managers used to improve new product sales: He witnessed managers at one store complaining that another nearby store was selling a new kind of beer that was doing well; they were determined to request the same beer from headquarters so they could also sell it.
Tamayo wondered if all managers were using the system in the same way to proactively request strong-selling products. Sure enough, when they looked at the data, they found that high-quality managers were reducing by 9% the typical “geographical friction”—that is, the hurdle preventing a product from being sold in a location near stores that were already selling it.
These managers carefully monitored leaderboards displaying product performance and leveraged their relationships with regional managers and headquarters to request new products. They were essentially “pulling” new products to their stores while also taking advantage of other new products that headquarters “pushed” to them.
Lessons for retailers
What should retailers take away from these findings? Amano and Tamayo make two recommendations:
Factor manager quality into product performance
Retailers typically determine the quality of a new product by its performance in sales, but it’s crucial that they take managerial quality into account when analyzing a product’s performance. “Retailers should invest in measuring manager quality, so they’ll be better able to assess which products are actually good,” Tamayo says. “It’s really about understanding that middle managers still have an important role to play.”
At the same time, factoring in manager quality is important for another reason, Amano adds: “Retailers and manufacturers are trying to infer whether a new product is good or bad based on early sales. But if those sales are being driven by a strong manager rather than the product itself, they can end up drawing the wrong conclusions. That’s a big risk.”
Ramp up formal training of all managers
While some qualities of a strong manager, such as cognitive abilities and communication skills, may be tough to teach, companies can train managers to develop better forecasting skills and track inventory more accurately to ensure a steady supply of new products are stocked on shelves to meet customer demand.
“You can’t just assume that managers are refreshing these abilities on their own,” Tamayo says. “There are a lot of things you can teach around these strategies inside the firm.”
Image: Ariana Cohen-Halberstam with asset from AdobeStock
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