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Method Products, Inc.

a leading developer and designer of home care products

Case Study

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Method Products, Inc. University of California [2]

Case Study, May 2006 Haas School of Business

About This Case

The Haas executive committee for the 2006 Global Social Venture Competition (GSVC)

wished to create an innovative educational avenue for participants and others involved or

interested in future Competitions. To this end, the idea of a GSVC case study was born. It was

contemplated that a case study highlighting a successful social venture could help educate GSVC

participants about solid business fundamentals, provide ideas for how to think about business

planning, and indicate (to participants) the desired degree of relative focus on economic and

social value creation. Further, a case study could be used within a social entrepreneurship and/or

CSR curriculum at the undergraduate or MBA level within a business-school course of study.

Finally, a thoughtful initial case could provide the foundation for a macro-level write-up to be

used in a broader course such as Start-Up Marketing or Small Business Strategy.The following case highlighting Method Products is meant to be a helpful tool for anyone

interested in or associated with social entrepreneurship or GSVC at Haas and other business

schools. The content of the case serves to facilitate understanding and stimulate discussion not

just of doing well by doing good, but also of how an idea moves from concept to product to

customer through the execution of solid business fundamentals in a competitive marketplace.

Any comments or questions on the case study should be directed to Jamie Dean

([email protected]

), Jesse Purewal ([email protected]

), or Tamara Williamson
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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Method Products, Inc.

The buzz in the downtown San Francisco office of Method Products, Inc. was palatable. It was a

Monday in early May, and a long, rainy winter had given way to a beautiful and sunny spring

morning. The optimism of the Bay Area climate was reflected that morning in the demeanor of

Adam Lowry, Methods co-founder and Vice President of Product Development. Lowry and his

team were excitedly preparing to roll out the newest of Method Products line of home care

products, and could sense that the companys approach to the nearly-finalized designs of both

softening dryer sheets and disposable mopping technologies were going to have a significant

impact on the market. Were continuing to blend good design and function, remarked Lowry,

and we think its really going to be disruptive to these categories.

History

After attending high school together in suburban Detroit, Eric Ryan and Adam Lowry went their

separate ways. Ryan focused his post-graduate experiences on advertising and branding as a

member of Falloon and other agencies, serving clients such as Saturn, Gap and Colgate. Lowry,

a chemical engineer, worked with a green plastics company in Michigan to develop biodegradable

trash bags and paint that bonded to plastic. The two reunited as roommates in San Francisco in

the late 1990s, and during the course of a road trip in 1999, realized that their common ambitions

d b k d d b d b

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I knew as a chemical engineer that there was no reason we couldnt design products thatwere non-toxic and used natural ingredients. It would be more expensive to do it thatway. 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 andhigh quality ingredients.

The company set out to develop at least one product for every room in the home. Its first line of

products was a set of five spray cleaners (see Exhibit 1) designed by California photographer and

designer Michael Rutchik. The company made its first sale to a Mollie Stones store (a Bay Area

chain of upscale grocery stores) in Burlingame, California in February 2001. Surprised by the

volume of the retailers first order, the co-founders acted fast to get the products on shelves.

We wiped down half-used bottles, topped them off, and drove to the store, said Lowry.

Methods success at Mollie Stones allowed it to bring 20 additional stores on board in 2001,

which in turn gave the company an audience with national retailers.

In order to gain management expertise, private sector savvy, and brand start-up experience, the

company in 2001 hired as its CEO Alastair Dorward, an ex-Bain consultant who had launched a

soup brand in the U.S. several years prior.

Methods first win outside the Bay Area came with an agreement by Albertsons to stock the

companys products, and Method soon expanded to Safeway, Wegmans, and Ralphs. To control

its costs as it achieved national scale, the company contracted with local manufacturers and

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Methods Strategy

The company targeted sales of its products to the progressive domestic, a younger,

professionally-employed, female-skewed customer. This customer tends to view home as a

refuge, thus spending short periods of time cleaning different surfaces in the home on several

days during the week as needed. Method labeled this approach Hip Not Hippie, in order to

differentiate between the companys target market and the historically traditional customer whowas believed to engage in bi-monthly house-wide cleaning efforts.

Based on the notion of the home as a refuge, Ryan and Lowry believed that their customers

could be excited about the prospect of cleaning their homes. They further believed that it was

the onus of the product and brand to help create this excitement. As Ryan put it:

The category talks about cleaning as a chore. But there are a lot of people out there forwhom cleaning is an enjoyable act. I thought: What if Nike talked about jogging as achore, something you needed to get done with as quickly as possible?

Because the development of safer and more environmentally friendly products would take a good

deal of investment, the company knew it was taking a risk. To help mitigate this risk, Method

elected to price at a 15-20% premium relative to competitors. This premium reflected the

companys comparatively higher input costs and per-unit distribution charges.

The founders believed that Method would be successful if it could harness the operational

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Method believed that its true competitive advantage lie in its design and branding. Havingadopted the mantra People Against Dirty, the company pushed to link sustainable production

with attractive and functional packaging. Believing that it had the required expertise in-house to

execute on the former, Method called upon renowned designer Karim Rashid. We sent him an

email and said, Heres a great opportunity to reinvent this iconic shape that sits on every sink

across America, recalls Ryan. Rashid designed a 25-ounce bottle (see Exhibit 4 ) that the

Method team used to win the 2002 trial at Target, which was the first retailer outside the drug

and grocery channels to provide Method with placement. Consumers association with Rashid as

the purveyor of design to the masses1 and Rashids experience in designing other products on

Targets shelves were cited as reasons for the success associated with his involvement.

Sustainable Practices

According to Method, its commitment to sustainability is a notable, differentiating component of

the companys strategy. Ryan and Lowry recognized early on that they would only be able to

reach a small niche group of customers if they espoused only the products environmentally

beneficial qualities. By focusing on product design and quality to reach out to a broader customer

base (with sustainability in the background), Methods products can reach a larger audience.

Method has chosen to adopt the definition of sustainability set forth by the UNs Commission on

Sustainable Development:

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4) Close the loop

using biodegradable packaging,5) Inform and educate participating in a lecture circuit,

6) Redefine commerce developing laundry detergent 3 times as strong as others.

Method also recognized that its customers are a diverse group that will react differently to

marketing and available information. The company therefore developed a framework for talking

about its green activities to four different consumer groups that it has defined. This framework

aims to inspire believers through communicating a vision for sustainability, speak to skeptics by

conveying the value of pursuing a triple bottom line, educate information seekers about the

importance of being green, and inform the mass consumerwith its basic advertising campaign,

People Against Dirty.

Competitors

Broadly speaking, Methods competitors can be divided into three categories; traditional CPG

companies, environmentally friendly cleaning-supply companies, and niche companies with some

similar product offerings.

The traditional cleaning brands that historically offered largely undifferentiated products are

Methods most obvious competitors. These include P&G, Clorox, Colgate-Palmolive, SC

Johnson, American Home, and others that make few, if any, claims about environmental

t d hi M t f th tit d t ff i ifi t b f d t th t bl d

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Marketing

In order to communicate to progressive domestics, Method generally stayed clear of traditional

means of advertising, believing that 30-second television commercials and single-page magazine

advertisements would dilute brand value. Instead, the company has attempted to create an

experience around its product through strategic advertising placements, a pop-up store concept,

an informational website, and informational booklets placed in lifestyle magazines.

Print. Method has been sought by and featured in a diversity of niche print publications including

Food and Wine, In Style, the Los Angeles Times, the New York Times, Business 2.0, and Forbes.com.

Though these spots rarely expound upon the chemical details of Methods products, they do

highlight the brands ability to disrupt a category historically dominated by large, established

players with an extremely large minimum efficient scale. Method initiated contact with manypublications early in the companys life by sending targeted press releases, and fielded proactive

interest from others after placing product in an episode of NBC Televisions now-defunct

situation comedy Friends.

Pop-up Shop. In August of 2004, Method opened a temporary retail space in the high-fashion

Union Square shopping district of San Francisco. This pop-up shop served to introducecustomers to the product and brand in a setting otherwise unlikely to be sought for the purchase

of home care products. Said Ryan:

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Booklets. In 2004 and 2005, Method placed an informational 20-page booklet in magazines suchas Real Simple, Organic Style, and Lucky. The booklet explained Methods approach to doing

business and offered a starter kit for sale. Although the content is not necessarily revolutionary,

the idea of engaging a customer around a cleaning-supply company was. According to Ryan,

Everyone told us we were crazy to dedicate a 20-page book to the subject of cleaning. This

advertising campaign cost $2 million, a sizable investment for the company, but according to

Method, the move precipitated an immediate increase in sales of 10 15%.

Method believed that its methods of advertising were paying off. According to the company, in

2005, 45% of all customer communication fell into the compliment category, compared with

just 15% being considered complaints. Furthermore, many individual blogs and formal review

systems on retail websites such as Amazon.com rated the company highly for value for the

money, cleaning power, and enjoyable brand. In general, customers commented that

Methods products required the use of a bit more physical effort (elbow grease) than those

distributed by larger manufacturers, but that the aesthetics and non-toxicity of the product made

this tradeoff worthwhile.

Some customers, mostly younger buyers and students, commented that they could not afford to

buy the product in the face of a limited budget, but some of these potential buyers termed

Method an aspirational brand. Another phenomenon was the tendency of buyers to associate

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Looking Ahead

In 2005, Lowry said that Method had crafted a master brand in home care. Though the

companys success to date was undeniable, a number of challenges awaited Ryan, Lowry and the

rest of the team as they looked ahead. Among the questions that were being considered:

How will companies like Clorox, American Home and P&G respond in the longer-term, iftheir margins or market share are truly threatened by Method? What challenges and

opportunities would a reaction provoke?

How should Method react to imitators? Can the company adapt its approach to fit the needs and demands of large retailers in the

U.S. and beyond? Will it want to?

What will Method need to do in order to secure the best talent in product development,consumer marketing, and other functions? Will it recruit individual contributors from larger

CPG companies who want to move to a more entrepreneurial space, or will it focus on hiring

people with small-company experience?

What distribution channels remained untapped? How should they be opened? Can Method use its sustainability efforts to garner further price advantages? If so, how, and

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Exhibit 1: Method's First Spray Cleaners

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Method is a Hybrid: Operational Capabilities of a Mass Company + Creativityof a Premium Brand

Ability to service major

customers but cannot offer

differentiation

Ability to create unique & premium

brand experiences but do not scale at

the mass level

BEST OF BOTH WORLDS

Our company is a unique hybrid in its ability to service major customers and deliver on-trend

products & brands.

Skills:

- Mass marketing

- Innovation

- Scalability

- Operational depth

Limitations:

- Prime focus: Wal-Mart & Kroger

- Lack creativity

- Slow to stay on-trend

Skills:

- Creativity

- On-trend

- Design talent

- Speed & agility

Limitations:

- Dont scale

- Weak balance sheet

- Entrepreneur quirkiness

- Unable to invest

in custom tools

Exhibit 2: Method's Essential Differentiation

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Exhibit 3: The Orchestral Model of Product Development

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Like this one

Exhibit 4: Rashid's 25-oz Bottle Design

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Our Vision

V I S I O N

To be the first company in the home care industryto become fully sustainable in all its facets:

product, processes, people, & profits

And in so doing, becoming restorative through our

products and our power of influence

O U R M I S S I O N

Method will become the global leader in home care and personal care throughits commitment to its customers, people, product, and processes.

Method believes that environmental responsibility and economic viability are notopposing forces, but one in the same. We seek to reconcile trade offs

between what is environmentally sound and what is economically

advantageous using thoughtful and intelligent design as our tool.

We will create Economic, Social, and Environmental benefit by focusing on the

products we make and the processes we use. Well lead by example and

validate by results, including profits, and be restorative through our power of

influence. Well create an organization where people are afforded respect &

dignity, and the opportunity to learn and develop

Our Vision for Sustainability

Exhibit 5: Method's Vision for Sustainability

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