How Effectuation Sparked Innovations in Market Research: The Founding of Procter & Gamble

Procter & Gamble has been a pioneer in the field of market research.  Their list of consumer innovations spans almost two centuries and numerous household and beauty products.  But before Procter & Gamble was a corporate name and logo, it was two last names. 

William Procter and James Gamble lived in Cincinnati, Ohio in the early 1800s.  They had a few things in common.  They were both immigrants.  They were both entrepreneurs.  Procter was a candle maker with a small distribution operation.  Gamble was a shop owner who sold soaps and candles.  And they both married someone with the last name of Norris – Olivia and Elizabeth Ann.  The women were sisters. 

Not long after they were married, their new father-in-law, Alexander Norris, recognized that they were both seeking the same raw materials for their enterprises.  Both soap and candle makers need fat and oil to make their products.  And Cincinnati, as a hub of the meatpacking industry, offered both of these in vast quantities.  Norris saw an opportunity for the two gentlemen to join forces and collaborate rather than compete, hoping this would improve the economic situation of both of his daughters.    

After some convincing, Procter & Gamble agreed to unite as one enterprise.  Collaborating rather than competing allowed the newly formed P&G to negotiate sourcing agreements with more strength.  They increased their volume while decreasing costs.  It also enabled them to pool their resources while decreasing their overhead expenses.  They now had additional savings to pour into the business. 

Procter & Gamble decided to reinvest these newly freed up funds in marketing and research.  The newspaper industry was growing and print advertising had begun to gain momentum.  P&G had the volume of products and cost structure to support growth now, so they tested some ads, which generated positive results.  They continued to experiment with this medium. 

They also deployed some of their excess capital into product research and innovation.  They submitted for patents on candle making molds and researched new and improved ways of making candles. 

As their sales footprint grew, they became meticulous about measuring sales data and analyzing customer trends.  Where were their customers coming from?  What items were selling / stagnant? 

Candles were selling very well for them.  But they could see another innovation would have a significant impact on their growth – the electric light bulb.  In the early to mid 1800s, many of the candles sold by Procter & Gamble were used to light homes and businesses.  As the electric light bulb grew in popularity, demand for candles fell.

Procter & Gamble needed to do something to combat this threat.  One step they took was to take their success in marketing and understanding customer buying habits for candles and apply them to soaps, which had not been selling quite as well. 

They poured research into improving upon their soap product and produced something so pure and effective that it floated.  “Ivory Soap” became the first branded product for P&G and its success opened the door for a breakthrough that would transform marketing and advertising into the industry it is today.

What are the Effectual lessons learned from P&G’s founding?

1.   Fighting competitors drains resources.  Partnering with them can expand resources.  It’s a great way to convert an obstacle into an asset. 

Consider reframing competitors as collaborators and see if you can identify areas of opportunity. 

2.  Your core business is just one of the assets available to you.  Just because it’s what your business is built on today doesn’t mean it’s what will bring you success tomorrow.  Procter & Gamble were able to look beyond soap and candles to their mindset of customer research and observation to identify an asset even more enduring than what they originally built their business on.

What possible assets does your organization have that currently goes unnoticed or underutilized? 

3.  Effectuation and Causation are not an either / or.  They can be used together.  The key is to identify when and how to use each way of thinking. 

Effectuation is best used during times of uncertainty.  When data is not available or the market is giving you mixed signals, try Effectuating. 

If you have validated assumptions and clear data, using causal thinking (such as business planning, forecasting, etc) is a valid approach for predicting future outcomes. 

Effectuation as the Foundation for Today’s Market Research Industry

When the light bulb started to gain prominence, Procter & Gamble were confronted with an unknown environment.  It was a new innovation and technology that was upending an established way of life.  They could have persisted with the data they had, and what they knew, and continued to push candles in new ways. 

But by being open to Effectuating, they discovered new assets and ways of operating that not only kept them from becoming obsolete, but which enabled them to create their own game changing innovations in the field of market research sciences. 

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC