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New Products and Brand Distribution Marketing Science Institute Working Paper Series 2020 Report No. 20-132 "Natural" New Products and Brand Distribution Mitchell C. Olsen, Frank Germann, Meike Eilert "Natural" New Products and Brand Distribution” © 2020 Mitchell C. Olsen, Frank Germann, Meike Eilert MSI working papers are distributed for the benefit of MSI corporate and academic members and the general public. Reports are not to be reproduced or published in any form or by any means, electronic or mechanical, without written permission. Marketing Science Institute Working Paper Series "Natural" New Products and Brand Distribution Mitchell C. Olsen* Mendoza College of Business University of Notre Dame Notre Dame, IN 46556 USA [email protected] Frank Germann Mendoza College of Business University of Notre Dame Notre Dame, IN 46556 USA [email protected] Meike Eilert Gatton College of Business and Economics University of Kentucky Lexington, KY 40506 USA mei224 @uky.edu July 31, 2020 *Corresponding Author The authors are thankful for the constructive comments and suggestions provided by Peter Ebbes, Shankar Ganesan, Rajdeep Grewal, John Sherry, Joel Urbany, and Rich Williams. They also thank Natalie Chisam, Jake Eberhart, Erin Jackson, Daniel Kilcullen, and Melanie Langan for their research support. The authors appreciate data from Information Resources Inc. All estimates and analyses in this paper based on Information Resources Inc. data are by the authors and not by Information Resources Inc. Marketing Science Institute Working Paper Series "Natural" New Products and Brand Distribution Research Summary Grocery retailers are investing in "natural" product offerings to compete for shoppers. At the same time, many brands' new product offerings claim to be "natural." Such new products appear to be congruent with retail customers' goals. However, the term "natural" is not regulated by any U.S. government agency. Uncertainty remains regarding what "natural" implies to the marketplace and the value it brings to interorganizational exchange between brands and their retail customers. We investigate these issues with a multimethod approach involving in-depth qualitative interviews with 30 managers possessing extensive category management experience, secondary data compiled from 628 brands' new product introductions across 18 consumer packaged goods categories over 11 years, and primary data from a survey-based experiment collected from 101 managers involved with category management. Results indicate the extent to which a brand is using retailer shelf space productively can determine whether the relationship between a brand's "natural" new product introductions and brand distribution is positive or negative. Category managers find the term "natural" is difficult to evaluate - especially in non-food categories. They navigate this uncertainty by turning to brands' "shelf space productivity" (i.e. the brand's category sales contribution relative to its share of in-store shelf space) as a critical decision-making heuristic. If a non-food brand is using its shelf space productively, it is in position to gain access to greater overall distribution by focusing on "natural" new products. However, if a non-food brand is underutilizing its shelf space, category managers perceive the brand's focus on "natural" new products as more opportunistic, which lowers their trust in the brand's use of the claim. This distrust ultimately results in a larger withdrawal of the brand's access to retailers' distribution resources than had the brand focused more on non-"natural" new products. These results suggest non-food brand managers should proceed with caution when considering whether their new products will focus on "natural" (vs. non-"natural") offerings. It may seem "natural" products can only help -- 0r at least not hurt-brand distribution. However, we find "natural" claims can be detrimental to distribution if the brand underutilizes its in-store shelf space. It is difficult for brands to escape downward performance spirals, and emphasizing "natural" claims seems to accelerate the descent for unproductive non-food brands. As part of our analyses, we also propose, validate, and use a novel and straightforward measure that category managers and brand managers will find useful for estimating brand shelf space and shelf space productivity. Keywords: Natural new products, natural claims, shelf space, productivity, brand distribution Olsen, Germann, and Eilert 12 Marketing Science Institute Working Paper Series Many consumers say they look for products specifically labeled "natural" while grocery shopping (Consumer Reports 2016; Schmansky 2019). Consumers expect natural offerings to be available wherever they shop, and grocery retailers of all formats consider "natural" products a necessary component of their strategy to compete effectively in the marketplace (Research and Markets 2017; Sweeney 2019). Evidence suggests "natural," "all natural," or "100% natural" (hereafter "natural") is a widely-encountered claim in supermarkets (e.g., Rock 2016; Rozin et al. 2004). For instance, prominent in-store signage touting the availability of "natural" product options is readily observed in mainstream grocers such as Publix and Kroger, as well as price- focused supercenters like Walmart. The "natural" claim, specifically, is unique among product claims given its widespread use across product categories (e.g., Levinovitz 2020). Grocery retailers' interest in "natural" products offers a seemingly promising opportunity for their brand partners to supply new products explicitly making the claim. Suppliers are dependent on distributors for access to scarce resources (e.g., Lusch and Brown 1996), and research suggests no retailer-supplied1 resource is more valuable to brands' overall performance than distribution (e.g., Hanssens, Parsons, and Schultz 2001; Srinivasan, Vanhuele, and Pauwels 2010; Wilbur and Farris 2014). Interorganizational exchange tends to increase when a supplier's efforts are congruent with the buying organization's goals (e.g., Wathne and Heide 2000). For brands looking to increase overall distribution, the decision to focus on "natural" (vs. non- "natural") new products2 therefore may offer an appealing opportunity to engage in a behavior congruent with a goal shared across retailers. However, despite its broad usage, the term "natural" is not regulated by any U.S. government agency, and uncertainty and skepticism remain regarding what "natural" implies to 1 We will often refer to supermarket or grocery retailers simply as "retailers" in the remainder of the manuscript. 2 We examine the degree to which a brand's new products are composed of " natural" products relative to the rest of the category. For instance , we measure ''Natural New Product Prevalence" in Study 2 as the proportion of"natural" new products launched by the focal brand relative to other brands in the category. Olsen, Germann, and Eilert 13 Marketing Science Institute Working Paper Series the marketplace (e.g., Dewey 2017). Retailers make their own evaluation of brands' use of the "natural" claim to avoid misleading their shoppers. Moreover, "natural" products still comprise only a minority of sales in most categories (IRI and SPINS 2020; Nielsen 2019), possibly discouraging retailers from increasing distribution to all brands touting natural product offerings. The aforementioned issues motivate our investigation into three research questions: 1) Does a brand's focus on "natural" (vs. non-"natural") new products relate positively to brand distribution? 2) Can focusing on "natural" (vs. non-"natural") new products relate to higher levels of distribution for some brands and lower levels of distribution for others? 3) Why may some brands' "natural" new product introductions result in lower overall distribution (i.e., what is the underlying mechanism)? We investigate these questions in three studies using a multimethod approach involving qualitative interviews , secondary data, and an experiment. In Study 1, we conduct in-depth qualitative interviews with 30 managers possessing extensive category management experience in the U.S. grocery industry to understand how category managers (i.e., the retail employees directly responsible for making brand-level distribution decisions) make distribution decisions and whether they view "natural" new products differently than those not marked "natural." Findings indicate "natural" new products are viewed as uniquely important to retailers and are associated with distinct evaluations and brand distribution outcomes. Category managers suggest the "natural" claim is more difficult to evaluate for new products in non-food categories than food categories. To aid decision-making, they consider the non-food brand's category sales contribution relative to its share of in-store shelf space (i.e., shelf space productivity). We examine the interviews through the lens of exchange theory to propose formal hypotheses, which we investigate in Study 2 by analyzing new product introductions from 628 brands across 18 categories in the U.S. grocery channel over an 11-year period. Results from Study 2 demonstrate that if a non-food brand uses retailers' shelf space resources productively, it is in position to gain more overall distribution by focusing on "natural" (vs. non-"natural") new Olsen, Germann, and Eilert 14 Marketing Science Institute Working Paper Series products. However, managers of unproductive non-food brands face a paradoxical challenge: By focusing on the kind of new products their retail
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