William Sheppard, Minnetonka, Crème Soap on Tap and the story of the pumps
In this section, we illustrate the definition of a “Strategic Control Point” via an example. A “Strategic Control Point” is a part of a market where, if controlled by one party, can be used to leverage power throughout the supply chain. Examples might include patented intellectual property or controlling the supply of a critical input to the production of a product elsewhere in the supply chain. Perhaps the best – and most dramatic – example of a Strategic Control Point is that of Softsoap®, the liquid hand soap that we use to wash our hands with, and that is where we begin.
William Sheppard of New York was granted a patent of “Improved Liquid Soap” in 1865. His invention was a good one, one that had many practical uses, but like many inventions, it did not make its way into people’s homes until much later. In 1980, the Minnetonka Corporation started offering “Crème Soap on Tap” through boutique distributors. The product was a success, and the corporation decided to follow up with a similar product for mass retail sale.* One of the decisions made during the launch was to package the product in a distinctive looking pump bottle. The problem, however, for a relative small producer of consumer goods, is that retailing is intensely competitive with requirements to get on the shelves (“slotting allowance”) and performance guarantees (”failure fees”) once on the shelves, both tough barriers to overcome for a small manufacturer potentially faced with overwhelming competition were the giants such as P&G, Johnson and Johnson and Unilever to attempt to imitate its success. In short, the best Minnetonka could hope for was to be a huge success on the shelves, but this would invite swift and formidable, perhaps even insurmountable, competition. On the other hand, Minnetonka believed that if it had about a 6-month lead on potential competitors, it could build up enough of a brand presence and shelf space allocation that it would be able to maintain at least a one third market share even after the “big boys” entered. So, how does one gain a 6-month lead over potential entrants, that is, how can they forestall entry? The answer lies with the notion of Strategic Control Points.
In this instance, Minnetonka decided to buy up the world’s supply of plastic pumps! By doing this, if any of the major manufacturers wanted to enter the liquid soap market, they would have to wait until the supply builds up again or build their own factories to make the pumps. This process would take at least 6 -8 months, precisely the amount of time Minnetonka needed to build distribution, shelf allocation and a brand presence! In this instance, pump manufacturing was a classic Strategic Control Point – a part of the supply chain that, if controlled, enabled Softsoap® to gain a differential competitive advantage in the key part of the supply chain that they were after. Note that there may or may not be a potentially profitable business in pump manufacturing, but controlling that part of the process was a critical part of making the profitable part (Softsoap® at retail) happen. And, as they say, the rest is history.
* Dougherty, Philip H. (1980-02-05). “$6 Million to Back Minnetonka’s Softsoap”. The New York Times: pp. D15. Retrieved 3 October 2012.
© Content copyright Dr. William Putsis