Strategic Deterrence: P&G, Clorox, and the Bleach Category

Source: Fortune.com

This month, we have read and heard a great deal about strategic deterrence at the geopolitical level.  The news spurred me to think about how I teach in our business strategy course about deterrence with regard to incumbents and potential entrants in a particular industry.  I often tell students the story of Proctor and Gamble's attempted entry into the bleach market in the 1980s.  Clorox, of course, was the massively successful and entrenched incumbent in the category (as they still are today).  Former P&G CEO A.G. Lafley recounted the story of P&G's failed entry into that market in a Harvard Business Review interview in April 2011.  The article was titled, "I Think of My Failures as a Gift."  Here's an excerpt from Lafley's remarks: 

In the 1980s P&G tried to get into the bleach business. We had a differentiated and superior product—a color-safe low-temperature bleach. We created a brand called Vibrant. We went to test-market in Portland, Maine.   

We thought the test market was so far from Oakland, California, where Clorox was headquartered, that maybe we could fly under the radar there. So we went in with what we thought was a winning launch plan: full retail distribution, heavy sampling and couponing, and major TV advertising. All designed to drive high consumer awareness and trial of a new bleach brand and a better bleach product.

Do you know what Clorox did? They gave every household in Portland, Maine, a free gallon of Clorox bleach—delivered to the front door. Game, set, match to Clorox. We’d already bought all the advertising. We’d spent most of the launch money on sampling and couponing. And nobody in Portland, Maine, was going to need bleach for several months. I think they even gave consumers a $1 off coupon for the next gallon. They basically sent us a message that said, “Don’t ever think about entering the bleach category.”

I use this story as an example of how an incumbent can send a very strong signal to a potential entrant, in hopes of deterring that firm from entering the market.  The signal essentially states loudly and clearly that the incumbent will fight aggressively if the other firm enters the market, rather than accommodating that entry.   Incumbents would like to issue this type of credible threat if they can, because any signal that they will pursue accommodation makes it more likely that the challenger will enter their market.  The key is to make the threat of a fight highly credible.  Putting a free gallon of bleach on every doorstep is a classic example of a clear and credible threat. 

Interestingy, Lafley notes that he learned a valuable lesson from this failure.  He explains, "When Clorox tried to enter the laundry detergent business a few years later, we sent them a similarly clear and direct message—and they ultimately withdrew their entry."