Over the past decade, many packaged goods companies have been able to increase their earnings without substantially increasing their unit volumes. They have achieved this by raising prices, improving productivity, cutting product costs, and simplifying promotions. Meanwhile, most product development activity has focused on line extensions rather than on new products. Unfortunately, this approach is now failing to deliver the expected profits.

In the next few years, overall packaged food and beverage sales are expected to grow by less than 2 percent—and most of this growth is likely to come from non-traditional food service channels. With food and beverage expenditure virtually flat, competition among producers is sure to intensify. We believe that success will increasingly be determined by a player’s ability to expand sales through new product development and commercialization. To test this belief, we conducted a joint study with 13 packaged food and beverage companies to see how they go about developing and commercializing new products, and how their performance compares (see text panel).

Our research shows that most companies need to decide what role product development should play in achieving their overall business goals, and to set clear, output-oriented aspirations for product development and commercialization...