Salsa & Strategy

How to Create a Spicy New Product Category

How would you think about entering a new market with fiercely opinionated and habituated customers? One cautionary tale is Gallardo’s Goes to Mexico, a classic business case by Clayton Christensen, the late HBS professor and father of disruptive strategy theory. The case chronicles a Texas company’s journey to develop a jarred salsa product for the Mexican market in the early 2000’s. On the face of it, Gallardo’s “invasion” of the Mexican market is bold indeed. Consider, for example, a foreign company trying to break into the American hamburger market. Ambitious? Reckless? Maybe both.

Photo: Jamie Coupaud. Unsplash.com

After building a strong base in their home U.S. market, Gallardo’s decided that the Mexican market held the best growth potential. By some estimates, only 15% of Mexican households consumed ready-to-eat salsas. (1) Yet nearly every Mexican household eats salsa with nearly every meal. The existing ready-to-eat brands in the market were small, and in Gallardo’s opinion, missing a huge opportunity. Capitalizing on it would require a deeper understanding of Mexican consumers. Let me tell you about some whom I know personally.

Years after business school (when I first gave the case a hurried read), I was blessed to fall in love with and marry a beautiful Mexican-American woman, Martha. I quickly learned that food is at the very center of Mexican life. And salsa (the Spanish word for sauce) is at the savory center of every Mexican meal. Early in our marriage, I asked Martha if I should pick up a jar of “Generic Brand” salsa at the supermarket. She gasped in horror. Once you’ve tasted the real stuff, jarred salsas are totally uninspiring. And no self-respecting Mexican homemaker took such shortcuts. (2) Fresh tomatoes and onions need to picked, roasted, and peeled. Chile peppers need to be selected from a dizzying variety and calibrated for intensity. Some choose to add lime and/or fresh herbs in varying amounts. (3) Everything then needs to be carefully mixed (ideally in a molcajete) and texture adjusted to the family’s tastes. It can take hours to prepare a truly memorable salsa. And great salsa literally transforms the meal. That’s what makes it so special to Mexican families. So preparing it is an absolutely critical job for Mexican homemakers.

“It can take hours to prepare a truly memorable salsa. And great salsa literally transforms the meal. That’s what makes it so special to Mexican families.”

Jobs To Be Done Theory

The case introduces Jobs-To-Be-Done (JTBD) theory which supposes that customers don’t purchase products for their intrinsic value. Rather, customers “hire” products to do a specific “job” which materializes in their life. The theory is best encapsulated in Theodore Levitt’s quote: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” The basic unit of analysis, therefore, is the situation not the customer. (4) When it was first developed, JTBD theory was a radical departure from traditional marketing techniques which involve segmenting customers by age, education, income, location or some other observable characteristic. The insights provided by JTBD theory are extraordinarily powerful. In fact, JTBD strategy & marketing has become best-practice in large silicon valley and consumer products companies.

“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

Tasty New Insights

Gallardos painstakingly segmented Mexican salsa buyers into the following “Job To Be Done” categories:

1. 65% purchased a pre-packaged salsa to help them “express talent and love” in their cooking for their families.
2. 24% needed “help being better” in the kitchen.
3. 11% were “phone it in” folks who just needed to save as much time as possible. (5)

Armed with these groundbreaking insights, Gallardos optimized its product line for each corresponding job. The company hired scientists to enhance aroma, consistency & flavor. It expanded distribution in chain supermarkets and small retailers across Mexico. It also produced an aggressive national television campaign to introduce the ready-to-eat salsa concept to the nascent market.

SPOILER ALERT! If you would like to discover the outcome of the case for yourself, stop here! If not, please continue.

“Growing But Not Winning” (6)

The strategy helped Gallardo’s more than double revenues for its Mexican operation in just a few years. Despite the presumed success, however, Gallardo’s chief competitor California (a European company) grew at an even faster rate and gained market share versus Gallardo’s. California was selling a cheaper, arguably inferior product. Researchers found that consumers were simply buying the cheaper California salsa and then adding salt for flavor. Why was Gallardo’s “growing but not winning”? Was Gallardo’s advertising dollars (or pesos) simply facilitating its competitor’s growth? Did California already control the Job To Be Done in the Mexican consumer’s mind? It’s an interesting strategic problem. Growth in sales placates the hard questions. But did Gallardo’s miss a huge target by a whisker? What did they miss? How could the situation be salvaged?

Growth in revenue placates the hard questions. But did Gallardo’s miss a huge target by a whisker?

Delving Deeper into the Consumer’s Mind

Gallardo’s strategy was to create a premium-priced product which flawlessly performed the job it was hired for. Dropping its price to compete with California, an inferior product, would imply that the strategy had failed. Furthermore, doing so could be disastrous for financial results. Where then, should Gallardo’s look? JTBD theory can be instructive here. It suggests that jobs have functional, social, and emotional benefits to customers. A purely functional product can’t be differentiated if cheaper competitors offer the same performance. For example, you would never buy more expensive gasoline if given the choice between two otherwise equal options? (7) Extremely successful products, on the other hand, are able to serve a social or emotional need on top of a functional one. Think of the emotional connection that you probably have with your smartphone. (8) Companies like Apple understand that its products prompt powerful emotional responses from their customers. In consumer products, buyers can be fiercely loyal to diaper brands because of a perceived emotional connection.

A purely functional product can’t be differentiated if cheaper competitors offer the same performance.

Take the “Express Talent and Love” segment of the market, which was shown to be the largest. The job to be done is both a functional one (help me serve a meal with salsa) as well as a social one (help me show my family how much I care for them). Perhaps the cheaper salsa is a no-brainer for them. It not only saves money, but also provides a chance to easily showcase talent by seasoning the salsa to perfection. As a premium priced product, perhaps Gallardo’s drove itself into a corner serving the smallest cohort of consumers, the “just get it done” group. These were mostly busy professionals who were heavily concentrated in the big cities of Monterrey and Mexico City, but poorly represented elsewhere in the country. (9)

Could Gallardo’s reposition the product to better tap into the social or emotional dimension of the largest cohort’s job? Another way to ask the question: Could a consumer of ready-to-eat salsa be persuaded to pay a price-premium because their family recognizes that it’s a Gallardo’s, not a California?

Could a consumer of ready-to-east salsa be persuaded to pay a price-premium because their family recognizes that it’s a Gallardos, not a California?

En la Mesa (At the table)

My mother-in-law takes immense pride in the presentation of her salsa at the table. Salsa is often poured into a special-purpose bowl, ideally a molcajete or similar low-profile basin. A special purpose spoon is usually set with the bowl for serving. (A tiny spoon works better for carefully dispensing the most savage habañero salsas.) She would never, ever drop a jar of branded salsa on the table. Could Gallardos give her some cover? Perhaps the answer is not in the kitchen, but at the table? Here are some possible concepts to enhance the product experience at the table:

• Package & sell the salsa in a specially-designed, molcajete-shaped serving bowl which can be elegantly set at the table. Such a product might signal to the family that the salsa, despite being pre-packaged, is a special one selected with care. Unique packaging could also differentiate the product versus the otherwise identically-packaged salsas on the retailer’s shelf. Obviously, the cost of such packaging would need to fit the product’s cost & margin profile.
• Bundle seasoning in a nested package with the salsa. This would be similar to a pre-packaged salad, which comes with a small cup of dressing that users dispenses for themselves. The salsa-preparer would gain the satisfaction of mixing the seasoning themselves, thus giving an opportunity to showcase their talent by choosing the perfect amount of seasoning for their family.
• Offer a “taster’s set” of different salsas packaged in a single carton. This would allow the server to present multiple salsa options at the table, rather than the single large batch. Doing so could signal that the preparer went the extra mile to present multiple salsas at the table.
• Study Jobs to Be Done at the retailer level. Most retailers are interested in turning inventory over from limited shelf space. Perhaps they would be more interested in smaller packaging while maintaining higher gross margins. Significant further study of small retailers’ jobs-to-be-done would be required.

Conclusion

Facing a less-expensive, better performing competitor can be a daunting challenge. The decision to lower your price to gain share is a perennial temptation. In this case, there are strong arguments for doing so. Mexico, after all, is a middle income country. Household budgets are stretched. And salsa is a consumer staple. And if they do drop their price, how low should they go? Dropping prices to your competitor’s levels may not in fact lead to any sales or market share growth at all. Thus, it should only be entertained as a strategy of last resort. Won’t California simply drop its price in order to maintain a competitive edge? You can probably predict how this story might end in tears for Gallardo’s.

Worse still, if you identify price to be the only differentiating factor, you are effectively admitting your product to be a commodity, one which serves only a functional need. Doing so abdicates one of the company’s prime responsibilities; to create meaningful value for customers through relentless innovation. How much innovation will a battered company who’s overwhelmed by a price-war be able to do? The job of hiring salsa isn’t ever going away for Mexican families. And until someone else nails it perfectly, the door is still open for Gallardo’s to win the race.

1. Gallardos Goes to Mexico, Clayton Christensen, Harvard Business School Case 605–072, May 2005. (Revised September 2005.)
2. Women still do most of the cooking in Mexican housholds. You can choose to accept it, understanding that gender relations are not cultural absolutes. You can choose to be an evangelist, which isn’t always the greatest marketing strategy. Or you can choose to be blissfuly ignorant and hope for the best.
3. Some people put a lot more than that. In this chef’s opinion, anything more really crowds the flavor profile.
4. JTBD Theory was pioneered by Theodore Levitt and Christensen at HBS. There’s plenty more to read on the subject, starting with: Marketing Malpractice.
5. Gallardos Goes to Mexico, Clayton Christensen, Harvard Business School Case 605–072, May 2005. (Revised September 2005.)
6. Gallardos Goes to Mexico, Clayton Christensen, Harvard Business School Case 605–072, May 2005. (Revised September 2005.)
7. Gasoline is a commodity that mostly serves a functional need (I need a fuel which will make my vehicle mobile.) You may have a sports car which requires more expensive fuel. But expensive fuel fills both a functional need (I need gas), as well as a social need (Hey everyone, look at my awesome fast car).
8. If that emotional connection is ever in doubt, try to lock your phone in a box for 24 hours, then write down how you feel from the experiment.
9. Many Americans would probably feel at home in this category, and may not intuitively understand the Mexican JTBD. This is one reason why local knowledge is especially important when evaluating international markets.