The stories many of us like best are where the underdog triumphs. Where David kills Goliath. Where the little guy wins. Here’s such a story.
Wilson Harrell was an American entrepreneur with a highly effective domestic cleaning product, Formula 409, and had got it to a point where he had approximately 5% share of the market. He was confident in his product, knew that customers liked it and felt sure that he could continue to grow.
Then the type of bombshell which, you would think, any entrepreneurial outfit must dread: the behemoth producer of consumer goods, Procter and Gamble, started test marketing their own competing product. Regardless of whether P & G’s new product might be better than Formula 409, Harrell knew this was a grave threat to his business. With P & G’s gigantic marketing budgets and expansive distribution networks, the only thing he knew for sure was that he had to do something.
Harrell knew two things which would prove critical. Firstly he knew his customers. He knew what they liked about his product, how they used it and how frequently they purchased it. Secondly he knew how an organisation like P & G would behave and that they would make their decisions with a primary focus on their internal targets, processes and requirements. It was from these insights that Harrell developed a two staged strategy.
Formula 409 discovered that P & G were planning to test their product, Cinch, in Denver. Harrell knew that, like any big organisation, P & G would see how their product performed in this test to then decide how to formulate their national launch strategy, project sales volumes, apportion advertising spend and forecast how quickly they could anticipate their return.
But how could Harrell hope to compete on a nationwide basis? Realistically, he simply did not have the resources and pockets to put Formula 409 up against P & G all over the US. If Cinch rolled out nationally, prospects for Formula 409 were bleak. Surely his only option was to leverage his knowledge of his customers, take the gloves off and go into battle in Denver in the hope that he could beat Cinch and hence dissuade P & G from going national? No. Instead Harrell stopped all advertising of his product in the Denver area. He discouraged reorders from his customers. He let Cinch win and P & G rolled it out nationally.
At this point, Harrell implemented the second, genius, stage of his strategy. Along with a half gallon size of Formula 409, he bundled a second smaller sixteen ounce bottle, priced it at a huge discount and sold it to whoever he could. He knew that his customers liked his product, would find his promotion attractive and would buy it. What he also knew from his prior experience of selling Formula 409 was that when they bought it, they would not need any cleaning liquid for at least the following 6 months. They would be out of the market and would not bother to look at Cinch. Thus, Cinch’s potential audience became much smaller than P & G expected and they were not able to hit the aggressive national sales targets they had projected from the Denver test. This, in turn, meant they did not make the returns they had forecast. Which, in turn, meant that Cinch was withdrawn from the market within 12 months.
Which meant the little guy won.
Posted by Ajai Ranawat
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