Moving Forward vs. Moving Backward - Pepsi vs. P&G

"Pepsi Launches Own Music Label in China" is the BusinessWeek headline. Clearly, the Pepsi staff has some new ideas.  Recently Pepsi's Chairperson, Ms. Nooyi, made a trip to China for 10 days.  Apparently frustrated, she commented to the Wall Street Journal in July that she didn't see enough Disruptive thinking on the part of her folks in China.  She indicated the market was robust, but it was different and would take a different approach.  It now sounds like her China leadership got the message.

In addition to launching a music label, Pepsi is producing a "Battle of the Bands" show in China.  It's almost like a reformatted page from the aggressive growth years of Starbucks.  Instead of just expanding into a new geography (China) with the same old playbook (like the floundering WalMart), Pepsi is figuring out how to be a big success.  And that may mean producing television, producing music and making people into stars.  China's culture is unlike anything in the U.S. or Europe.  So doing new and different things will be critical to success.  When you see a business developing its own scenarios about the future, taking actions its competitors (Coke) are too hide-bound to try, acting Disruptively to compete and using White Space projects to test new ideas you simply have to be excited!

On the other hand, "Tide Turns 'Basic" for P&G in Slump" is the Wall Street Journal headline about the latest "new" product at P&G.  Please remember, the departing P&G CEO was lauded for creating an innovative culture at P&G.  But it appears the legacy is a culture of sustaining innovations intended to do nothing more than Defend & Extend the old P&G brands.  Now slumping, P&G needs to identify market shifts more than ever, and create new solutions that help it move with market trends.  Instead, the company is rushing into reverse!  Management not only seem to be driving the bus looking in the rear-view mirror, but actually driving it that way as well!

Tide has been around a long time.  Ostensibly a very good product.  For reasons explained in the article, managers at P&G felt the best way to sell more product was to make it less good.  Really.  They removed some of the chemicals that help you get clothes clean, renamed it "Basic" and launched the product at a lower price.  It's not "new and improved."  It's not even "better."  It's literally less good - but cheaper.  Sort of like store brands, or private label - only maybe not as good?  Doesn't that sort of obviate the whole notion of branding? 

People don't ever like to go backward.  We like to grow.  To learn and get more out of life.  When we find a product that works, why would we want a product that works less well?  And the folks at P&G missed this.  Only by being insanely internally focused, terribly Locked-in, can you think this is a good idea.  Looking inside a person could say "well, we want to jam the shelves with more of our branded product.  We want to have the word 'Tide' smeared everywhere we can.  We think people so identify with 'Tide' that they'll take a worse product just to get the name brand.  We're willing to create a less good product thinking that we will get sales simply because it's cheaper than the stuff people really want to buy."  Seem a little mixed up to you?

When you want to grow you figure out new ways to Disrupt the marketplace.  You develop new solutions, new entry points, new connections with shifting market trends.  You figure out how to be the best at the right price.  You don't try to give people less, and tell them they are cheap.  And Pepsi clearly gets it.  They are willing to expand into music recording and TV production.  Stuff P&G did when it was really creative and innovative - after all, that's why we call daytime TV "soaps", because P&G produced them just to sell soap.  Now we see Pepsi applying that kind of scenario planning and competitive obsession, along with White Space, to develop new market approaches.  Unfortunately we can't say the same for P&G -- clearly stuck on trying to cram more stuff with the word "Tide" on it through distribution.

Comments

[Hutch Carpenter]

Conceptually, going simpler on something *could* be an innovation. Clayton Christensen's mini steel mills were the catalyst for disrupting the steel industry in the 1970s and 80s. The innovation was decoupling the low cost, simple steel from the integrated high end. It enabled quality customers wanted at much lower prices.

A lower cost, less featured Tide sounds similar, doesn't it? A difference here is that there's nothing new in the manufacturing process for Tide Basic. Remove the more expensive ingredients, change packaging, sell for less. Nothing wrong with that either. It addresses the needs of a segment of the market. I consider it smart business.

A key difference between Tide Basic and the mini steel mills is that the mini mills recast the economics of the industry. At the low-end initially, then upmarket as well. Tide Basic doesn't recast the economics of the industry. There's still a linear relationship between the ingredients put in the detergent, and the price and performance of the detergent. The mini mills caused a fundamental shift in the pricing of steel.

That was their innovation.

[Chris Broxon]

As a former member of the Tide Brand team, I am incensed! First, Tide had always been and should always be the laundry detergent standard. A "less good" formulation ruins that brand strategy; and, one's ability to trust Tide and Procter to provide the best in all its categories.

Moving past that and to your question. I concur 150% that innovation is only about making things better. Any change that is not an improvement is not innovation. I do not attach the the need for a thing to be "cheaper" to consider the change an innovation.

[Brian Silverman]

Companies often try, with some success in the short term, to inject energy into their businesses by slightly tweaking an existing product and reintroducing it under what the consumer may view as innovation. The reality is, true innovation can only come from the establishment of "blue oceans" - game changing offerings that have gone as yet unexplored. In mature markets where what already exists has passed into the world of commoditization, trying to play the balancing act of offering the same old mousetrap either cheaper or better will only bleed profits and leave no lasting impact on market value.

[Mike Kipp]

I distinguish between innovation and renovation. Renovations are sometimes dilutive but can also be big contributors. Innovation is genuinely "new" in any of three arenas: products/services, processes and business concepts. The Black and Decker snake light is not just another flashlight; activity based costing is not just 20-column ledger accounting on crack; and Kindle goes beyond "book with other features" as a new product with a "baked in" set of new go-to-market processes spearheading a totally new "Long Tail" business...a three base innovation hit.

[George Coulston]

Adam, great initial post to get this discussion started. I think it's important that we start out by definining what we mean by "innovation", because I don't see a common definition. Mind you, everyone has one that they think is right. I'll offer mine: "innovation is the process of delivering ever-increasing value to the customer". Innovation can take many forms under this definition, from incremental D&E to radical and disruptive. The utility of the term innovation, without any additional modifiers, is that it distinguishes things that are merely new (e.g. an invention) from things that are both new and bring added value. In the case of Tide, perhaps the customer values being given the opportunity to choose something that has only the features they need -- i.e. better/best offering/pricing strategy. In this way, Tide Basic is an innovation. The final arbiter will be the customer.

I agree, this would seem to be a very incremental innovation (vs radical), and certainly not as sexy and transformational as the Pepsi example, but incremental is not unimportant. The bulk of our economy grows through incremental innovation, with the occasional breakthrough thrown in to create a new profit stream, the latter of which is then often grown incrementally, and the game continues....

[SUDERSHAN BANERJEE]

I think we are debating issues like incremental vs radical innovation, major innovation vs breakthrough innovation etc, which is fine,but the key issue here for P&G is to protect market share in a mature market like US, where may be smart afforable purchase is the new mantra.

P&G has taken a risk by introducing Tide Basic,the threat of cannibalization is an issue but there are enough examples of brand extension at several price points being done by P&G and Unilever in emerging markets with very litle loss of Brand values.

[Val Skala Walker, former Tide ABM]

I was expecting Tide Basic because I know P&G is a follower of Clay Christensen's philosophy of how to create disruptive innovation. CC talks about how manufacturers who continually upgrade their product eventually have a product that is delivering too much performance, more than some consumers need, leaving a market gap at the lower-level for competitors like Private Label to sneak into and grab market share. Not every consumer has clothes so dirty and stained that they need the full power of Tide or Tide with Bleach (or they prefer to use additives like bleach, and thus don't need the detergent to be as powerful), and those consumers are perfectly happy to use a less powerful detergent. P&G looked at that and realized that if they wanted to grow, they needed to revisit the "value priced" segment of the market and consider competing there in addition to competing in the premium / super-premium segments. P&G already had Gain in the value-priced segment (having done away with brands like Dash years ago), but that brand is geared toward the "scent seeker" and thus still leaves a gap in the value-priced segment.

Personally, I would have preferred to see Tide stay away from the "Basic" proposition and instead have P&G use a different brand name in the value segment. But apparently Bounty Basic and Charmin Basic have done well enough that P&G felt safe doing this with Tide.

[David A. Hurwitz]

The move by P&G is most likely a result of their declining share in the laundry detergent category in the face of economic conditions that have driven consumers to the value categories when they used to buy the premium product. When P&G recognizes a threat to their share they tend to respond to that threat by either or both, promotions to boost sales of their premium product and creating a category price point product that competes directly with those brands or products (SKUs - stock keeping units) that are the competition. In the case currently, I suspect that they have had to take the latter route because they are not stemming the decline of top of the line TIDE with promotions and short term pricing. Share of shelf space and sales is more important than absolute maintenance of the total gross margin dollars. As for the innovation question, no this product is simply a pragmatic product line extension designed to fit a price point not previously fought for by P&G, and thus is not an innovation. If they had developed a lower cost premium product with equal performance at lower cost, that would be an innovation.

[Michel Chefalo]

To me, this is a brand extension, not an innovation. And this one looks a bit dicey. Tide has always been about premium products at a premium price point. Why dilute the brand in response to a business cycle?

The value of a brand is intrinsic in it's ability to deliver on it's brand promise. Tide's promise has always been the best laundry detergent available. All the products delivered under this brand should support this promise. This one clearly does not, leaving the consumer to wonder what exactly is Tide's brand promise.

P&G is trying to leverage the brand for incremental sales. Instead, I think they will cause real confusion for the customer. If Tide is not the best laundry detergent, period, than what is it?

I agree with the previous post - If P&G needed to exploit the value segment of the category, they should have done it with an alternative brand. Of course, the market will provide us the real answer here - let's revisit in a few months and see if the strategy was successful.