Chapter 10 Case Study: TERRACYCLE

Turning Worm Poop into a Product

Environmentally friendly products have never been as hot as they are now, and the number of brands touting their green credentials has never been higher, but TerraCycle Plant Food may be the ultimate organic product to hit the market. A college student named Tom Szaky founded TerraCycle in 2003 after buddies from Canada, where they have more liberal rules about growing certain plants, he says, taught him how to use worm droppings as cheap and eco-friendly fertilizer. Szaky based his business model on recycling, starting with the trash that TerraCycle turns into compost and feeds to millions of red worms. The worm castings are then liquefied and put into previously used plastic water and soda bottles. Even the companys shipping cartons come from recycled materials. TerraCycles organic plant food hit the shelves in 2004 with labels boasting that it Contains Liquefied Worm Poop! It didnt take long for the products to take off. By 2006, the company had been named The Coolest Little Start-Up in America by Inc. magazine and had passed the $1 million mark in sales, growing as much as 300 percent from the previous year. They snagged shelf space in retail giants such as Target, Wal-Mart, and Home Depot. Founder and president Tom Szaky liked to refer to his company as the antiMiracle-Gro. But the industry giant disagreed. It turns out that Scotts Miracle-Gro thought that, if anything, TerraCycle was encroaching too closely on its territory. In March of 2007, Scotts sued Szakys fledgling company for trademark infringement and for making false claims that its organic products are superior to synthetic versions. Small companies can easily fold under the weight of such a lawsuit. Even if they win, the legal costs can cripple them. So TerraCycle took their case to the Internet with the blog www.suedbyscotts.com, hoping to stir public support and raise contributions for its legal fees. I knew there was no way I could out-lawyer Scotts, Tom Szaky says. So as I thought about it, I wondered what core competency our company had that we could exploit. Guerrilla marketing seemed to be the obvious answer. He adds that they hoped to get so much public support for their cause that Scotts would drop their suit. The blog offered a comparison chart titled David vs. Goliath that illustrated the differences between the two companies. A photo of TerraCycles modest headquarters behind a chain-link fence in New Jersey was in stark contrast to Scottss grand, pillared entryway in Ohio. The blog listed TerraCycles CEOs major perquisite as unlimited free worm poop, whereas Scottss CEO enjoys personal use of company-owned aircraft. The blog also countered Scottss claims that consumers might be confused by its overly similar yellow and green packaging by posting photographs of TerraCycles wacky and unusual bottles in their variety of shapes and sizes beside Miracle-Gros uniform and professional looking ones. Scotts continued to insist that they change their labels, but TerraCycles general counsel, Richard Ober Jr., says that changing packaging now would hurt their sales momentum. Theres the loss of customer recognition. Su Lok, a Scotts spokesperson, argued that the blog was just one of TerraCycles PR tactics and insisted that none of their arguments had merit. Weve spent a lot of time building up brands that consumers trust, she says, and we are going to protect those brands. Ira J. Levy, an intellectual property lawyer, warned that Scotts may have more to lose by pursuing TerraCycle than its worth. By pursuing a trade dress case, Levy says, they can allow a small player to promote itself on the national stage. When word gets out that the megaconglomerate is suing the little guy, you risk having bloggers launching boycotts, and the plaintiff ends up injuring his own business. Which is precisely what Tom Szaky hoped would happen. The lawsuit wasnt something he would have wanted to fight, he said, but it was a chance to generate buzz. Its like The Art of War,

CASE STUDIES

he explained. You need to have a villain to be up against, and for us, thats Scotts. Although the fight is over now (in September 2007 TerraCycle reached a settlement with Scotts and has agreed to change its packaging and its advertising claims), in its time, www.suedbyscotts.com gained massive media attention, leading major newspapers and magazines to cover the story, and hundreds of bloggers to defend TerraCycles cause. Online donations actually totaled less than $1,000; however, overall company sales surged 122 percent within weeks of the blogs launch. And traffic at TerraCycles main Web site, which averaged about 1,000 visitors a day, spiked to as high as 13,000 visitors a day.

Questions
1. What type of consumer product is TerraCycles plant food: convenience, shopping, specialty, or unsought? Why?

3. Do you think that product line extension or product line contraction would make more sense for TerraCycle at this stage of the companys growth? Why?

4. How well do TerraCycles bottles perform the four packaging functions discussed in this chapter? Compare TerraCycles products to Miracle-Gros (www.scotts.com). Do you think TerraCycles package design distinguishes their products well enough from those of the industry giant, or are they similar enough to cause customer confusion?

2. Go to www.terracycle.net and look at the types of products the company sells. Describe their product mix. How wide is it? Which basic product lines does it sell? How long are they?

SOURCES: Jack Ne, When the Worm Poop Hits the Fan, Market It, Advertising Age, April 23, 2007; Adam Aston, Now Thats Really a Turf War, BusinessWeek, April 23, 2007; Angus Loten, After a Good Fight, David Forced to Settle with Goliath, www.inc.com, September 24, 2007.

CASE STUDIES