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Saturday, August 29, 2009

Is Tide Basic an Innovation?

by Hutch Carpenter

Adam Hartung, Managing Partner of Spark Partners, a strategy and transformation consultancy, asked this question on LinkedIn:

"Do you think "Tide Basic," a less-good formulation, is an innovation? Isn't innovation about making things better and cheaper, not just cheaper?"

The genesis of the question is a story in the Wall Street Journal describing why P&G recently rolled out Tide Basic. Tide Basic "lacks some of the cleaning capabilities of the iconic brand - and costs about 20% less." As the article notes, Tide's historic posture is to improve the laundry detergent continuously. It gets better every year. And the price does go up as well. The decision to go down-market didn't come easily.

Much of this is reminiscent of Clayton Christensen's analysis of the steel industry. In that story, low-cost mini mills ultimately led to the demise of the big, integrated steel mills.

Reflecting on that, here's how I answered Adam's question on LinkedIn:

"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."

How about you? What do you think?

Image Credit: Wall Street Journal

Hutch Carpenter is the Director of Marketing at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

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Blogger Vinay Dabholkar said...

Thanks, Hutch for this post. I think it helps to bring sanity to our definitions especially to overused terms like "innovation" by putting them to test.

I use a working definition of innovation - i-squared-p i.e. idea + implementation + profit. Let's see what happens if we apply this to "Tide Basic".

Is there an idea here? Yes
Has it been implemented? Yes
Has it resulted in profit? Don't know (too early)

So, it's a potential innovation.

Now, let's fast-forward 6 months and ask the same questions again. Let's assume Tide Basic is indeed a profitable product. Now the question is: how many of those buyers come from original Tide? i.e. did it cannibalize any other product of p&G? What is the net-net?

You can check some other examples where I have applied this definition at: http://cataligninnovation.blogspot.com/2009/02/applying-i-squared-p-definition-of.html

Is Tide Basic a radical innovation? I don't think so (or at least not yet).


3:00 AM  
Blogger militaryvet said...

The Net-Net gave me goosebumps from time spent with a CPG company. Anyway...

My thoughts are it is not really a true product innovation. It is a packaging and pricing innovation. The product will cost the same to produce, but it will get a new package. I wonder how much "less" it even has in terms of additives. The same product, sold for 20% less, with a new colored box.

P&G is testing it to see how bad it will cannabalize their products. It is a reaction to the powerful trend of trading down, which has many CPGs scrambling. I wonder too, if they are willing to give up some margin on a product that has been overpriced for some time.

6:12 PM  

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