I don’t know if you have heard of TED but if you haven’t it is definitely worth visiting www.ted.com to discover the world of TED talks. The aim of TED is to spread Ideas. You may be wondering what has this got to do with spaghetti sauce helping your business but it will all make sense in a minute.
I recently watched a TED talk by the New York author Malcolm Gladwell about his personal hero Howard Moskowitz. Howard is an American market researcher and psycho physicist who transformed the food industry with his research in the 1980’s. Howard was originally employed by Pepsi, who were developing a new Diet Pepsi drink and they wanted Howard to investigate or research the amount of aspartame that they should use in each can of Diet Pepsi to create the perfect drink that would appeal to a mass market.
Howard conducted his research and compiled masses of data but the data did not make any sense. What Howard identified was that it was impossible to clearly identify the perfect amount of aspartame that was needed to make that one perfect drink. But from the data he soon realised that companies in the food industry such as Pepsi needed to start thinking about creating the perfect Diet Pepsi’s not the perfect Diet Pepsi! Again, this will make sense in a minute and now we get to the spaghetti sauce!
The Spaghetti Sauce
Campbell’s Soup made a range of spaghetti sauce called Prego which, in the 1980’s, was a struggling competitor of Ragu. They employed Howard to boost their sales of spaghetti sauce. Howard began his research and created 45 different variations of their sauce and he began taste testing with thousands of people. What Howard identified for Prego was that people who like spaghetti sauce can be clustered into three different groups: 1. People who like plain sauce, 2. People who like spicy sauce 3. People who like extra chunky sauce. What was incredible at the time was that not one spaghetti sauce company was producing an extra chunky spaghetti sauce. Taking advantage of this opportunity Prego launched an extra chunky sauce which immediately took over the spaghetti sauce market and generated $600 million in profits over the next 10 years. Now that is research that is worth while!
What We Learn From Howard & His Spaghetti Sauce
Howard and his market research taught the food industry a few valuable lessons and we can apply this to all businesses.
Lesson 1: Many companies assume that the best way to find out what people want is to ask them. What Howard found was that people cannot always explain what they want and especially if what they want doesn’t exist. The research data for Pepsi made no sense so Howard persisted until he identified a better system to research consumers’ needs. He applied this at Prego and identified a completely new thought process which transformed the food industry.
The founder of Ford Motor Company, Henry Ford once said “if I asked people what they wanted they would have said faster horses”. In my opinion, to be truly innovative in business you have to strike a balance between research and following your gut to create brand new products or services that potentially could change an industry, i.e the iPod, the iPhone etc, the Car, Chunky Spaghetti Sauce!
Lesson 2: Howard’s research identified what he called “Horizontal Segmentation”. Earlier in this article when Howard said that Pepsi needed to make the perfect Diet Pepsi’s not the perfect Diet Pepsi what he realised was that creating just one variation of a food product was the wrong way to approach things. He found that one universal product does not suit all tastes/needs and that there is no one perfect sauce, Diet Pepsi, or any product. People’s taste vary and some people will prefer a certain product to another. So in the case of the spaghetti sauce, there is not one perfect sauce but there are many perfect sauces that exist on a horizontal plain. Each sauce is perfect to the right person. Thanks to Howard, companies such as Ragu now offer 36 different variations of spaghetti sauce.
We should apply this to our own business. it is very rare that you can offer one product or service that will fit with the needs of every person. If you want to grow your business, consider what variations of your core product or service you could offer to new and existing customer to better satisfy their needs.
Lesson 3: When it comes to the food industry Howard identified that by pursuing universal principles approach to food you are doing your business a disservice. If you use the approach of horizontal segmentation and segment customers into clusters that prefer a certain type of product you can then offer those customers a product that would better suit their taste/needs thus increasing customer satisfaction and brand loyalty. The example of Prego introducing a new chunky sauce generated $600 million in profits in 10 years.
According to Forbes it costs five times as much to attract a new customer than it is to retain an existing customers. By offering variations of your core product or service, you can better meet the needs of your customers and not only will you grow your business but you can increase customer satisfaction and increase loyalty to your brand.
Below is the video of Malcolm Gladwell at TED Talks. Enjoy!
Featured image by Public Domain Pictures / Pixabay.com
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