Tetra Pak goes to amazing lengths to study the wants of consumers and to test and demonstrate the appeal of its innovative solutions. The company maintains twelve research and development centers in locations around the world, as well as a Consumer Concepts Lab, based in Modena, Italy, where cross-functional teams that include industrial designers, psychologists, graphic artists, and engineers study real-world customer behaviors around packaging. For example, ethnographers employed by Tetra Pak visit grocery stores armed with clipboards and video cameras to record the reactions of consumers to the appearance, shape, size, and style of food packages as well as their ultimate purchase decisions.
Marketing director Chris Kenneally describes the mission of Tetra Pak’s R&D team in classic hassle-fixing terms: “A new product solution requires many concepts to be evaluated before the best one is found. The team’s work starts with compiling an inventory of consumer needs, comparing them to the current product portfolio and identifying any gaps.” Based on this research, the designers create a multitude of new product prototypes—9,436 in 2008 alone—which are then winnowed through testing to a collection of workable concepts (626 in 2008) and then, finally, reduced to a small set of products to be launched (a total of nine).
The story of Tetra Recart is a particularly vivid example of how Tetra Pak uses direct consumer contact to enrich its demand creation skills. Introduced in 2004, Tetra Recart is the first aseptic carton designed for retort sterilization—a way of purifying particle-containing foods that aren’t suitable for Tetra Pak’s traditional continuous flow packaging method. The carton made its debut holding Hormel chili. But sales were disappointing, and Hormel pulled the line.
Undeterred, Tetra Pak tackled the consumer challenge head-on. Working with packagers at Del Monte, Tetra Pak created its own line of crushed tomatoes, diced tomatoes, and tomato sauce using the brand name Corelli. Then it arranged a twelve-week test at selected retailers. The results were encouraging: Consumers said they felt that food in a carton seemed “fresher” than in a metal can, store managers liked the fact that rectangular cartons shelved more efficiently than cylindrical cans, and (most important) sales were 29 percent higher than for comparable canned products. Armed with this data, Tetra Pak has been educating food packagers about the benefits of Tetra Recart, and foods ranging from sweet corn kernels to moist cat food are beginning to find their way into this new packaging.
Tetra Pak’s efforts are gradually making aseptic packaging acceptable to consumers in more and more food categories. Another sign of the nascent shift in attitudes is the growing acceptance of another “high-class” product in aseptic packaging—wine. And here, one inherent characteristic of Tetra Pak—its European roots—links up with another characteristic—its modest environmental impact—to create a package that increasing numbers of American consumers find appealing.
Matthew Cain, founder and president of wine importer J. Soif, Inc., turned to Tetra Pak for a container for a new wine made from certified organic Malbec grapes. It was the enviro-economics of wine importing that convinced him.
“Over a period of time I came to the realization that the wine business just doesn’t work,” Cain explains. “Eighty percent of wine is drunk within a week. It doesn’t make sense to put nine liters of wine in a forty-pound box and ship it thousands of miles.”
Cain was hesitant to consider Tetra Pak for wine, despite the popularity of what he calls “alternative packaging” abroad, even for fine vintages. “Here in the U.S.,” he notes, “it’s only been used as a gimmick.” But in 2008, with gas prices soaring, the economy tottering, and consumers looking for opportunities to save, the economic logic of Tetra Pak became compelling—especially when bolstered by a green rationale.
Today, the eco-friendly characteristics of aseptic packaging, when compared with heavy glass bottles, are a significant element in Tetra Pak’s appeal to well-informed wine lovers—and a vivid example of the kind of three-level thinking (about manufacturers, retailers, and consumers) that Tetra Pak has mastered. Capitalizing on this benefit didn’t come easily. In fact, for a time, Tetra Pak and other companies came under attack from environmentalists because of the lack of recycling systems for aseptic packaging. The state of Maine even passed a law in 1989 banning aseptic cartons. Uno Kjellberg, then the CEO of Tetra Pak, called for an unprecedented cooperative effort with rival firms. The jointly formed Aseptic Packaging Council (now known as the Carton Council) worked with environmental scientists and engineers to develop recycling programs and reduce their products’ footprint. Not only did these efforts get the Maine law overturned in 1991, but Dennis Jönsson, then Tetra Pak’s U.S. chief, was invited to the White House by Vice President Al Gore in 1996 to receive the Presidential Award for Sustainable Development.
Going green wins friends for Tetra Pak at all three levels of its demand chain. As CEO Jönsson puts it, “Retailers are leading the growing environmental awareness and they are tapping into the concerns of consumers. This is here to stay and it is something that will be part of the day-to-day way that we conduct our business if we want to remain preferred suppliers to retailers.”
Matt Cain’s line of certified organic wines, sold under the brand name Yellow+Blue (since yellow plus blue makes green), now include a Malbec and a Torrontes from Argentina, a Sauvignon Blanc from Chile, and a Rosé from Spain. All have won praise for their flavor from wine aficionados. But their environmental impact—or lack thereof—makes them unique. Cain draws the comparison to traditional glass bottles in stark terms:
Yes, glass can be recycled. But the process is expensive. And very few people actually recycle it. In the United States, 15 percent of wine bottles are recycled—the rest go into landfills. The recycling rate of glass and Tetra Pak is now just about the same. And in a landfill, thirty Tetra Paks are equivalent to one wine bottle. There’s just no comparison.
Cain offers another statistic that’s even more startling: “When you ship a glass bottle, half of what you’re shipping is packaging. With Tetra Pak, it’s 93 percent wine, just 7 percent packaging.” That beats even the egg—long regarded as nature’s “most perfect package”—where the shell represents 13 percent of the total weight. Imagine that: green packaging that even outperforms Mother Nature herself.
Eco-friendliness is playing a growing role in emotionalizing Tetra Pak and energizing consumer demand. But so is aesthetics. Eye appeal is behind the company’s introduction of the Tetra Prisma Aseptic, a recent variant on the Tetra Brik that is taller and slimmer, features six-sided indents on two corners, and can be printed with a “metallized” effect. Taken together, the visual innovations of the Prisma add up to a package vaguely resembling a contemporary office tower or even a Frank Gehry museum design, “making it ideal,” as Tetra Pak puts it, “for all sorts of consumer situations.” The striking design creates a whole new customer set for Tetra Pak: packaged goods companies eager to give their products a uniquely attention-grabbing, upscale appearance.
With the addition of a practical screw cap, called StreamCap, that is shaped to be easy pouring, tamper-evident, and resealable, the Prisma makes an attractive container for wine. The Canandaigua Wine Company, now known as the Centerra Wine Company, introduced new red and white Sangrias in Prisma packages in 2005. Encouraged by the results, they’ve now come out with a line of Vendange varietals using similar Prisma packages.
For Tetra Pak, today may be the perfect time to be making a concerted push on behalf of wine-in-a-box for the U.S. market. Combine gradually spreading acceptance of the concept of aseptic packaging with the rise of the green consumer as an avid, vocal, informed element of the market as well as the enhanced price sensitivity in the aftermath of the Great Recession, and you have the formula for a potential mass shift in demand—one for which Tetra Pak is ideally positioned.
THE STORY OF Tetra Pak offers several intriguing lessons about demand.
First, it’s a fascinating reminder of the sheer complexity of most significant demand breakthroughs
, even those that are seemingly simple. Ruben Rausing began to think about a new way to package milk back in the 1930s. It took him several years just to come up with the idea for a new system—and after that, it took another decade to actually make it practical. The saga sends a sobering message about the massive investments in time, patience, and money that are required to bring great ideas for stimulating demand to fruition—and reminds us again that the best time to begin working on a brilliant innovation is, always, yesterday.
A second lesson is the interdependence that exists between demand and the backstory element of infrastructure. The demand for convenient movies-by-mail that Netflix creates and satisfies couldn’t exist until the infrastructure of DVDs and DVD players was in place; the demand for grab-and-go urban car rentals by the hour that Zipcar creates and satisfies couldn’t exist until the Internet infrastructure for tracking and reserving vehicles existed.
In the same way, the demand for lightweight, convenient, nonrefrigerated food packages couldn’t exist until Tetra Pak developed machinery to create such packages. But by the same token, the Tetra Pak infrastructure—which today includes factories around the world producing packaging materials for a wide variety of aseptic packages in quantities of billions—could never have been built if Rausing’s package hadn’t generated magnetic appeal for its first set of customers. Rausing would have been relegated to a footnote in business history as a tinkerer with a funny concept that never found its market, and we wouldn’t today be talking about—or shopping for—cardboard-and-foil cartons of soup, juice, or wine. Infrastructure and consumer demand grow hand in hand; each depends on the other, and the unfolding development of each over time determines the long-term shape and health of our economy.
Finally—and perhaps most important—the Tetra Pak story suggests the powerful ultimate dependence of the entire structure of demand on the individual consumer. As one of the world’s great backstory suppliers, Tetra Pak makes its profits by selling to corporations like dairies and food processors. But those profits would be scanty if not for Tetra Pak’s understanding of what families want from their foods—qualities like convenience, freshness, flavor, and affordability. Perhaps the biggest benefit that Tetra Pak brings to its business clients is its ability to sense and provide what its customers’ customers want, and will want in the months and years to come.
Because in the end, the whole vast pyramid of demand for food all comes down to your family sitting down at the kitchen table and wondering, “What’s for dinner?”
*This is not a negligible issue. A bizarre fact from the history of packaging: The metal can was invented in 1813; the first can opener was not invented until 1858. For forty-five years, people used chisels or pickaxes to open cans.
4.
Trigger
(TRIG-er) noun 1. the difference between hearing about a product and buying it 2. a critical element in the business design that makes it easy for people to get truly excited about a magnetic product and transform themselves into customers 3. something that helps me buy something I really want 4. something that turns fence-sitters into customers
NETFLIX AND ITS TWO-HUNDRED-YEAR-OLD
SECRET WEAPON
It was 2001—four years after entrepreneur Reed Hastings was embarrassed by a forty-dollar fine for a long-overdue movie, and three years after that hassle inspired him to launch a company that pioneered a new way of renting movies—Netflix.
As a Bowdoin College math major, a Stanford computer science graduate, and the founder of a software troubleshooting company called Pure Software (later sold to a larger business and now part of IBM), Hastings understood both the science and the business of high technology. As an alert consumer, he understood its human aspects as well. He’d launched Netflix based on a simple core insight: that this newish thing called the Internet might be the basis for a faster and more convenient way of choosing movies, just as it already was for buying books, thanks to Amazon.
A second recent innovation, the invention of the DVD, had intrigued Hastings further. Thin and light, a DVD looked a lot easier to deliver to a customer than a videocassette, which was heavy, bulky, and breakable. To test the concept, Hastings bought a bunch of CDs (since DVDs weren’t readily available), stuck them into stamped envelopes, and dropped them off at the local post office. A couple of days later, the discs arrived in his mailbox—not, as he’d feared, in shattered fragments, but intact and playable.
Hastings would later learn that shipping DVDs through the mail wasn’t quite as simple as this first experience suggested. But his initial success excited him. Maybe, he thought, the combination of the Internet and the DVD would make it possible to do away with the cumbersome retail model of companies like Blockbuster, Movie Gallery, Hollywood Video, and ten thousand mom-and-pop video rental stores. Maybe they could reduce or eliminate the countless annoying hassles of movie rental: the difficulty of finding the right movie to rent (Which picture will my spouse like? Is this movie kid-friendly? Does this adventure flick have “real” violence or just “fun” violence?); the frustration when the hottest movies are out of stock; the inconvenience of having to drive to the local rental store twice, once to rent a movie and once to return it; and, above all, the irritation of those punitive late fees.
Hastings got to work. He and the other members of his team crafted the first version of the Netflix website for selecting movies, built a warehouse for shipping DVDs near their company headquarters in the northern California town of Scotts Valley, purchased a varied array of movies, and began marketing their service.
But their first product was far less than magnetic. Like today’s version, the ur-Netflix offered Internet movie selection and DVD delivery by mail. But it charged traditional rental fees, starting at four bucks per movie, and even imposed late fees like those that had irritated and inspired Hastings in the first place. In search of buzz, the start-up also wangled deals to sell “hot stuff” available through no other retailer—things like advance tickets to upcoming concerts and entertainment-related posters and merchandise.
Most customers who heard about this package of offers responded with indifference. At this point, Netflix was a little better than a storefront video rental—but only a little. It takes more magnetism than that to tug people out of their habitual orbits and into a new pattern of consumption.
Hastings quickly got the message. The number of reinventions the company went through in subsequent months illustrates just how complicated demand creation really is.
Hastings changed Netflix to a simple one-charge subscription model no matter how many movies you watch, eliminated late fees, and dropped the nonvideo product assortment, which had generated some publicity but scant demand. He also invested in vastly expanding the number of movie titles available, thereby addressing one of the worst hassles of video rental—the frustration of searching your local store in vain for a movie you want to watch. And he experimented with many pricing systems and several price levels.
Perhaps most important, Hastings inaugurated a tradition that Netflix maintains to this day: Don’t do anything irrevocable until you’ve tested it, run the numbers, tested it, and then tested it again. Hastings loves to conduct clinical trials examining new ideas—to see what really works, and how well. That’s why those who know Netflix best often describe it as “an entertainment company run by a computer scientist.”
After dozens of redesigns, Hastings finally arrived at a business model roughly similar to today’s Netflix—the company that has generated an amazing stream of demand with its magnetic, fun-to-use product.
Yet as of 2001, that stream of demand was still just a trickle. Netflix subscribers nationwide were fewer than half a million—a respectable number for a young company, but only a minuscule fraction of the 130 million movie-viewing households in America. The company’s revenues ($76 million) were dwarfed by those of Blockbuster ($5.1 billion).
Hastings knew Netflix’s product was better than Blockbuster’s—more convenient, cheape
r, almost hassle-free. His modest cohort of customers loved the service, and surveys showed that significant numbers of potential members had heard about Netflix. But growth remained slow. Why?
Many would-be demand creators assume that a magnetic product is all you need. It’s not. One of the most valuable lessons to be learned from talking to customers is just how much our buying decisions are ruled by inertia, skepticism, sloth, habit, and indifference. That’s why months, even years often pass between the time we hear about a great new product and the moment a purchase is made—if it ever happens at all. While magnetism may get our attention, it almost always takes a specific, action-inducing trigger to move us to buy.
For Netflix in 2001, the issue was an urgent one. The Netflix team knew that the time frame of their opportunity to create and control a stream of demand from online DVD rental was severely limited. The whole world, including thousands of entrepreneurs, was focused on the revolutionary power of the Internet. Hastings was well aware that he wasn’t the only person in the world smart enough to think of the concept of video rental via the Internet. If he didn’t grow Netflix fast, there was every likelihood that someone else would swoop in with another version of the same service—but 10 percent better—and take the market by storm. (In fact, rival online movie rental sites had already begun to pop up, with names ranging from DVDovernight, GreenCine, and DVDAvenue to Rent DVD Here, RentAnime, and Clean Flicks.)
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