There is a fascinating article in the Wall Street Journal about the shrinking laundry soap industry (h/t: Surajit Dutta, EMBA 2014). The significant decline is attributed to P&G’s new laundry product—Tide Pods capsules with fixed detergent quantities and hence prevent customers from over-pouring detergents. As a result, detergent manufacturers are upset with P&G about the sales decline and wonder whether the new product is worth it if it hurts the whole industry. Retailers are also not too thrilled because the margins on the Tide pods are lower than liquid laundry and hence success of Tide pods is equated with shrinking retailer revenues.
With Tide pods, it looks like P&G is changing the basis of competition. While everyone else is focused on the functionality, P&G Tide pods are about convenience to the customer. Hence Tide pods command premium prices. The efficacy of these high-end products is therefore drawing shares from other lower end products. Hence P&G is doing well financially at the expense of its competition and perhaps its retailers.
But this anecdote raises larger questions. What would have happened if the innovation was not created by P&G, the category leader? Is it is possible that instead of lamenting that innovation is killing the soap business, the soap business would have possibly killed the innovation? Customers would have been the losers in that scenario.
At a broader level, why is this even an issue? Why should P&G worry about how the rest of the industry is doing? As Herm Edwards said “we play to win the game.” P&G’s innovative strategies add value to the customers by being precise with detergent use and save money. Their strategies are likely to enable them to capture premiums from their customers and raise their brand equity which should benefit them in the long-run. What is wrong with an innovator capturing value (and market share) from the marketplace? More companies should follow the lead of P&G in being customer-centric. That would be a sure-fire way to succeed in the long-run.
Professor of Business Administration and
James F. Towey Faculty Fellow and
Executive MBA Academic Director