A recent Wall Street Journal headline stopped me in my tracks: “Is Innovation Killing the Soap Business?” When I put this story down, I was even more confounded. Could it really be that doing right by consumers was causing such consternation among laundry detergent manufacturers? Apparently so, but only because there seems to be a misunderstanding about innovation.
The complaint is that Procter & Gamble (P&G) changed consumer usage behavior for the worse with its innovative Tide Pods product. Each Pod is a so-called “unit dose” capsule, or a premeasured amount of detergent per load. By eliminating the need to pour, consumers don’t have the opportunity to pour too much or over-use detergent. The result is a lower volume of consumption and a decline in category dollar sales.
In other words, to put a sharper edge on this, the complaint voiced by competitors suggests that at least some part of the laundry detergent business model in years past has been based on consumers misusing the product, thus spending too much money. So instead of looking for innovative ways to help consumers save money, some manufacturers were sitting back, cashing in on consumer mistakes, and hoping to continue selling detergent indefinitely as a hush-hush game of gotcha.
The point of disruptive innovation is not to lift all boats but to reward the innovator who puts tired old business models out to pasture. As a result, the new solution may well shrink the category as demand shifts from old wasteful, over-priced products to new higher value products. This looks to be exactly what P&G has done, so it’s no surprise that the category is down.
In fact, P&G has done more than just knocked competitors back on their heels; it has redefined the category. Measured in the traditional way as defined by old product forms, the category is declining. But measured in the new way as defined by the form of Tide Pods, the category is growing like gangbusters. Aggregate totals depend on how the aggregate is defined, and Tide Pods have changed the definition of the category.
Admittedly, as noted in the Wall Street Journal story, past innovations in laundry detergent forms – going from powders to liquids to concentrates – did not result in category declines. But previous shifts in form are not dependable benchmarks. Only now is pre-measurement front and center, so an impact on category volume is almost to be expected.
Tide Pods are better understood as the iPad of laundry detergent. Just as the iPad is a new form of computer that has grown by creating a new computer category (or sub-category) at the expense of laptops, so too are Tide Pods the new form of laundry detergent that has grown by creating a new detergent category (or sub-category) at the expense of old forms of detergent. Competitors have been caught flat-footed, so their cantankerous refrain is no surprise.
But this chorus of complaint should not distract us from the essence of innovation. Market inefficiencies are the heart and soul of innovation. Innovation succeeds by fixing inefficiencies. Consumers get the benefit, which, in turn, benefits innovators.
To build a brand, marketers find innovations worth pursuing by focusing on inefficiencies of cost, time, convenience, space, energy, attention, availability, reusability and responsibility. When innovations are truly extraordinary, building a brand often means dismantling a category. The aggregate category impact is not the proper focus for innovation, nor is it the correct measure of success.
Disruptive innovation always re-channels demand from old products to new. Giving a boost to competitors or sustaining the rot in a category are irrelevant considerations. The point of innovation is not to benefit competitors at the expense of consumers but to benefit consumers at the expense of competitors.
From a brand marketing standpoint, the key is that inefficiencies lock up value. Fixing inefficiencies unlocks this value. That’s how innovation rewards innovators. (Indeed, this is an idea that transcends all business start-ups or fixes. For example, it’s the business model of private equity firms – they buy companies, fix inefficiencies to unlock value, and then get paid by keeping that value upon sale of those companies.)
In this case, the inefficiency is in usage. The fix is pre-measurement. The value is realized through consumer demand.
Tide Pods are not the first time P&G has rolled out an innovation to help consumers avoid wasteful usage and save money. Perforation was added to Bounce and Bounty sheets, for example, to make it easier for consumers to use these products in proper proportions. Many women were telling P&G that they were cutting Bounce sheets in half to get more out of a box, so the company responded.
Tide Pods cost more per load than liquids, so consumers are not getting this benefit for free. P&G’s business model balances the competing dynamics of usage volume and purchase price. What’s changed for competitors is the profitability of their business models, which is exactly what brand marketing innovation is all about. The impact that Tide Pods are having on the laundry detergent category is proof that innovation is working. The inefficiencies from which competitors profited in the past have now been fixed Tide Pods and the associated value is being captured by P&G. This is brand marketing at its best.