In its early years, TruEarth’s product development was informal and largely driven by intuition. The team enjoyed experimenting with new products and “limited edition” variations on the core recipes, and the batch process used to manufacture most products made it easy to experiment without affecting overall production. The company fostered a freewheeling, entrepreneurial spirit, and despite occasional failures, management believed that regularly trying new products was a low- risk way to identify the next hits. Volume estimates were done “back of the envelope,” using a mix of high-level analysis and intuition. Not infrequently, TruEarth’s projections were significantly different from actual market performance. The company would underestimate the appeal of a hit product and find itself struggling to keep up with demand, or its estimates would be too optimistic and frustrated retailers would seek markdowns and high guaranteed sell-through performance to avoid excess inventory.1
As TruEarth grew, achieved scale, and began serving larger regional accounts, the cost of such missteps increased. In response, the company developed a more formal four-step process for research and development:
Idea generation. As the company grew, the idea generation process became a more systematic evaluation of consumer trends, with formal management brainstorming sessions.
Concept screening. TruEarth administered formal surveys that included an evaluation of interest, probable purchasing behaviors, and willingness to pay.
Product development and testing. The test kitchen and marketing department developed prototype products, which would then be tested through focus groups.
Quantification of volume. TruEarth worked with Nielsen BASES®, a market research firm, to estimate potential sales. A BASES I test gauged consumer awareness and interest. A more extensive BASES II test included a taste test and could also be used as a “line extension” study for any pre-existing product lines.
1 Retailers consider excess inventory “unsaleable” if it has been on the shelf too long and/or expired. To avoid costs of disposal, many force manufacturers to guarantee a certain percentage “sell-through” (i.e., product that sells to the final consumer). Excess inventory below this sell-through is subject to markdowns (e.g. 50% discount) where much of the cost may be borne by the manufacturer.