In Brand Management, if Apple’s the New P&G, What the Hell is P&G?
If there’s any doubt who’s the best brand manager on the planet, consider the hysteria brewing over the iPhone 5. Will it be taller? Thinner? Will its screen be four inches or 3.5999? What’s that tiny mystery opening next to the lens? Is this photo real or fake anyway?
iPhone 5 isn’t expected out till the fourth quarter but the level of interest – no, breathlessness – over the slightest possible deviation from past models has got to make it the biggest, baddest product line extension in marketing history. Think about it. Other companies couldn’t pay to gin up this kind of buzz. All Apple (AAPL) does is shut up – make really good stuff and try to keep a lid on it. It’s pure marketing genius. It’s what’s made Apple today’s Procter & Gamble (PG) -- a beacon to marketers everywhere.
But if Apple’s the new P&G, what’s P&G? A brand management machine, right? Nope. While Apple’s been single-mindedly focused on improving products, P&G has been frenetically trying to grow in every possible direction. Until last week, CEO Bob McDonald’s growth strategy has been to expand distribution beyond its 180-plus countries, up and down all price points, into all seven major retail channels (from four); filling out its product lines to be, on average, in 24 product categories in each country versus 19. In short, as Bob McDonald explained, in last year’s 10-K, if you grow something this big – just a little bit in any direction – there’s bound to be a nice bump to the bottom line.
What’s missing? The very feature that made P&G unique (marketing 101): fastidious Brand Management. The kind of attention to detail that goes into an iPhone or makes Tide, Tide . . . odd, Bob McDonald, a P&G lifer, was once brand manager of Tide.
Last quarter, something unheard of happened at P&G. It lost global market share in most of its major product segment categories. It got a bump all right – but in developing markets, which wasn’t enough to offset volume declines in big, slow but critically big developed markets. Those are the ones hardest to budge – especially with boring stuff people take for granted – even if it’s Tide, Crest, Charmin.
As P&G raised prices in mature markets, volumes fell. The outcome was an unfortunate “negative mix” that reduced net income 15% to $2.4 billion. Net sales rose 2%, to $20.2 billion, 5% of which was pricing. At a company like P&G, this IS brand management – a balancing act of pricing, advertising, promotion and distribution and its why focused brand management matters. If your product isn’t an iPhone, you’d better know how to tweak price without losing share. Since the quarter ended, P&G has rolled back prices yet again.
Bob McDonald is a big believer in innovation, as reflected in P&G’s $2 billion annual R&D budget that he likes to point out exceeds most of its competitors’ budgets combined. “Our experience has proven that price promotion may win a quarter here and there, but innovation wins decades,” he explained in last year’s annual report. But innovation also takes focus. And while P&G has some hits, single serve Tide pods aren’t iPods.
The third quarter performance (including rising costs and contracting margins) was apparently the wakeup call that triggered a major change of direction announced last week. At the Citigroup (C) Global Consumer Conference, CFO Jon Moeller unveiled some major adjustments to the Bob McDonald Purpose-driven growth plan -- namely a halt to expansion until the company gets a grip. See here for YCharts' recent look at the P&G dividend situation.
“In retrospect we may have overextended ourselves a bit with the pace of our portfolio and geographic expansions,” he said. So it’s back to basics with all the focus on core markets, starting with an assessment of the nitty gritty -- price points, product portfolios, innovation, marketing support – to determine whether they’re getting adequate resources and attention. “We will not spend a dollar outside of our core businesses until we are broadly sufficient to win in these markets,” he said.
Only then will P&G revisit plans to expand developing markets -- systematically –top ten markets first. Further expansion in those will be self-funded by product launches and productivity gains. Here on out, the pace of P&G’s global expansion “will be metered by the needs of our core businesses and our ability to fund new expansion with previous expansion,” Moeller said. “This more focused approach will ensure that we win in our most important markets while responsibly building out a platform for future growth.” Operative word here: “responsibly.”
P&G ditched its old-fashioned method of organizing itself around individual brands more than a decade ago -- back when everybody believed the mass market was dead – everybody, that is, except for Steve Jobs. Maybe a more focused P&G can prove that laundry detergent and toothpaste don’t have to be so boring.
Filed under: Company Analysis