Using Innovation Best Practices to Improve Margins in a Tough Economy

Aug 29, 2022 |Posted by Lillian Norton | Innovation

Innovation doesn’t always happen in big, flashy ways but rather small yet effective changes that move companies to the next level. As innovation consultants, it’s common to see some of the most impactful improvements stem from a company’s decision to slow down, take a closer look at what’s currently working (or not), and identify ways to save time, energy, and costs, while largely preserving high-level strategy.

Here are a few innovation best practices to boost margins even during the economy’s unpredictable ebbs and flows.

Zoom Out to Look at the Entire Portfolio

An important part of innovation best practices includes taking an unbiased, data-driven look at what products in your portfolio are actually performing well and which ones are not.

While it may sound like an easy undertaking, it requires a level of discipline to avoid making exceptions, such as keeping poor performers perceived as strategically necessary to keep specific customers happy. In reality, keeping these exceptions around creates the long tail of low-volume SKUs requiring similar resource investments as high-volume SKUs.

It’s common to continue adding new products and strategies without eliminating or updating the existing portfolio which could end up weighing down the entire system. Establishing an optimized portfolio is a continuous effort of assessing metrics and being tuned into current market demand to make profitable business decisions that are sustainable.

Zoom In to View Margins at a Product Level

In addition to looking at the portfolio as a whole, viewing margins at a product level and examining primary, secondary, and tertiary packaging is a way to uncover hidden costs. Part of an innovation consulting strategy may involve performing product teardowns to evaluate all components, ingredients, and packaging to decide what elements drive the most value for consumers.

Through this lens, we pressure test assumptions – revealing the gray areas around performance thresholds where the hidden costs tend to be. The key differentiator between our product and a competitive option could be as subtle as a few millimeters in packaging thickness. However, without the diligence to review products component by component, opportunities to improve margins are missed.

But… It’s Not Always About Cutting

As innovation consultants, we often see margin pressure that creates a knee-jerk cost-saving reaction. When margins get smaller and there’s less profit, what seems like the inevitable solution is to reduce the costs, though what often gets missed is the opportunity.

For example, you could look at a plastic PET bottle and say, we need to take out costs, which might lead you to lightweight that bottle. Removing plastic material could absolutely help with reducing costs, but another way to think about the bottle is to also ask: how can we drive more value with consumers using this bottle?

One way might be to change the material from virgin PET (non-recycled plastic) to 100% rPET (recycled plastic). While rPET material is more expensive than virgin PET, you are adding value in the eyes of the consumer when creating a more sustainable product – i.e. we’re not only using less material, but the material we are using is 100% recycled. This could drive incremental volume and profits depending on the pricing strategies and SKUs and can be a huge marketing win with meaningful messaging to engage with consumers.

Consumers are often willing to pay more and will loyally support brands that share their same core values. Sometimes the solution doesn’t always immediately drop to the bottom line. It’s about having enough foresight for what delivers consumer value and increases margins long-term.

Keep It Scrappy and Take Some Risks

For established companies in more advanced stages of growth, it can be easy to forget about the basics. Increased size doesn’t always mean you must increase spending to get results. When looking at market data, it’s all too easy to spend tens or hundreds of thousands of dollars on a survey with many respondents when gauging a smaller group of consumers can be just as beneficial. It’s all about managing risk and leaning into a reasonable amount of risk. There’s no need to prove without a reasonable doubt something is going to be successful in market. There is a lot to be gained in getting it out there to learn fast and adjust quickly.

For example, if you’ve got a range of different product flavors or variants you want to test to decide which ones to actually launch, you could contract out for an expensive study – or, you could do this in a more scrappy way. Find a suitable venue, maybe a food festival, local park, or somewhere your target consumer may frequent and give out samples and ask for their opinion as they taste and tally up the feedback yourself. You may have several hundred data points and verbatims from a not-so-controlled environment, but real life isn’t controlled either. It’s enough to get you a good read without a massive budget.

The key to getting buy-in to this approach is selling the idea of trading extra cost for acceptance of a minimal level of risk (and mitigating any risk where possible by attention to detail in the testing circumstances – paying attention to temperature or portion size, etc.). Articulate the additional risk of doing it the “conservative” way versus the scrappy way and lay out the incremental costs. You will find that listing out the pros and cons can actually favor the scrappy approach. It’s worth a shot and can pay out with meaningful savings while earning you some professional brand equity in thinking outside the box.

Stay in Startup Mode

Carve out a section of the company that maintains a startup mentality where people can succeed and fail fast with the confidence and funding of the main business. Though it may seem counterintuitive, tough economies are the perfect time to take more risks because the reward is so much greater; everybody else is going to be more hesitant to invest and play small.

Bigger companies tend to be less risk-averse, which means they miss out on trends and opportunities because it feels like too much to jump in and learn, whether successful or not.

It’s standard to focus on the bottom line and driving out costs, but if you allocate a specific area for innovation purely dedicated to delivering on consumer and customer value, it allows you to break through some of the hierarchical barriers much faster. Plus, it keeps individuals agile so they’re always looking to improve the process, products, and business.

To wrap things up, improving margins is not purely a cost-cutting exercise. If you apply innovation approaches and mindset to improving margins you may just find ways to dial up value to your customers and consumers while also improving business financials.

Our innovation consultants are here to inspire and help you build sustainable solutions. Contact OUTLAST today.

Picture of Lillian Norton

Lillian Norton

Lillian has more than a decade of experience in new product development, from initial concepts to market launches. She has a keen sense of getting at what really matters to consumers and capitalizing on points of differentiation to meaningfully impact the market. Her ability to see and develop a bigger strategic picture while also leading and executing at a very tactical level makes her a unique asset for any team looking to improve their processes and grow their business.


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