For the exclusive use of A. Awad, 2017. 9-512-009 REV: APRIL 3, 2012 E L I E O F E K LAUREN BARLEY The Clorox Company: Leveraging Green for Growth We make everyday life better, every day. — The Clorox Company Mission Statement from its 2007 Centennial Strategy1 In late January 2011, Beth Springer headed into the executive committee strategy meeting at The Clorox Company (Clorox) in Oakland, California. Clorox manufactured and marketed premium, branded consumer products primarily in the U.S. through grocery stores and mass merchandisers. Springer, executive vice president international and natural personal care, and the other executive committee members would discuss Clorox’s annual and long-range plans. (See Exhibit 1 for executive committee members.) She knew tensions could run high as they debated whether to recommit to the existing strategy and tactics, offshoots of Clorox’s 2007 Centennial Strategy. Shortly after the arrival of Clorox chairman and CEO Don Knauss in 2006, the company crafted a strategic plan honoring the company’s 100th anniversary in 2013. The Centennial Strategy, as it was called, provided a roadmap for long-term, accelerated growth and defined the metrics to evaluate success. A key aspect was the company’s increased emphasis on major, global consumer trends (“megatrends”). Over the next few years, Clorox focused on two of the megatrends—health and wellness, and environmental sustainability—which led to products and go-to-market strategies that addressed consumers’ growing interest in what Clorox broadly termed “sustainability.” This, in turn, drove the successful repositioning of Brita (a water filtration system), the acquisition of Burt’s Bees (a natural personal care line), and the launch of Green Works (a natural cleaning product line). In August 2010, Clorox reported fiscal year 2010 sales of $5.5 billion and progress against its Centennial Strategy annual targets that mostly met or exceeded expectations despite the challenging business environment. (See Exhibits 2 and 3 for five-year financial summary and progress on the Centennial Strategy annual targets, respectively.) However, the financial outlook for 2011 was less favorable, and Clorox projected flat sales for its fiscal year ending June 30, 2011. Sales of Clorox’s brands—most with leading market shares—were soft amidst the prolonged economic downturn. As Springer settled into her chair, she wondered if Clorox should continue its strategy of investing heavily in sustainability. Although Brita, Burt’s Bees, and Green Works comprised only about 10% of Clorox revenues, they accounted for much of the company’s sales growth over the past several years. But the growth rates of Burt’s Bees and Green Works, in particular, had slowed considerably in the past year. Possible explanations included the weak economy and that the trends fueling their growth ________________________________________________________________________________________________________________ Professor Elie Ofek and Research Associate Lauren Barley prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by Ayah Awad in 563: Sustainability & CSR taught by MJ Kay, Montclair State University from June 2017 to December 2017. For the exclusive use of A. Awad, 2017. 512-009 The Clorox Company: Leveraging Green for Growth were simply fads that had run their course. It was also possible that the brands’ marketing mix was suboptimal and needed to be refined. Springer knew the company had to allocate resources over its entire brand portfolio, not just the three “sustainable” brands. Over the past year, Clorox had increased its consumer and trade spending to shore up sales of its primary brands, such as Clorox Bleach, Pine-Sol, and Formula 409, which were in mature categories. Most market shares in these categories were up, but it was unclear how long Clorox should continue its defensive spending and at what level. Growth rates in the sustainable brands had also picked up somewhat recently, and Springer wondered if Clorox should invest heavily in these brands going forward. If so, where would this funding come from? Springer was eager to participate in the upcoming discussion as the executive committee debated how best to position Clorox to achieve its centennial targets as the 100th anniversary grew ever nearer. Company Background Clorox was founded in 1913 as the Electro-Alkaline Co. It was reincorporated in 1922 as the Clorox Chemical Corp. and was acquired by Procter & Gamble Co. (P&G) in 1957. By 1969, P&G divested Clorox, and in the intervening years until 2011, Clorox grew to be a mid-size company in the household and personal care industry through acquisitions and strong capabilities in research and development (R&D), and marketing. Its portfolio of leading brands included its namesake Clorox Bleach; household cleaning products such as Pine-Sol, Formula 409, Soft Scrub, Tilex, and Green Works; Glad wraps, bags, and containers; Brita water filtrations systems; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; and Burt’s Bees natural personal care products. (See Exhibit 4 for brand portfolio.) Clorox’s competitors included industry behemoths P&G and Unilever with $78.9 billion and $58.7 billion in FY10 revenues, respectively. Don Knauss and the Centennial Strategy Knauss joined Clorox in September 2006 after a 12-year career with Coca-Cola, Co., most recently as its president of Coca-Cola North America. By May 2007, the company defined the Centennial Strategy, which focused on achieving double-digit annual growth in economic profit through its milestone anniversary in 2013.2 Under the strategy, Clorox would continue building the number one or number two share brands in mid-sized categories. It would also push for accelerated sales growth using various means, including: 1) extending existing brands to adjacent categories; 2) entering new sales channels with its existing brands; and 3) increasing penetration in countries where Clorox already did business.3 Driving “demand creation” and building “consumer loyalty” would fuel this “organic” growth. Clorox articulated a “3Ds” framework to achieve this: desire (pre-purchase communications to educate consumers how and why the Clorox brands met their needs); decide (in- store and at-the-shelf strategies to ensure consumers chose Clorox brands where most purchase decisions were made); and delight (continual innovation to secure customers’ loyalty and repeat purchases).4 In addition, Clorox would be more deliberate in identifying and acting upon existing, latent, and emerging consumer trends that could be important growth drivers for its business. Clorox identified four global consumer trends that could be incorporated into its product lines and go-to-market strategies: health and wellness, sustainability, convenience (changed to “affordability” in 2009), and a multicultural marketplace. Springer summarized: These global trends were not new. They were in the media; consultants like McKinsey were incorporating them into their presentations. As we renewed our corporate strategy to grow faster, we decided to be more externally focused and use these trends to anticipate changes 2 This document is authorized for use only by Ayah Awad in 563: Sustainability & CSR taught by MJ Kay, Montclair State University from June 2017 to December 2017. For the exclusive use of A. Awad, 2017. The Clorox Company: Leveraging Green for Growth 512-009 that were relevant to our consumers. Before, we tended to be more narrowly focused on filling gaps within our existing portfolio, and we thought our existing portfolio was sufficient. Riding the Tailwinds of Sustainability In late 2007, Springer’s group at the time—the strategy and growth office—fielded research with The Cambridge Group to understand the size and nature of the “sustainability” opportunity for Clorox. Springer explained, “We did the Cambridge research to get at emerging and latent demand around sustainability. Would more and more consumers change their habits and buy different products around sustainability? Our conclusion was yes.” According to the Cambridge research, consumers seeking sustainable product solutions were no longer a small niche; 15% of the population exhibited very strong demand for these products and another 33% had strong demand. Clorox’s syndicated research confirmed the Cambridge findings. One study found 15% to 30% of the population was comprised of consumers Clorox called “deep greens”—those who were interested in sustainability and acted on their interest. Another study, an online consumer survey of claimed purchased behavior, found that over one-third of consumers claimed to regularly buy green products in December 2007 versus only 12% in August 2006. The Cambridge research segmented consumers into six groups and ranked the most compelling benefits for each segment. Clorox chose the “emerging eco guardians” segment as its primary target for the company’s sustainability