The story of Tide is a lesson in surviving

disruption
When it comes to modern business, ensuring that your business delivers growth and
profitability today while still preparing for the future is much like juggling one too many balls.
Disruptive competition is an ever-present threat, but shareholders expect their dividends. The
development of the first synthetic detergent, at the expense of another beloved product, gives
an insight into how P&G juggled those balls. 

 -- By Howard Yu, lego Professor of Management and Innovation, and Program Director of
IMD's Online program LEAP.

Howard Yu: Professor of Strategic Management and Innovation, specializing in technological

innovation, strategic transformation and change management

Recognizing the threat

By the 1930s, P&G had perfected its manufacturing processes but remained a traditional soap
producer, employing the same ingredients and methods it had since the 1800s. However, there
were clear shortfalls in their soap products – they could not effectively clean in hard water and
left residues. It was a nuisance to their consumers and a constant worry for their company’s
engineers.

They began research on synthetic alternatives. But inside P&G, a convulsive worry over
research on synthetic detergents had historically been pervasive. Managers feared that the new
products might cannibalize their much-cherished Ivory soap.

 
Leaping into the unknown

Yet, Chairman William Cooper Procter, the last family manager of P&G, was a staunch
supporter of the work on synthetic detergents. In a memorable remark addressed to his staff,
he said, “This [synthetic detergent] may ruin the soap business. But if anybody is going to ruin
the soap business, it had better be Procter & Gamble.”
Management doubled down on its investment, and the technical center at Ivorydale effectively
became one of the first analytical labs in the field of consumer goods. A family firm whose
founders stirred cauldrons by hand had now become an enterprise built on three knowledge
foundations: mechanical engineering, consumer psychology, and organic chemistry. And it
was that combination—the totality of three knowledge disciplines—that had created
the unstoppable Tide.

 
Successful self-cannibalization

When the first boxes of P&G’s Tide detergent went on sale in 1946, it was the first synthetic
detergent that could deep-clean clothing—removing mud, grass, and mustard stains “without
making colors dull or dingy.”

The benefits of a synthetic detergent that makes “white clothes look whiter” were so apparent
that Tide outstripped all brands in the market and became the number one detergent in 1949. In
the wake of Tide’s entry to the market, P&G would “no longer be a soap company” but
“would become an industrial corporation with its future based on technology,” with the
number of technical staff tripling that of the pre-Tide year of 1945.

To an outside observer, one form of managerial behavior that was salient throughout the long
history of P&G was apparent: the willingness to embrace self-cannibalization.

Resistance to this counterintuitive strategy is natural. Managers often fear that a

company’s new products and services with lower profit margins may directly cut into the
sales of existing products.

Money should be invested in products that are clearly most profitable without lowering
overall profitability. But to reference a Steve Jobs almost cliché, “If you don’t cannibalize
yourself, someone else will.”

From P&G to Novartis, from Apple to Amazon, forward-looking incumbents recognize the
need to cannibalize their own products rather than leave them to copycat competitors  who
are more than happy to take on the challenge.

Cannibalisation
What is it?
Cannibalisation is the term used when one product or service competes with another within
the same company.
Cannibalisation will destroy value if the products or services compete directly head-to-head.
However, a limited degree of overlap can be a deliberate strategy – there is a well-used saying
“better to cannibalise yourself than let someone else do it”. P&G adopted the famous
“fighting brands” model in the 1930, with brands like Tide and Cheer. They have separate
brand positionings, but at the margin cannibalise each other. P&G accepts this small degree of
cannibalisation in order to minimize the space for competitors in the market and not put its
brand managers in too tight a strait-jacket.
When is it useful?
You need to consider cannibalisation whenever you launch a new product range
At a strategic level, it is often wise to ignore cannibalisation. If there is an economic hole in
the market, it will be filled, the only question is when and by whom. This become less true
when the products will compete for bottleneck internal resources – e.g. the time and attention
from the same salesforce.
When making a new product launch, cannibalisation can be minimised by:

 Targeting different segments of customers

 Have products with very different positioning and value proposition
 Using a different brand
 Using different routes to market

An Example?
When Apple launches a new iPhone, it cannibalises the old model even before it launches as
customer hold back purchases in expectation of the new launch.
How do you do the analysis?
Cannibalisation can be estimated in tactical decision-making, for example in evaluating
whether to a promotion in a specific retailer, you can estimate how much of the uplift in sales
will be cannibalised from:

 Other similar products in the range

  The same product that would have been bought in other retailers
 Future sales of that product in that retailer

The numbers will always work if the new product has higher margins than the old model. The
pushback will come when the new model is at lower margins. This is one of the reasons it is
much easier for a company to move upmarket than downmarket
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