Saturday, July 27, 2013

Laundering the Pie

This is the sort of thing that results in angry customers. And it should.

"[Tide] Pod is killing the laundry detergent category," [James] Craigie, [chief executive of Church & Dwight Co.,] said at an industry conference in February.

New products ought to expand the revenue pie for manufacturers and retailers, not shrink it, he said. That is what innovation always did in the past, he said.
And just what are Tide Pod capsules doing to "kill" the laundry detergent category? They're eliminating customer overuse. Many people, it turns out, tend to use more laundry detergent when necessary when washing their clothes. And many industry players, Church & Dwight included, count on that overuse to drive profitability. But when Procter and Gamble's Tide Pods began to take off, other detergent makers felt that they needed to follow suit, entering the "unit dose" market, and sales (and profits) started to decline.
"Now, what kind of a new product is good when it's hurting the total category?" [Craigie] said.
Translation: Who do Procter and Gamble think they are, creating a product that doesn't help drive more profits for everyone else?

Now, businesses are in business to make money. I get that. After all, it's the point. But part of the point behind competitive markets is to drive efficiency, which benefits customers. It's one of the few ways in which the Adam Smith ideal of people benefiting others through looking out for their own interests is realized. Craigie, on the other hand, is calling for a certain level of what can be thought of as a sort of backdoor collusion, where a business's first loyalties are to the people who are supposed to be the competition - just not enough to get themselves into legal trouble.

Granted, Procter and Gamble aren't doing this out of the goodness of their capitalist hearts. Tide Pods cost about a nickel a load more than liquid Tide, a premium of about 25%. And they say that Tide Pods are drawing customers away from rival products. So it's not like they're hurting themselves to help out the customer. But, on the large scale, anyway, it does come across as a win-win for Procter and Gamble and their customers, at the expense of other industry players.

So score one for both Big Business and the Little Guy. And let's see if this inspires more companies to look for innovations that operate in this fashion. Granted, there will be obstacles - as Adam Lowry, co-founder of Method Products Inc., points out, a format that completely eliminated customer "overdosing" would lead to anger among shareholders. Of course, when new innovations help the bottom line at the expense of the competition, they don't mind so much...

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