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8.3 Taking Seventh Generation to the Next Level: The Challenge Ahead

Jeffrey Hollender desired to grow Seventh Generation from a $150 million brand to $1 billion. How realistic was this?

According to the “‘Green’ Household Cleaning Products in the US: Bathroom Cleaners, Laundry Care and Dish Detergents and Household Cleaners” report published by Packaged Facts, retail sales of green cleaners in 2009 totaled $557 million—split between $339 million from green household cleaning products and $218 million from green laundry products—to account for 3 percent of the total household and laundry cleaner retail market. Packaged Facts estimated retail sales of green cleaners grew 229 percent between 2005 and 2009, more than doubling in dollar terms and more than tripling in its share of the total household cleaner market.“‘Green’ Household Cleaning Products in the U.S.: Bathroom Cleaners, Laundry Care and Dish Detergents and Household Cleaners,” Packaged Facts, http://www.packagedfacts.com/Green-Household-Cleaning-2554249. In 2009, Seventh Generation’s sales were $150 million with about a 27 percent share of the green household cleaning market.Laurie Burkit, “Seventh Generation Protecting Its Turf,” Forbes, January 18, 2010, http://www.forbes.com/2010/01/18/seventh-generation-brand-awareness-cmo-network-chuck-maniscalco.html.

Figure 8.8

Competition

As Seventh Generation’s sales first began to grow, larger traditional brands began to notice. And several powerful mainstream marketers launched green household products, including the following:

  • The Clorox Company introduced Green Works household cleaners, dish, and laundry products in 2008, spending $25 million in advertising in both 2008 and 2009 behind the introduction according to Kantar Media, which tracks advertising spending. Green Works, once a $100 million brand, fell to $60 million in 2010.Kari Lipshutz, “Once You Go Green, You’ll Probably Go Back,” AdWeek, April 22, 2011, http://www.adweek.com/news/advertising-branding/once-you-go-green-you-ll-probably-go-back-130883.
  • Church & Dwight launched Arm & Hammer Essentials household cleaners in 2008, putting a decidedly different twist on the concept with a mix-it-yourself line. The cleaning products only include the active ingredients and the consumer adds the water at home to the bottle. This unique delivery system provides a 25 percent lower cost and 80 percent reduction in packaging than conventional cleaners.“Arm & Hammer’s New Cleaners Not Only Greener, They’re Cheaper,” EnviralMarketing.com, http://www.enviralmarketing.com/2008/10/22/arm-hammers-new-cleaners-not-only-greener-theyre-cheaper.
  • SC Johnson & Son introduced Nature’s Source household cleaners in 2009, spending $15.4 million in advertising according to Kantar Media, which tracks advertising spending.Stephanie Clifford and Andrew Martin, “As Consumers Cut Spending, ‘Green’ Products Lose Allure,” New York Times, April 21, 2011, http://www.nytimes.com/2011/04/22/business/energy-environment/22green.html?pagewanted=2&_r=2.

Jeffrey Hollender, commenting about the competition, said, “Competition is definitely a sign of our success especially in the face of categories that simply weren’t growing for our competition.” Over time, both SC Johnson’s Nature’s Source and Clorox’s Green Works failed to meet the sales goals set by the parent companies,Jeffrey Hollender, in interview with author, August 14, 2011. and Seventh Generation was able to maintain its market share while competitors were experiencing a flattening out in performance since their introductory years.

According to an analysis by Stephen Powers from Sanford C. Bernstein & Company, “You see disproportionately negative impact from products like Green Works, out of the big blue-chip companies that have tried to layer a green offering on top of their conventional offering, and a relatively better performance from the niche players who remain independent.” Using data from the Nielsen Company, Bernstein looked at sales for nearly 4,300 items in twenty-two categories, such as cleaning spray, liquid soap, bathroom cleaners, and detergents. It studied monthly sales from March 2006 to March 2011, the most recent data available. (Nielsen’s data include mass market, grocery stores, and drugstores but exclude Walmart.) Bernstein found that the market shares of green products generally were down from their peak—especially those offered by the big consumer-products companies. But the market share of the independent brands, like Method and Seventh Generation, were starting to increase relative to the shares of traditional brands’ green products in categories where they compete.Jeffrey Hollender, in interview with author, August 14, 2011.

There were several factors at play. The mainstream companies venturing into green territory approached it much like a traditional consumer packaged goods company. They spent big money on advertising and promotion to generate awareness and trial but after the second or third year pulled back to almost zero spending. In contrast, Seventh Generation had over two decades to build its brand. But there has to be more to it than that. Consumers may not be looking to buy just a green-looking brand from a large consumer packaged goods company but instead want to purchase green products from companies who are more substantively committed to sustainability and adhere to its principles with all their brands, not just one or two product lines. Again, this is Seventh Generation’s primary competitive advantage and it was working for them but not enough to grow as large as their founder desired.

Seventh Generation Growing Pains

Seventh Generation declined in gross sales for the first time in a decade in 2009. The economic recession was a significant challenge for Seventh Generation as consumers tightened their budget and were more reluctant to pay a price premium for sustainable products. After averaging double-digit annual growth for ten years, the company’s gross sales declined by 2.8 percent. The company also lost consumer loyalty with a packaging change in 2009, which created less value for the consumer and did not adhere to their strict sustainability standards. Seventh Generation reduced the number of baby wipes in their packages without reducing the size of the package, decreasing the sustainability of the product (by increasing the packaging-to-product ratio 12 percent). When they did not adequately inform consumers of this change, consumers felt cheated and it weakened the authenticity of the brand and their trusted consumer relationship.

In the midst of the 2009 problems, Jeffrey Hollender self-selected his succession heir and hired a consumer packaged goods veteran, Chuck Maniscalco, as CEO to help position the company for greater scale and long-term growth.“Big Changes at Seventh Generation,” 7Gen (blog), June 1, 2009, http://www.seventhgeneration.com/learn/blog/big-changes-seventh-generation. But in September 2009, Chuck Maniscalco resigned after a very short but difficult period in which it was hard for Hollender to reduce his influence on the company.

Then in October 2010, the board of directors voted to terminate Jeffrey Hollender’s employment relationship and began a new search for CEO.Marc Gunther, “Seventh Generation Sweeps Out Its Founder,” Marc Gunther, November 1, 2010, http://www.marcgunther.com/2010/11/01/seventh-generation-sweeps-out-its-founder. In February 2011, Seventh Generation hired a new CEO, John Replogle, who was previously president and CEO of Burt’s Bees.Alex Goldmark, “Seventh Generation Snags Burt’s Bees CEO to Replace Founder,” Good Business (blog), February 10, 2011, http://www.good.is/post/seventh-generation-gets-a-new-ceo-john-replogle-from-burt-s-bees.

It has been stated that the problem at Seventh Generation was that the growth plans and Hollender’s founding values did not converge. At the Sustainable Brands 2011 trade event, Jeffrey Hollender, in his own words, said,

How did I fail? How did I get myself fired?

Changes at Seventh Generation and for Its Founder

During his time at Seventh Generation, Jeffrey Hollender made the decision to bring on investors to help financially sustain the business. Hollender sold shares and created a board of directors, including his long time childhood friend, Peter Graham, the board chairman. It was an important move to help the company grow long term but resulted in him becoming a minority stakeholder. It’s not clear whether his childhood friend Graham backed Hollender in the power struggle at Seventh Generation or turned against him. Unfortunately, Hollender, after twenty-two years with Seventh Generation, found himself out from the very company that he began.

Hollender was shocked to say the least. He reflected on this change recently: “Seventh Generation was my identity, and getting fired was like having my identity stolen away from me. Most people couldn’t understand how I got thrown out of my own company. They didn’t know that as we raised more equity, I became a minority owner. After that, there were always tensions between social mission and making money.”Issie Lapowsky, “What to Do When You’re Fired from the Company You Started,” Inc. Magazine, July/August 2011, http://www.inc.com/magazine/201107/how-i-did-it-jeffrey-hollender-seventh-generation.html.

In Graham’s letter to shareholders and employees, he said,

As the leader of the company since its very earliest days and its philosophical guiding light for over two decades, Jeffrey has been an integral part of our brand and an obvious lynch pin of our success, our unique corporate spirit, and our much acclaimed emphasis on equity and justice in the way we conduct our business. It is no overstatement to say that without his unwavering dedication to our cause and his tireless efforts on our company’s behalf, we would not be the company we are today, and indeed might not be here at all. His is a legacy worthy of the highest respect and admiration, and nothing in our recent decision should dim that in any way.

Nevertheless, recent events have forced us to choose between divergent paths. We have elected to set the company on the one we strongly feel has the very best chance of fulfilling the commitment we’ve made to all our stakeholders to achieve the greatest possible lasting success, financially but especially in terms of making our world a better, safer place for our children and the following seven generations.Marc Gunther, “Seventh Generation Sweeps Out Its Founder,” Marc Gunther, November 1, 2010, http://www.marcgunther.com/2010/11/01/seventh-generation-sweeps-out-its-founder.

Peter Graham, Seventh Generation’s chairman, said that the Seventh Generation board unanimously selected Replogle based on his track record leading a complex organization, his demonstrated commitment to corporate responsibility, as well as his strong executive and personal qualities.Seventh Generation, “Seventh Generation Names John Replogle to Serve as CEO and President,” news release, February 9, 2011, http://www.csrwire.com/press_releases/31571-Seventh-Generation-Names-John-Replogle-to-Serve-as-CEO-and-President.

Hollender continues his leadership role in sustainability and is writing a new book. He is also the cofounder of the American Sustainable Business Council and a member of the board of directors of Greenpeace USA, Verite, Vermont Businesses for Social Responsibility, and the Environmental Health Fund. He speaks frequently at national venues and has advised companies on sustainability. He has published six books, including Naturally Clean, The Responsibility Revolution, and Planet Home.

Seventh Generation: The Road Ahead

The new Seventh Generation CEO faced many challenges. The company needed to ramp up its marketing efforts to break through and get noticed in the middle green market and to increase the company’s brand awareness, which remained low. Also, among some of their super greenConsumers dedicated to buying products and services with commitment to the highest sustainability standards and practices. They represent about one in six consumers. customers, effective marketing would be essential to reestablish consumer trust and interest in Seventh Generation after a difficult couple of years. All of this would likely require use of marketing mediums, such as television and the print media, with broader reach than special events, educational programs, and charitable programs.

To help marketing, Replogle created a new position of chief marketing officer (CMO) and hired Joey Bergstein, who hailed from Diageo, the world’s leading premium spirits company. Bergstein started his career with consumer packaged goods giant Procter & Gamble and was senior vice president of global rum at Diageo where in five years he helped to double sales while growing Captain Morgan from a US product into a global brand with a strong international presence.Steve Ratti, “Seventh Generation Adds New Chief Marketing Officer,” The Ratti Report, August 18, 2011, http://ratti-report.com/news-new-cmo/seventh-generation-adds-new-chief-marketing-officer.

In marketing and other areas, it will not be easy to follow Seventh Generation’s founder Jeffrey Hollender. Replogle’s strengths are his leadership skills, demonstrated commitment to corporate responsibility, and a proven track record in his business career. Prior to being CEO of Burt’s Bees, Replogle spent three years at Unilever, where he managed the skin care division and helped to launch the Real Beauty campaign for Dove and establish the Dove Self-Esteem Fund for young girls. Prior to Unilever, he spent eight years with Diageo as president of Guinness Bass Import Company and managing director of Guinness Great Britain. He started his career at Boston Consulting Group after he earned an MBA from Harvard, from which he graduated with distinction. He received his undergraduate degree, a BA in government, from Dartmouth College where he currently serves as a trustee.“About John,” John Replogle for Dartmouth Trustee, http://www.john4dartmouth.com/p/about-john-replogle.html.

According to Seventh Generation’s board chairman, Peter Graham, Replogle had been charged with “ensuring Seventh Generation’s untapped business potential is fully realized in the years ahead, both financially and in our continued efforts to make our world a safer place for our children and the next seven generations.”Marc Gunther, “Seventh Generation’s New CEO,” Marc Gunther, February 13, 2011, http://www.marcgunther.com/2011/02/13/seventh-generations-new-ceo-john-replogle. This would include how to grow Seventh Generation from a $150 million business. In order to do this, Replogle believed the company must innovate and refresh the tired worn out brand look making it more relevant to consumers. In a recent interview, Replogle said, “We are going to out-innovate the competition in terms of meeting consumers’ needs in an environmentally-friendly way.”Marc Gunther, “Seventh Generation’s New CEO,” Marc Gunther, February 13, 2011, http://www.marcgunther.com/2011/02/13/seventh-generations-new-ceo-john-replogle. With innovation, the company must ensure that its products fully deliver on consumers’ needs and provide a fair price and strong value proposition that neutralizes any green pricing gap.

What is not going to change according to company spokesperson, Dave Rappaport, senior director of corporate consciousness, is the company’s deep commitment to corporate social responsibility and sustainability. Rappaport, who was hired by Hollender after working in the nongovernmental organization world, stated, “Although the company was launched by Jeff’s vision, it is embraced by everyone here. It has been a part of everybody’s perception of his or her roles. Down to the innovations we’ve created on sustainability and corporate responsibility, you will find the work of employees who took the vision to heart.” He continued by stating that since letting Hollender go, the board of directors had approved the creation of a new committee on corporate social responsibility and sustainability. “With Jeffrey’s departure [they] know [they] have to institutionalize all of the things” he advocated for, making sure there is management oversight and “continued direct board oversight which there was through him when he was on the board.”Alex Goldmark, “Hollender Speaks on What’s Next for Seventh Generation,” Good Business (blog), January 18, 2011, http://www.good.is/post/jeffrey-hollender-on-how-to-hold-seventh-generation-accountable.

Inherent in the culture that Hollender built is radical transparency. So consumers will be watching. With the foundation that Hollender and his team created, the company could continue to be part of a trend, even a near revolution, to nurture the planet and the health of the next seven generations, or it could lose its market presence and relevance.

Key Takeaways

  • Sustainable markets, while growing, are relatively small compared to total (mainstream) markets.
  • It will be challenging to grow sustainable consumer market companies beyond relatively small (niche) markets, especially during periods of economic restraint.
  • Sustainable marketing means coherence and consistency in the marketing mix—product, place, promotion, and price.
  • Seventh Generation and all sustainable businesses must deliver value and performance on their sustainable goods. Price matters for all brands and consumer markets.
  • Sustainable marketers need to be creative in their marketing mix to address areas that may be perceived as deficient, such as price, compared to traditional goods.
  • Sustainable marketing can require commitment to sustainability throughout the organization.

Exercises

  1. What is Seventh Generation’s brand positioning, and how does the company fulfill its brand promise? Is the founder, Jeffrey Hollender, the brand or is the brand larger than the founder?
  2. How can Seventh Generation grow their awareness levels? How can they best employ broader reach vehicles, such as print, television, mobile, and digital marketing? Which outlets and promotions would you suggest?
  3. What marketing advice would you give to mainstream companies looking to compete in the green market?
  4. In what ways were Seventh Generation’s marketing plans successful and in what ways did they fail?
  5. Analyze Jeffrey Hollender’s four reasons explaining why he was fired. What other reasons can explain why the board fired him?
  6. What are the strengths and weaknesses of new CEO John Replogle and the new CMO given their backgrounds in leading marketing efforts at Seventh Generation? Do they have a better chance than Jeffrey Hollender in growing Seventh Generation’s revenue?
  7. What marketing advice would you give to the new Seventh Generation CMO? What would you suggest he change, and what would you suggest he keep the same in the company’s marketing mix?
  8. What should Seventh Generation do with regards to pricing to generate increased market share, revenue growth, and profits?