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HOME AS CORPORATE STRATEGY
With $300,000 in startup capital in 2003, Adam Lowry and Eric Ryan have caused small-scale “creative destruction” across a $17.3 billion industry by emphasizing the health, environmental, and emotional aspects of the most mundane of products: household cleaners. The differentiation? Lowry and Ryan assumed from the start that incorporating ecological and human health concerns into corporate strategy was simply good business. By 2006, the Method company was growing quickly and was profitable with 45 employees and annual revenues of more than $45 million.
Method described its mission as “People against dirty.” From the company Web site: “Dirty means the toxic chemicals that make up many household products, it means polluting our land with nonrecyclable materials, it means testing products on innocent animals…these things are dirty and we’re against that.”
Method shook up the monolithic and staid cleaning products markets by delivering high performance products that appealed to consumers from a price, design, health, and ecological perspective — simultaneously. From the original offering of a clear cleaning spray, Method’s product line expanded by 2007 to a 125-product line of home solutions including dishwashing liquids and hand and body soaps. The “aircare” line, an array of air fresheners housed in innovatively designed dispensers, extended the product offerings. All 125 products were made in alignment with Method’s strategy. They had to be biodegradable, contain no propellants, aerosols, phosphates, or chlorine bleach, and had to be packaged in minimal and recyclable materials. Method used its product formulation, eye-catching design, and a lean outsourcing network of 50 suppliers to remain nimble and quick-to-market while building significant brand loyalty. Headquartered in San Francisco, Method sold its products through several national regional groceries, but one of the company’s key relationships was with Target, the nation’s number-two discount chain in 2007. Through Target’s 1,400 stores in 47 states, Method reached consumers across the United States.
An Industry of Giants
The U.S. market for soaps and cleaning products did not seem a likely industry for innovation and environmental consciousness. The industry was dominated by corporate giants, many of which were integral to its founding. Although the soap and cleaning product industry was fragmented around the edges, with a typical supermarket stocking up to 40 brands, market share was dominated by companies such as SC Johnson, Procter & Gamble, Unilever, and Colgate-Palmolive.
To put Method’s position in perspective, its total annual sales were approximately 10% of Procter & Gamble’s sales in dish detergent alone ($317.6 million) (2006). P&G’s total annual sales in the category were more than $1 billion. Furthermore, the market for cleaning products was under steady cost pressure from private label brands, increasing raw materials prices, and consumers’ view of these products as commodities. Those companies that reported positive numbers in the segment between 2000 and 2006 did so by cutting costs and consolidating operations. Startups such as 7th Generation and others attempted to penetrate the mass market with “natural” products, but those products were largely relegated to health food stores and chains such as Whole Foods. For Method to have obtained any foothold in this heavily consolidated segment dominated by market giants seemed improbable at best. But for Method founders Lowry and Ryan, the massive scale and cost focus of their competitors offered an opportunity.
The Method to their Madness
“You have all your domestic experiences in that house or wherever you live,” Lowry explained.
And so from the furniture you buy to your kitchenware, you put a lot of thought and emotion into what you put in that space. Yet the commodity products that you use to maintain this very important space tend to be uninteresting, ugly, and toxic — and you hide them away. Why did that have to be?
Lowry and Ryan decided to take the opposite approach; if they could create products that were harmless to humans and the natural environment and were attractively designed with interesting colors and aromas, they could disrupt an industry populated with dinosaurs. By differentiating themselves from the competition in a significant and meaningful way, Lowry and Ryan hoped to offer an attractive alternative that also had a positive environmental impact. “It’s green clean for the mainstream,” says Lowry, “which wouldn’t happen if it wasn’t cool.”
To make green cool, Method took a two-pronged approach. First, they formulated new product mixtures that performed as well as leading brands while minimizing environmental and health impacts. Cleaning product manufacturers had been the target of environmental complaints since the 1950s, when the federal government enacted the Federal Water Pollution Control Act, in part to address the foaming of streams due to the use of surfactants, chemicals used in soaps and detergents to increase cleaning power. In addition to surfactants, household cleaners often contained phosphates, chemicals used as water softeners, which also acted as a plant nutrient providing an abundant food source for algae. Fast-growing algae resulted in algal blooms, which depleted oxygen levels and starved aquatic life. Water sources contaminated with phosphates were also toxic for animals to drink. Another environmentally problematic compound in cleaning products was chlorine bleach, which when released into the environment, could react with other substances to create toxic compounds. According to the Method Web site:
A major problem with most household cleaners is that they biodegrade slowly, leading to an accumulation of toxins in the environment. The higher the concentration of toxins, the more dangerous they are to humans, animals, and plant life. The key is to create products that biodegrade into their natural components quickly and safely.
With a degree in chemical engineering from Stanford, and experience researching “green” plastics and at a climate-change think tank, Lowry saw these issues as opportunities.
Method counted on the competition’s seeing environmental and health issues as “problems.” Doing so allowed Method to seize competitive advantage through designing out human health threats and ecological impacts from the start, while their larger competitors struggled to deal with increasing legislative and public image pressures. Method products sold at a slight premium to compensate for the extra effort. “I knew as a chemical engineer that there was no reason we couldn’t design products that were nontoxic and used natural ingredients,” Lowry says. “It would be more expensive to do it that way. But that was okay as long as we created a brand that had a ‘premiumness’ about it, where our margins would support our extra investments in product development and high-quality ingredients.”
The second prong of Method’s attack on the entrenched cleaning products industry was to utilize design and brand to appeal to consumers tired of the same old products. In an industry rife with destructive price competition, Method realized it would have to be different. The founders believed that their competition was so focused on price that “they weren’t able to invest in fragrance or interesting packaging or design,” Lowry explained:
Our idea was to turn that reality on its head and come up with products that absolutely could connect with the emotion of the home. We wanted to make these products more like “home accessories.” We believed there was an opportunity to really reinvent, and in the end, change the competitive landscape.
By focusing their marketing and packaging as the solution “against dirty,” they tapped into consumers’ disquiet with the ingredients in their household cleaners. Through packaging that stood out from the rest, they created the opportunity to deliver the environmental and health message of the products ingredients.
Design of packaging to deliver that message was integral to Method’s success from their first sale. Their home-brewed cleaning formulas for kitchen, shower, bath, and glass surfaces were all originally packaged in clear bottles that stood out on a shelf. “The manager of the store just liked the way the packaging looked,” said David Bennett, the co-owner of Mollie Stones, a San Francisco Bay–area grocer that was Method’s first retail customer. “It looked like an upscale product that would meet our consumer demands, so we went with it.”
Design continued to be a key element of Method’s appeal, with the recruiting of Karim Rashid, a renowned industrial designer who had worked with Prada and Armani. Rashid was responsible for bringing a heightened sense of style to Method’s packaging, while continuing to focus on environmental impact. This has led to the use of easily recycled number-one and number-two plastics (the types of plastic most commonly accepted by municipal recycling centers). Method’s approach seemed to represent a younger generation’s more holistic mental model. This small firm gives us a window into a future where health, environmental, and what are increasingly called “sustainability issues” will be assumed in the strategy of firms and design of products.