Procter & Gamble – Founded in 1837, it has been around for nearly 200 years. Procter & Gamble owns a series of household names such as OLAYA, SK-II, Tide, Crest, Haifeisi, Shufujia, Gillette and so on. Today, we take a look at the nearly 200-year history of Procter & Gamble and the business philosophy behind its brand incubation and management.
Rising Tide – Lessons from 165 years of Brand Buliding at Procter & Gamble, written by consulting firms and universities, systematically studied the development of P&G from 1837 to 2000, with rich cases and detailed data. In addition to stating the facts, the book also provides an in-depth analysis of the logic and rationale behind it. As stated in the book, on the one hand, the history of Procter & Gamble can give readers a glimpse of the 200-year history of the global consumer industry, and it is worth reading the business logic behind the brand management leaders.
The first phase (1837-1945): laying the foundations of brand management
The Birth of P&G: The Opportunity of the Times
Procter & Gamble was born in the American agricultural era. In 1837, the United States was still in the era of agriculture and barter. It was in this context that P&G was born, with founders William Procter and James Gamble as a pair of brothers-in-law and their wives as sisters. Procter mastered the art of making candles, while Gamble mastered the art of making soap, and their father-in-law proposed that the two companies merge to form a company, so the two set up Procter & Gamble on the basis of $7192 of start-up capital.
Location: Cincinnati was an economic hub at the time. In the era of shipping as the core mode of transportation, Procter & Gamble's birthplace of Cincinnati was the transportation hub of the western United States at that time, with several rivers leading to various places as transportation channels, and later the Miami Canal was built to further connect Cincinnati and eastern New York. Accessibility first made Cincinnati a fresh meat processing center, which was a good advantage for P&G's candle and soap production (the latter requiring animal fats and fats as raw materials for production). At the beginning of its establishment, the operation of Procter & Gamble was mainly self-sufficient, the products sold were white-label products, and the advertising was only a sporadic means of promotion.
Began research on the industrialization of technology. In the early days, both candles and soap were just a handicraft art, and the products were basically handmade, and the workers produced them according to their own experience, which basically belonged to the stage of pure handicraft workshops. However, around 1850, Gamble's son entered the family business and tried to change that. He began working with professors at the University of Maryland to develop candle and soap products, and he finely quantified the formulation of each product, enabling production to be industrialized. In addition, he introduces a consumer perspective into the product development process, often comparing different products on the market and guiding product development. By 1860, Gamble began experimenting with the production of high-end soap at a low cost, and eventually the experience gained in the development of these products gave birth to P&G's first blockbuster product. Finally, at this time, the mode of transportation also began to shift from shipping to rail transportation, and the railroads in the United States began to develop greatly, and by 1864, Procter & Gamble's business covered the Cincinnati 200miles-based midwest region of the United States.
The Civil War made Procter & Gamble stronger. Practice has proved that for consumer goods companies, war is basically good, so is Gillette, and so is P&G. During the American Civil War, P&G began to provide the military with necessities such as soap and candles. More advantageously, the company hoarded enough raw materials at low prices before the shortage of raw materials, and sufficient orders made the company grow and develop in the war. Before the war, P&G's annual sales were estimated to be between $150,000 and $200,000, and after the war, it grew to $1 million, and dun and Bradstreet, a well-known Credit Agency in the United States, positioned P&G as "strong".
Crises and opportunities coexist. The rapid growth momentum was resisted in the 1860s, and P&G's candle business began to stagnate as kerosene lamps began to gain popularity as an alternative to lighting. In 1867, P&G candle production peaked at 320,000 boxes, and has since entered a downward channel. In addition, Chicago's rise as a transportation hub in the eastern United States has also put competitive pressure on Cincinnati. Faced with a lackluster growth situation, P&G must find new growth points. Interestingly, long-term opportunities are also being nurtured - the beginning of urbanization in the United States, the great development of rail transportation has accelerated the United States into the path of urbanization, and the American consumer market has ushered in great development. In the 45 years from 1870 to 1915, the per capita spending power in the United States tripled. The opportunity of the times may be the real basic probability. In fact, many well-known brands with a long history in the United States were born during this period, such as Gillette, such as Heinz Food, Anheuser-busch Beer (Budweiser), etc.
Procter & Gamble's first national brand, Ivory Soap, was born
Ivory products are born. In the face of the opportunities of the times and the internal development crisis, P&G came up with an excellent answer sheet - Ivory brand soap. The birth of the Ivory product was an accident, a worker accidentally mixed some air into the process of making soap, resulting in a soap that could float on the surface of the water (at that time, washing clothes was mainly hand washed, floating soap brought great ease of use), this product was eventually discovered and valued by Norris Gamble (the son of the founder mentioned above), and P&G eventually bought the formula. This unexpected discovery was eventually and reasonably discovered by Norris, who had been looking for a new product. In 1878, under norris-led improvements, the product finally matured: while retaining its floating properties, P&G replaced the expensive olive oil ingredient with a coconut oil, so that the unit price of the product could be set at 10 cents, which was significantly lower than that of imported luxury soaps, but its performance and quality were significantly better than those of low-end brands on the market. Eventually, the product was named "Ivory".
Start marketing at scale. With fist products in hand, how to sell them? The traditional path is through dealers (the jobbers), who take goods from companies such as Procter & Gamble and then distribute them to small retail stores, which is an important middleman in the retail industry in the context of the dispersion of terminal channels. If that were the case, then P&G wouldn't be the P&G it is today. In order to further increase the direct connection with consumption, P&G began a large-scale nationwide advertising campaign. Led by second-generation owner Harley Procter, P&G invested $11,000 (twice the historical marketing budget) for marketing. By 1890, Procter & Gamble's Ivory ads covered almost all major magazines.
Magazines were the mainstream media channel at the time. In the late 19th century, magazines were still the mainstream media in the United States, and it was pharmaceutical companies that were mass-marketing magazines at that time. By 1885, the circulation of the four major national magazines exceeded 100,000, and the total circulation reached 600,000. In 1882, P&G began to advertise in magazines, when the content of the advertisement was straightforward and a valid message for users, such as Ivory's advertising core two big concepts are "99.44% purity" and "can float". In addition, Ivory's advertising highlights the brand of the product, not the company's brand, and P&G also begins the process of directly building the relationship between the brand and the user's mind. Finally, P&G continued to adjust the advertising style after that, constantly experimenting to find the best results, and constantly experimenting has become one of the core methodologies for building the brand.
The Ivory brand is a success. Advertising became an integral part of P&G's brand building, and in 1886, P&G's advertising budget increased to $146,000, and in 1889 it increased to $223,000, of which 71% was spent on Ivory brand promotion. Brand promotion brings a premium to the product, and the premium brings higher promotion benefits to the channel, thus entering a positive cycle. By 1892, Ivory's annual sales reached 250,000 boxes, and by 1900, it had risen to 300,000 boxes, officially becoming the company's flagship product. In addition, Harley Procter led the closed-loop management of marketing delivery, performance analysis, and they began to analyze the data of the performance of each budget. While a popular saying at the time was, "I knew half of my advertising budget would be wasted, but I didn't know which half." However, for P&G, the efficiency of marketing expenses is crucial, and eliminating ineffective expenses through data analysis has been a priority for management since then. Finally, although marketing intermediaries had begun to rise at that time, P&G always insisted on controlling the core links such as Ivory's brand image, because the company felt that outsourcing the core links was dangerous.
Build a flagship factory, Ivorydale. Procter & Gamble has always regarded the core manufacturing link as one of the core competitiveness of the company, and the core reason is that for FMCG, brand management is often a competition of systematic efficiency, and its core is how to reduce costs, and the production link is the top priority, and the self-operated production link is to be able to control the lifeline by itself. In 1884, a fire destroyed P&G's original processing plant, giving the company the opportunity to redesign its plant and production lines. Eventually, a 30-unit super factory with an annual output of 2 million boxes of soap was erected, called Ivorydale. Another important aspect of this super work is the change from a flexible processing model (based on market prices and product strain) to an industrial model of special production (mass production of the same goods, guaranteed to the lowest cost). In addition to the gigafactory, P&G has also built a number of raw material storage workshops for storing production raw materials such as oil, perfecting the upstream layout.
Improve employee welfare and lay a good foundation. By the 1880s, P&G began to realize that its employees were the company's most valuable asset. Ivorydale employed hundreds of workers at the time, and several employee strikes broke out that year, which had a significant impact on productivity. In addition, the mobility of employees is also very high, with 50% of employees leaving within 1 year. In 1885, Procter & Gamble began to give employees a Saturday afternoon break (at that time, the mainstream was six working days a week, which shows that Americans were also diligent). In the years that followed, P&G also gradually launched a profit-sharing program for employees, began to pay dividends to employees, and in 1887, the company paid a dividend of $9,000 to employees.
P&G brand business 1 to N "brand management system"
William Cooper Procter became a key figure. In 1890, P&G was listed on the New York Stock Exchange as the nation's largest soap manufacturer, raising $3 million. If Ivory made P&G complete a breakthrough from 0 to 1, then in the following time, P&G completed the transformation of the brand business into a systematic project. The person who contributed the most in this process was William Cooper Procter, who had previously said that it was he who implemented the employee benefit system, the continuous reform of the incentive system, which made employees feel loyal, and P&G has always avoided employees from joining unions (which will affect efficiency). As we mentioned, bloggers believe that solving the problem of employees' subjective initiative is the most fundamental way for the company, and it is the top priority to set up a reasonable incentive mechanism.
The soap industry is undergoing a process of increased concentration. From 1890 to 1929, the U.S. soap industry experienced an increase in industry concentration— the number of manufacturers in the industry fell from 578 to 282, halving, but the size of the industry increased sixfold (from $46 million to $310 million). In the process, P&G acquired 13 soap factories through mergers and acquisitions. In addition, P&G has continued to expand its production base in the process, and in order to ensure the sustainability of raw material supply, the company has also acquired cottonseed oil manufacturers.
Establish a brand management system. It's not hard to build capacity, but it's hard to build one. In fact, at the same time as Procter & Gamble, many manufacturers also established large-scale production capacity, but in the end, few people survived. P&G's core survival skill is brand management capabilities – how to build a brand into an industrial system process, where industrialization represents cost and efficiency, as well as replicability. Next, we will take a look at how P&G is building these capabilities from multiple aspects such as product development, brand marketing and market research.
Product development. A unique and consumer-friendly product is a necessary condition for a brand, and if the product can also have a high technical content (often representing a significant improvement in the consumer experience), it often represents the potential for blockbusters. In 1890, P&G led the industry in establishing a research and development laboratory. The main work of the earliest R&D laboratories included testing product quality, how to reduce raw material costs and other functions. By 1900, the laboratory began to explore and study some new products, such as the development of naphtha soap. Since then, the status of the R & D department has changed substantially, Morrison (then the head of R & D) began to promote the upgrading of product development from practical guidance to theoretical guidance - before the product development ideas came from the first line of practice, and there was no theoretical research team, Morrison led the launch of Pilot Plants (pilot factory), from the classic process of product development for theoretical innovation and practical experiments, the size of the R & D department gradually rose to hundreds of people, becoming one of the company's core departments.
Strong product development capabilities enable P&G to keep up with consumer trends in the face of every change in consumer trends. Consumer trends are always changing rapidly, and P&G's major soap products at the time, for example, have undergone a transition from cube soap to thin soap, from thin bar soap to soap particles. Each change is systematic for the change of manufacturers (starting from the manufacturing end), and each change P&G has always led or closely followed the trend of the product, and then with its own marketing capabilities, desire to survive and other comprehensive strength, to stabilize in the first position in the industry. In 1945, 60% of P&G's retail soaps were granular, and a necessary condition for staying ahead of the curve was to keep up with the product's ability to keep up.
The birth of Crisco – heralds the maturity of P&G's marketing capabilities. In 1907, Procter & Gamble was approached by independent scientists to demonstrate a technique for converting liquid oil into solid fat (edible oil). In 1910, P&G patented the product and named it Crispo ready to launch it to the market. This is a daunting task, on the one hand, this product category is completely unrelated to the soap that Procter & Gamble has previously sold, and how to market such a product poses a new challenge to the company; on the other hand, the necessary condition for consumers to accept Crispo is to change the original cooking habits, which is also a seemingly unattainable goal. However, with the full cooperation of P&G's marketing department, it first sent a variety of samples to research institutions such as universities, local hotels and other consumer institutions for testing, seeking support and opinions; at the same time, the team tested different marketing methods in different markets, tested only newspaper marketing in a separate city, tested only exhibition car marketing promotion in another separate city, and other different channel promotions, 1-1 family promotion and other marketing methods, and analyzed and summarized different test results. After this series of studies and tests, the product was finally introduced to the national market in January 1912, and the launch was a great success under the offensive of saturated marketing (advertising in all media) and precise promotional activities. Crisco's campaign was also the largest new product promotion ever conducted by a U.S. consumer goods company at the time, which also heralded the maturity of Procter & Gamble's marketing capabilities.
Innovate the sales channel system. As mentioned earlier, P&G's main sales channel model at that time was distribution through middlemen. This sales model has increasingly become an obstacle to the company's growth as the company's size expands. On the one hand, middlemen will hoard goods for the sake of interests, purchase goods when the price is low, and then ship when the price is high, earning the difference, which directly causes P&G's production cycle and inventory fluctuations, increasing the company's costs. Second, these middlemen forceD&G to remove price controls and start giving retailers significant discounts, and excessive price cuts are undoubtedly a significant threat to P&G's brand value. With the development of the company, more and more of its brands, the company has also begun to think about crossing the middleman, establishing its own direct sales system, in fact, after the company's calculation, the direct sales system can increase the company's price control ability, which brings positive benefits significantly higher than the existing dependence on middlemen.
On June 28, 1920, P&G announced the opening of a direct selling system, and the company would maintain a unified policy for all retailers (including middlemen). Establishing a direct selling system first meant huge initial expenses — P&G, which used to face 20,000 dealers, now has to face 350,000 to 400,000, and the company needs to have the ability to deliver goods directly to these stores, so the company has built more than 150 warehouses and hired more than 1,000 delivery trucks. In addition, in the process of establishing a sales system, due to lack of experience, there was an over-construction situation, which made the company have to lay off employees later, adding a lot of additional costs in the short term. Finally, since P&G was the first consumer goods manufacturer to announce the establishment of a direct sales system at that time, the original middlemen began to boycott P&G products. This series of pressures caused P&G marketing to fall from $190 million in 1919 to $120 million the following year, and then to $106 million thereafter, before returning to its original level in 1925. However, history has proven that such a pain is worth it in the long run, and P&G has truly mastered its own lifeblood, so that it has the ability to improve efficiency in all aspects, and has become the core barrier of the company.
Build market research capacity. In 1925, P&G set up a market research department with a clear purpose, that is, to build the ability to understand user needs based on data analysis. In fact, for FMCG, the technical content is not the most important, whether it meets the needs of consumers is the most important. As a result, P&G began to develop products based on data research, the number of employees in the market research department grew to 34 in a few years, the budget also increased, and market research became an indispensable part of the research and development process of many new products.
Bringing all the links together – brand management. Market research, product research and development, marketing promotion, channel management and other brand development processes are finally gathered in P&G as Brand Management, which can be called the earliest product manager, responsible for coordinating the whole process of brand development to release, and has also become the most core department of P&G. In fact, after 1945, P&G began to engage in the era of professional managers, and its top managers basically had the experience of brand management product managers. Marketing, production, channel and other capabilities have gradually precipitated into P&G's middle office capabilities, becoming an important cornerstone for its new products.
About broadcasting and World War II
The rise of broadcast media. "Saturation marketing" has become a killer tool for P&G to launch new products, and keeping up with media changes has become a necessary condition. With the rise of the broadcast medium in the 1920s, P&G quickly switched its main marketing channel to broadcasting, from the largest magazine advertiser in the United States at the time (the first 40 years) to the largest broadcast advertiser, with an average annual marketing budget of $2-3 million higher than that of competitor Colgate. In the 1930s and 1940s, radio soap operas became the core product of P&G's advertising. In 1939, P&G marketed a total of 200 brands, of which 140 were soap brands, of which 6 major brands including Ivory and Crisco accounted for the main body.
Procter & Gamble during World War II. After the 1940 U.S. election to participate in the war, Procter & Gamble's factories began to produce ordnance at the request, at this stage due to tight production capacity, some brands were abandoned, and due to the progress of raw materials, its normal product production was also greatly affected, coupled with the scarcity of workers. However, crisis and opportunity always accompanied, during which the relevant research and development work continued, and the research on cleaning products laid the foundation for P&G's next blockbuster.
The story of P&G's next blockbuster brand, Tide
It was also an unexpected discovery. The discovery of laundry detergent also originated in 1931 on a trip to Europe by a Procter & Gamble engineer who discovered that during World War II, when soap was in short supply, German chemists developed an emerging product for cleaning clothes made up of synthetic compounds. After Procter & Gamble acquired this formula, it was quickly developed into new products Dreft (a soap, 1933) and Raine (a shampoo, 1934) for sale, but the related products did not succeed because the effect improvement was not obvious. After that, the development of new products entered the slow lane, and by 1939 P&G even shifted the focus of research and development to other directions. However, an engineer named David Byerly in-house of P&G still chose to insist on product development, and at this time, the product called "Product X" was almost unnoticed within the company, and perhaps it was because of this that it was able to continue to develop. After the commercialization of sodium pyrophosphate in the 1940s, engineers found that the addition of new cleaners significantly optimized the performance of the product. It wasn't until 1945 that David Byerly began to think that the product was ripe for show to the top.
Break the routine process and win valuable window periods. According to the conventional process, the testing process of new products takes 2 years, and it takes 1-2 years to promote them nationwide. However, after recognizing the subversive nature of the product, P&G executives decided to break the conventional process - after the blind test, competitors such as Colgate can definitely get samples to develop the corresponding product and launch it soon, although their product is certainly not as good as P&G's, but it is always a competition. If P&G abandons the cumbersome development process, it will win at least two years of valuable time window. In the face of similar important product promotions, P&G has never simplified the process, simplifying the process means increasing risk, but the keen sense of smell for the product prospect makes P&G dare to break the routine at key moments.
Day. Eventually, this disruptive and innovative product was named Tide, and P&G launched saturation marketing to promote it nationwide. Coincidentally, in 1945, this window period coincided with the promotion of washing machines, and washing powder became a "match made in heaven" with this new technology product, and P&G even formed an alliance relationship with washing machine manufacturers, buying washing machines and sending washing powder to promote products, for potential production capacity demand, P&G also improved the production process and reserved enough production capacity. Not surprisingly, Tide became a hit, consumers lined up to buy new products, and the products were sold out after production, initially the company's production capacity was 6,000 pounds an hour, and by 1949 it was increased to 21,000 pounds per hour. Tide's market share also exploded like never before, and it wasn't until 1948 that rival Colgate introduced Fab, a washing powder-like product. By 1950, after the promotion of Tide products, its market share increased to more than 30%, and the history of the next 50 years basically maintained this level, which also showed the brand's ability to sell for a long time.
△ 1946-2002 Tide's market share in the United States
Behind Tide's success, P&G's ability to subvert itself shows. Reading this, I don't know if the reader has any doubts, bloggers have it. The first impact of this disruptive and innovative product of laundry detergent must be the P&G soap business, why is the launch of this product not only without internal resistance, but also simplified the process and pushed to the national market faster and larger? The answer is P&G's underlying perception of the brand – market competition determines the life and death of the brand, and consumers are God. Even if Tide proves to erode the soap market, P&G has no choice. In fact, P&G was already a multi-brand operation strategy at that time, and the brand-centric (rather than category) strategy also made P&G not affected by the life and death of any brand. Finally, the culture of bottom-up innovation remains a "breeding ground" for in-house commitment to the development of the product, with Tide going from discovery to launch in 15 years.
In fact, Tide's explosion in cleaning products directly made P&G almost monopolize the US cleaning products market, and obtained considerable profits for research and development of new products. Competitors, on the other hand, take a long time to recover.
The second stage: matrix innovation, P&G becomes the king of consumer goods (1945-1980)
The U.S. consumer market entered a golden period after the war. After 1945, the United States entered a rapid development channel, and from 1940 to 1973, the per capita GNP of the United States increased by 3%, which was 1 times that of previous decades. In 1950, GNP increased by 50% across the United States. By the 1960s, each worker produced more than twice as much per unit of time as the average industrial country. Between 1940 and 1960, the population of the United States increased by 48 million, an increase of 37 percent. In the golden period of economic development, the American people began to pursue consumption upgrades, spending less time on household chores such as cleaning and cooking, and P&G's cleaning, paper towels, replaceable diapers (the detailed layout process will be mentioned later) and other products just meet this demand trend. By 1956, 95 percent of U.S. residents were using at least one Procter & Gamble product. By 1955, Procter & Gamble's revenue was close to $1 billion, ranking in the top 28 of U.S. businesses.
P&G was reorganized into three divisions. As mentioned earlier, P&G grew in size, and by 1956 its clean division, with Tide as its core brand, had a market share of more than 50 percent of the U.S. cleaning market. It was also at this time that in order to achieve its goal of doubling revenue in 10 years (which Procter & Gamble has maintained for decades, with an annualized rate of about 7%), the company should expand into more areas. In addition, in order to balance centralization (middle office, short-term) and decentralization (creative, long-term), SVP Morgens believes that the company should reorganize its organizational structure: food, medicine (toilet supplies) should be split from the core cleaning products department, so that different strategies can be used for different businesses, and the company can develop strategies to maintain maximum freedom. In fact, in the process of development and growth after that, how to balance the long-term and short-term, focus and diversification has become the core purpose of organizational adjustment (this is also the blogger's belief that the core of the strategy formulation of large companies is balance, judging the company's stage to give corresponding countermeasures, not going to extremes, and pursuing just right).
Expand into old business and enter new business. After the independence of the new department such as the toilet supplies department, they opened the research and development of new businesses, they found the market research department to ask for the demand, and concluded that the user was the core user demand by anti-tooth decay, so the department began to develop a corresponding product (the predecessor of Crest). In addition, in the 1960s, Procter & Gamble launched successful products such as Head & shoulders, and in the late 1960s, P&G occupied the first place in the U.S. shampoo market with two major brands, Hyphen and Prell. At the same time, we have carried out many product research and development explorations in the field of medical health care. In addition, in 1954, P&G established an exploratory business unit seeking to acquire attractive technologies or plants for products. Finally, P&G's food department also began to explore, based on P&G's technical accumulation in oil and fat products, to develop a potato chip product called Pringle's, which experienced many years of wheezing at the time of launch, and finally became a blockbuster product.
Quickly cater to TV marketing trends. Keeping up with the evolving trend of the medium is a necessity, this time television. The U.S. television industry began to develop rapidly in the 1950s, and from 1949 to 1956, the scale of Television advertising in the United States increased from one-tenth of the size of broadcast to 2.5 times the size of radio advertising. In the early 1970s, P&G spent $200 million a year on television advertising, accounting for almost one-seventh of the network's advertising revenue at the time (the real big money), but even so, P&G calculated that the cost of reaching a single user was only $0.25, far below the cost of direct mail. In addition, P&G also began to cooperate with external marketing intermediaries to produce TV advertising creatives, and unlike the general advertiser and intermediary A and B, P&G believes that its relationship with the advertising intermediary is a partnership, which makes its cooperative relationship can continue to be efficient.
Start an international development strategy. Unlike Gillette, which has been international since its inception, P&G has adopted the strategy of "foreign must first be inside", that is, it has spent about 100 years of history to consolidate its leading position in the United States, and then began the process of internationalization. Before World War II, P&G's international operations were mainly located in the United Kingdom and Canada, while part of the operations were in Cuba and the Philippines. In the UK, P&G built a factory early to produce cleaning products, making it lead the market by competitors such as Unilever (the main business was not cleaning products at the time). In 1954, P&G introduced Tide to France, gaining 15% of the market share in 1 year, which gave the company confidence and built factories in Belgium in 1955 and Italy in 1958. Since then, P&G has entered West Germany and maintained a good growth trend throughout the 1960s, and Europe has gradually become an important base for P&G's internationalization.
In addition, P&G has also begun to explore in Japan (more on this later), but it took P&G a long learning time to gain a real advantage in the face of strong local competitors such as Kao and Lion. In addition, in Latin America and the Middle East, P&G has also begun to gradually layout. From 1955 to 1979, P&G's overseas revenue grew from $240 million to $1.3 billion, an eightfold increase; overseas assets increased by fourfold; and overseas employees accounted for one-third. Ariel, a laundry product developed for Europe (later sold to other markets in Latin America and the Middle East), is about to surpass Tide to become the company's largest cleaning product.
P&G is under pressure from antitrust policies. Beginning in the 1950s, the U.S. government began to restrict large companies from wanton mergers and acquisitions, and P&G has since been prosecuted by the government for paper manufacturer Charmin and the acquisition of coffee brand Folgers. In 1967, P&G and the FTC finally reached a settlement, P&G could keep the Frogers brand, but any acquisition of any consumer brand within 7 years would require FTC approval. Based on such a severe regulatory situation, many companies at that time began to diversify their development plans (because antitrust laws only prohibit companies from acquiring the targets of related businesses), so many companies began to acquire businesses that had nothing to do with their main business (if you have seen hollywood history, the parent companies of several of the six major companies at that time were oil, electronics and other companies), this trend is called Convergence, that is, diversification. However, in the 1970s, P&G chose not to make any mergers and acquisitions, focusing instead on incubating new products and brands internally. In fact, in the 1980s, diversified companies encountered various empirical difficulties to a greater or lesser extent, and their equity encountered threats such as hostile takeovers (Gillette encountered it, and the acquirers would tear the company down and sell it). However, P&G has been focusing on its main business to avoid similar risks for the company. In fact, the constant focus on consumer goods is one of the secrets of P&G's longevity.
Survived the economic hardships of the 1970s. In the 1970s, the U.S. economy suffered a stagflation crisis and its economic development came to a standstill. In addition, the Gulf oil crisis has also hit the confidence of the consumer market, causing raw material prices to rise and consumers to seek cheaper alternatives. However, throughout the 70s, Procter & Gamble's leading brands such as Tide, Hyphenis, Crest, Crisco, diapers Palmers, paper products Charmin all maintained their industry leadership. In addition, in the face of changes in the shampoo market , when P&G has been working on how to keep the shampoo cleansing effect longer , users have become more frequent in bathing , and this effort has become meaningless. P&G's response was to launch Rejoice, a shampoo and conditioner in one.
P&G's successful exploration of paper supplies: long-term fishing for big fish
Acquisition of paper mill Charmin. As mentioned earlier, in the 1950s, P&G established Toilet Supplies as one of three independent divisions, and it quickly began to explore new businesses. Admittedly, there has also been an internal debate about whether to vigorously develop the disposable paper products business, and it is clear that once consumers can directly throw away dirty paper products, the frequency of their use of cleaning products may decline, which may affect P&G's main business at that time. However, based on the basis of market determinism, P&G still decided to enter the market, mainly based on two major bases: 1) P&G's cotton oil plant has fiber compound processing experience and capabilities; 2) toilet supplies also need the same marketing and channel capabilities, which is P&G's strength. In 1957, Procter & Gamble acquired Charmin, a small paper mill that, despite its 66-year history, sold only $20 million a year and was concentrated in the Midwest region.
Patiently learn new industries and new knowledge. In the first three years of the acquisition, P&G still let the original team manage the factory, sending only one VP to hold weekly meetings every Monday, and the core goal of the VP team was to learn knowledge, design new products and improve equipment. At that time, the degree of industrialization of papermaking was still like that of early soap, lacking the industrialization process, and many links relied on experience. After the design and application of P&G's industrial process, the production efficiency has increased by 50%, and the product quality has been significantly improved. After another three years, when Morgens (then President of Procter & Gamble) felt the time was ripe, he sent his core cadre, Harris, as the head of the Paper Division, and began to focus on new business. In the process of learning, P&G paid a high cost of learning, on the one hand, the paper products division lost nearly $5 million a year before taxes at that time, and in addition, the unit capacity expansion cost of paper products was 7-8 times that of cleaning products. In fact, the high investment threshold has become one of the important barriers in the paper products industry. Executives at Scott Paper, a key competitor in the paper industry at the time, estimated that P&G would need at least $1 billion in investment (equivalent to its annual revenue at the time) if it needed to actually enter the industry. However, P&G's determination and patience to enter the industry was unquestionable, and in the end P&G built a strong production line (P&G also spent $100,000 to build a hospital because it had to hire a lot of workers), and even bought 3.6 million acres of forest as a raw material reserve.
CPF technology breakthrough. From 1960 to 65, the annual compound appreciation rate of the toilet paper industry in the United States reached 7%, consumer demand grew rapidly, and P&G's product sales continued to increase, but most of its products were no different from those on the market. Until the arrival of CPF technology (which comes from the need to reduce costs, it is another accident) that P&G can produce softer and more absorbent paper products, which has gained the favor of the market. At the same time, the high equipment investment required by CPF technology has made competitors hesitate, and it has also given P&G an important window period. In 1964, CPF Technology's paper products were introduced to the market, Charmin CPF became the best-selling product in every new market, and throughout the 1960s, P&G's Paper Products division saw sales increase 11-fold.
Blockbuster diaper brand Pamppers. After World War II, the United States entered the baby boom period, with an annual birth population of 3 million, and the baby products market also developed rapidly. Procter & Gamble's diaper product research and development was first in the toilet supplies department, mainly the original is the early diaper sold in the pharmacy channel, but the market share is less than 1%, the original product is not close to the body, will leak. In 1956, Procter & Gamble began to develop diapers, and in early 1958 the product was basically formed, the product was named Palmers, when the cost needed to reach 15-17 cents, which is undoubtedly too expensive for most consumers, so the company expects this product to have a market share of about 6%. As production efficiency continued to increase, pampers' costs gradually fell to 5.5 cents, and it began to have the power of a national product, becoming the second largest brand in revenue after Tide.
The production line investment for diapers is heavier, costing $300,000 for a single machine and $2-4 million for one production line. In the early 1970s, pampers production was 250 pcs/min, and has since rapidly increased to 400 pcs/min. In fact, in 1962, competitors began testing similar products to Pampers, but their production capacity was far from P&G's. Seeing that Pampers became popular, in the 1970s, related competitors have launched competing products, but due to the disadvantage of late entry, these brands have never been able to compete with Procter & Gamble in efficiency, and throughout the 1970s, Pampers' market share reached a staggering 92%, and many competitors later withdrew from the market. Pampers quickly became procter & Gamble's biggest ever-selling brand.
As can be seen from the Pampers case, FMCG sometimes lies in the leading cycle of technology research and development (such as Tide), and sometimes the barrier lies in high investment and high efficiency at the production end (such as Pampers).
Crest: An amazing breakthrough in "efficacy"
Exploration of fluoride formulations. As mentioned earlier, market research surface anti-tooth decay was the core focus of oral health of American consumers at that time, in fact, in World War II, the average Number of Teeth Brushing Times per Week was less than 1, and until 1959, the average weekly brushing was less than 3 times. Procter & Gamble and Tufts University have long been working together to study the efficacy of sodium fluoride in preventing tooth decay, and in fact, in the 1950s, the academic community basically reached a consensus that fluoride can prevent tooth decay. Since then, P&G has launched Teel, a product containing fluoride, but this product was later reported by the ADA (American Dentist Certification) Association that it may cause discoloration of the user's teeth, and eventually this product died prematurely, and the relationship between P&G and ADA deteriorated, which made it difficult for Crest to win the ADA certification later.
Launch of Crest. After World War II, competitors such as Colgate began to gain a leading position in the oral market and used these profits to attack P&G's cleaning products and other sites. From a defensive point of view, P&G also had to speed up the development of oral products, and then P&G partnered with Indiana University to develop a toothpaste containing stannous fluoride, which was eventually named Crest and eventually proved to be effective in clinical trials at Indiana University, reducing tooth decay rate by 35%. In 1955, Crest was introduced to the market and ranked fifth in market share, behind products such as Colgate. However, due to its excellent efficacy, P&G is poised to position Crest as a therapeutic product with a medicinal effect, and achieving ADA certification is crucial. However, Procter & Gamble had a long relationship with the latter. Eventually, in various areas of the offensive (such as Crest also won the dentists to come, 12% of dentists will promote Crest products like patients), in 1960, the ADA gave Crest the effect of treatment of tooth decay certification (Smale, who helped with the certification, became the CEO of P&G in 1981, so it is important to get the key things done), and Crest also became the first professionally certified toothpaste product. Two days before the announcement, P&G's stock rose 15%. Professional certification in hand, Procter & Gamble began saturation marketing here, in 1961, Crest toothpaste market share reached 28%, surpassing competitors Colgate, leading the market.
Crest's success is not only economic benefits, it has helped the entire American society improve oral health problems, and it has also created high social value.
P&G's productivity is enhanced – an open working environment
P&G is not a traffic trafficker, and one of the core differences is that it controls the core production capacity and opens up the whole industry chain. The continuous improvement of production efficiency is also one of the important secrets of P&G. In fact, compared to the traditional top-down strictly controlled factory management model at that time, P&G first promoted an open working environment to stimulate the subjective initiative of employees, and they implemented seven guidelines in factories such as Augusta, which was newly opened in 1963:
Break down communication barriers between employees, especially between managers and employees
Establish common goals for all employees (unimpeded information)
Encourage deep involvement and sharing of important information among all employees
Promote the ultimate in regular communication to further maintain smooth communication
Create a system based on skills and team writing, rather than seniority
Give more encouragement to high-performing employees mentally (of course, the money incentive system the company has been improving)
Create a good working environment for employees to feel that they do not need union intervention to protect their rights
After the Augusta factory implemented a policy of greater worker autonomy, the productivity of its detergent products increased by 30% compared to comparable factories. After that, P&G further implemented the system and culture of autonomous work in the Lima factory, where there were no mentors or supervisors, and the executives were only the resource side of the workers (it was difficult to find the executives), and the employees maintained a high degree of self-discipline and high productivity. Lima was commissioned in 1968 and soon became the most efficient factory in P&G's manufacturing system, in addition to its breakthrough performance in safety production, quality control and other aspects. In 1970, as the Downy brand's softener capacity hit a bottleneck and the factory needed to innovate the process to improve the process, Lima boss decided to give the workers a week to solve the problem on their own, and then the factory itself met the company's requirements.
I have to say that it is really advanced, and there is even a shadow of a modern Internet company such as Netflix advocating a bottom-up innovation culture, which can also explain that the creativity of many of P&G's explosive products seems to come from accidents, but it is actually reasonable (because of this open and inclusive culture that encourages innovation).
Phase III: Globalization (1980-1990)
In the 1980s, Procter & Gamble encountered a crisis in development. In 1981, Smale (that is, the one who helped Crest get ADA certification) became the CEO of Procter & Gamble, he was professional, loyal, intelligent, gentleman, and the image of a typical P&G executive. However, P&G's development situation at that time was not ideal, and behind the slowdown in revenue growth was the decline in the market share of core products: in the cleaning market, the market share fell by 5pct, mainly due to the impact of low-priced products and unilever competition; in the oral market, the market share fell by 7pct, mainly due to the impact of competition such as Colgate; in the diaper market, the share fell by 8pct, mainly due to the impact of competition on Kimberly. In a relatively mature market, P&G's task is daunting in the face of competitors without loopholes.
Reduce costs. Reducing costs can increase efficiency, thereby increasing the overall profit level of the company. P&G began to optimize the cost of each process, such as adding cost assessment to KPIs experienced by the brand management product, optimizing the production process such as reducing ink on Tide bottles (reducing annual costs by $2 million). In 1983, 25 percent of the company's capital expenditures were planned to reduce costs, and in the early 1980s, P&G laid off 10 percent of its workforce. In addition, in order to increase teamwork and break down barriers between different organizations, P&G began to further implement cross-functional teams, promote cross-team cooperation, reduce costs and improve efficiency.
Organizational structure upgrade. In 1985, Procter & Gamble's profits fell 28 percent, the first time since 1952. At the same time, the company opened a round of organizational structure upgrades, when the company mainly faced three major problems including 1) the company has too many brands, are competing for limited R & D resources; 2) the excessive competition of internal brand managers, resulting in a lot of internal friction; 3) the lack of overall strength and coordination mechanism, everyone only cares about their own acres and acres, no one wants to do long-term things, cooperation things. In addition to such a simple way of asking the problem, "long time must be combined", Procter & Gamble set up a layer of CBU (category manager) between the VP and the brand manager, set up an executive according to different brands, vertical management of the category, the category manager not only manages the brand manager, but also manages the corresponding sales, finance, product research and development resources of the category, playing a role in overall development. In the middle of the growth, the top level is streamlined, and the previous 40-person executive committee (which has a weekly meeting every Tuesday to analyze the company's performance and make important decisions) is reduced to 20 people, only important decisions, regardless of specific things (decentralized).
Finally, P&G further clarifies the company's mission and values: "The company provides the highest quality products to the market and improves the lives of consumers around the world." Under this goal, we can achieve the world's leading market share and revenue profit growth, so that our employees, shareholders, communities (the entire ecosystem) to maintain prosperity. "The aim is to improve life with the highest quality products. And the rest is just the result.
Launch new products and restart acquisitions. The continuous introduction of explosive new products based on long-term sales is the core growth logic of P&G. In 1983, P&G had 22 new products in development, the most important of which were Duncan (a cookie) and Always (bathroom, American version of Hushubao). The former failed, while the latter achieved global success. Always is also based on P&G's foundation in fiber materials, and after being developed according to market demand, it has been successfully introduced to the market. In addition, in the 1980s, the U.S. government began to relax on mergers and acquisitions of large companies, and Procter & Gamble began to seek mergers and acquisitions to enter a new track, of which P&G acquired soft drinks, OTC pharmaceuticals ($1.2 billion acquisition of RVI, which was the largest acquisition of P&G at that time, bringing Olay, Pantene and other cosmetic brands), juices and other tracks for acquisition layout.
Procter & Gamble performance began to reinvigorate. After a series of restructurings and new products, P&G's performance began to recover, and its revenue growth increased from 4.7% in 1985 to 5.6% in 1989. Updates to core products such as Tide Laundry Detergent, Ultra Pamper, and Tartar Crest have also stabilized the market share of core brands, with new products such as Pert Plus (known as Rejoice in Asia, Andyrou) bringing about an increase. The layout of the OTC pharmaceutical market has also gradually gained gains, while P&G has begun to enter the cosmetics track, and Olay skin care products have begun to be successful in the United States. Although attempts at food products such as beverages ultimately failed, the 1980s finally entered a good growth trend.
P&G in Japan: Localization product development is a necessary condition for success
It's hard for Japan to do it. It seems that Japan is the gold market for cleaning products, and Japanese people have to wash their clothes twice a day, and for Japan cleaning is not close to God, but to God Himself. It seems that P&G's cleaning supplies are very marketable, and it is also with such confidence that in 1972, P&G entered the Japanese market by acquiring Sunhome, Japan's third largest cleaning product manufacturer. P&G is preparing to introduce its cleaning product, Cheer, to the Japanese market, while introducing Pampers diapers to the Japanese market. However, powerful rivals Lion (Lion King) and Kao (Kao) have launched lower-priced cleaning product competitors, which began to erode Cheer's market share, and Procter & Gamble's Japanese cleaning business fell into a loss. The diaper business is also not good, due to japan's extremely high quality standards, but the United States compliant products in Japan are not good, Pampers began to be criticized by users for poor quality. In 1981, Japan's Uni-charm introduced a Moony diaper that was priced at 40% more expensive than Pampers, but won 23% of the market share because it was more suitable for the Asian system.
Reflect and start a localization strategy. The Japanese market is very large, but it is difficult to do, P&G was discouraged in the first 10 years of entering, began to think bitterly about the problem, and started again. In 1985, Jager became the new leader of Procter & Gamble Japan, proposing several core strategies:
Understanding Japanese consumers: Full temperature laundry detergents such as cheer don't make sense in Japan because Japanese consumers wash their clothes in cold water. P&G's products must meet the needs of Japanese consumers.
Customized products. For example, in diapers, it is necessary to develop products suitable for Japanese consumers, rather than simply taking ready-made products.
Marketing should be in line with Japanese culture. Cultural differences inevitably bring about the need for differences in marketing methods, and the advertisements that were popular in other markets in the early days may not be suitable for Japan.
Promote P&G's image and brand. Japanese practice is not only concerned with the brand, but also with the manufacturers behind it, so Japanese products must emphasize the company brand at the same time.
Deep penetration of Sales Channels in Japan. Japan has a large number of decentralized channels such as convenience stores, and P&G needs to ensure that products are available on all channels.
Bottoming out. After adjusting the "mentality", P&G started again in Japan and began to deploy product research and development in Japan, and even once placed the global diaper product research and development center in Japan. Its more fitting Pampers, which were redesigned to Japanese consumer preferences, topped the market in 1990 and took nine years to increase their market share from 10% to 27%. Similarly, in response to the characteristics of cold water washing in the Japanese market, the introduction of a customized version of Ariel (Bilang) soon became the third in the industry (after Kao and Lion, it is still not easy). The most successful case is Whipper, which was introduced to the market in 1986 after being tailored for Japanese consumers, and even though it was 24% higher than the average market price, it quickly ranked first in the industry and received universal praise. In order to increase P&G's popularity in Japan, P&G was also listed on the Tokyo Stock Exchange in 1986, and eventually its Sales in Japan increased from $130 million in 1985 to $570 million in 1988, and the company became profitable in 1987 (after 15 years of entering the Japanese market, it was not easy), after which Japan became an important global research and development center for Procter & Gamble, as well as an important base for its entry into Asia.
Dangerous lesson: Diaper Wars
Almost fatal positioning error. The success of Pampers made P&G begin to flutter, thinking that it knew consumers better than consumers, and the crisis began to be conceived. In the late 1970s, P&G decided to launch a separate high-end diaper, Luv, which was different from Pampers, which had more high-end features and was priced 30% higher. In the view of P&G executives, this is very normal, through the product to distinguish the market, positioning different users can maximize the benefits, is a very reasonable choice. However, almost at the same time, competitor Kimberly launched a new product Huggies, which beat Palmers in terms of fit, absorption, and ease of wearing, but the price was only a little more expensive than the latter, and once this product was launched, it gained the favor of consumers who liked quality, and soon gained 25% market share (P&G still has 50%, but it is significantly lower than the previous 90%). The market seems to be starting to polarize, turning into a preference for cheap goods (not these two competing markets) and two groups of brands, and unlike P&G's imagination, brand users will be divided into two groups.
Practice makes the truth. No matter how correct the theory is, practice is the key to confirming whether it is appropriate. In the face of strong competitors, P&G's "division" strategy of operation proved to be an expensive mistake, not only was the competitors seizing the blank area to quickly gain market share, but the division strategy also delayed its own reaction speed. In fact, P&G has been hesitant for a long time whether to redesign Palmers, mainly because updating new products means risk and large-scale new investments. In 1985, P&G saw its first year-on-year profit decline in 30 years (mentioned earlier). However, P&G realized that simply improving Pampers would be difficult to cope with such a difficult competitor and had to completely redesign the new product. In just 11 months, Ultra Pampers launched, setting a record for the fastest market launch for p&G's new products and ultimately stabilizing Pampers' market share. However, this upgrade also indirectly made The positioning of Luv become awkward, basically becoming a failed product.
In the diaper war, P&G was almost killed by competitors, and the lesson was remarkable: never give competitors loopholes. To figure out whether product innovation has barriers or will soon become a universal function (FMCG is often the latter), this innovation is more difficult to be original (it will soon be imitated by competition).
P&G in Mexico – Don't underestimate the spending power of the low-end market
Practice often breaks the imagination. Bordering the United States and connecting Latin America (which can be a springboard into Latin America), Mexico is one of P&G's most important destinations for internationalization. Compared to competing for Colgate, which entered the Mexican market very early and has been successful in P&G-related categories such as cleaning products (Colgate's Fab has become the endorsement of laundry detergent), P&G has been basically 20 years slower. In the face of an economically underdeveloped market, the natural idea is that branded goods may not be sold, especially P&G cleaning products, and its high pricing estimates will deter local residents. However, this proved to be not the case, and P&G eventually turned upside down on Ariel, a product that did have technical advantages, and it turned out that consumers in the Mexican market were willing to pay for premium premiums for high-quality products. Initially, the company expected Bilang to have a 5% market share of this product, but Bilang quickly became a high-quality product endorsement, eventually gaining 54% of the market share and driving Procter & Gamble's revenue in Mexico to $340 million.
After that, P&G encountered difficulties in development in Mexico, the government began to control prices, began to review P&G advertising content, the economy began to have a crisis, raw material prices rose, the company's operation was in trouble, and P&G even considered whether to withdraw from the Mexican market at one point. However, in the context of cost reduction, P&G survived strongly, and it invested all its limited marketing expenses in advertising, continuing to strengthen the high-end brand image and value, and preparing for the long term. With the recovery of the economy, P&G's operations in Mexico were restored.
Pantene: A beauty attempt to cut into brand building
The shampoo market is very fragmented. The shampoo market is a typical FMCG market, with low production barriers and similar product characteristics, many players, so the market share is also very fragmented. By the 1970s, shampoo seemed to have become a purely marketed product, which was at odds with P&G's product philosophy (there was always a distinction to play). At that time, Procter & Gamble's global brand Haifeisi was positioned as a good chip removal and other functional. Since then, Procter & Gamble discovered the new BC-18 technology, combined shampoo and conditioner in one, made a breakthrough in product convenience, launched The Pert Plus (1979), its market share gradually increased from 1.9% in the year of release to 3.7% in 1986, reached 7% in 1990, and by 1990, it became the largest shampoo in the United States (or the product decided the winner), and then the product was promoted to the world, and its name in Asia was Cheere. You've probably heard of it.
Pantene – bottom-up product innovation. In 1985, Procter & Gamble entered Taiwan, starting from the shampoo category, and soon Piaorou occupied 11% of the market share, and Haifeisi had 7%, and its total market share was second only to Kao (Kao). The product managers in Taiwan wanted to develop a new shampoo, and they aimed at Pantene (a new brand brought to the hands of RVI after the acquisition), and they decided to define Pantene from the perspective of cosmetic aesthetics, that is, functions such as aggregation of light and protector, as well as the characteristics of shampoo conditioner 2-1. Pantene Pro-V became almost a hit in Taiwan, gaining the favor of many female consumers before it was promoted to the global market. Pantene's success has enabled Procter & Gamble, a company that has always been a bit like a science man, to have some understanding of the sensual aesthetic level, which also laid the foundation for the company's later entry into the cosmetics field.
Phase IV: Reinventing P&G for the New Millennium (1990-2000)
In the face of the new millennium, P&G still needs to adhere to the "double in ten years" strategy, and the company still faces multiple opportunities:
Internationalization: P&G began to focus on markets such as Central Europe (especially after the collapse of the Soviet Union) and Russia and China. In 1993, for the first time in history, overseas revenue exceeded that of the United States.
Re-aligning the product line: After reinvigorating major brands in the 1980s, P&G began to focus on new industries such as beauty and pharmaceuticals. These included the acquisition of Max Factor (which later became a blockbuster brand). And shut down and turn departmental failed brands and businesses.
Reimagining the supply chain: In the face of the rise of super channels such as Walmart, P&G must redefine its relationship with downstream channels.
Cost reductions: In 1992, P&G closed 30 plants (142 in total) and laid off 12 percent of its employees (13,000).
Innovation accelerates. Around 1990, the company's clean interest rate was about 10%, and by 1994 it was 15-17%. Profit growth in recent years has mainly relied on raising profit margins, while revenue growth has slowed down. In 1994, P&G established CNV (Corporate New Ventures) to lead the development and launch of important new products.
Organizational updates for 2005. As mentioned earlier, P&G's attempt to set up a category director, when P&G became a multi-brand and multi-business group company, how to balance centralized top-down efficiency and bottom-up independent innovation became one of the core organizational issues. Pepper became CEO of Procter & Gamble in 1995, with the intention of doubling P&G's revenue to $70 billion by 2005. Therefore, in 1995, the top-level design of the organization was made in advance. It will be the core business atmosphere GBU (category line) and MDO (regional line) two main lines, of which the former is responsible for brand incubation and management, while the latter is responsible for the core market. For mature markets such as North America, Europe, Latin America, and Asia, the GBU's leaders are responsible for the KPI indicators, while other markets have MDO regional leaders in charge (large market products are driven, small markets are channels). The company also decided to place two category core headquarters outside the United States, with Fabric and Home Care in Belgium (Europe) and Feminie Protection in Japan (Asia). In addition, P&G's 30-member executive committee was reduced to 12 members, further simplifying the scope of central decision-making.
The "sequelae" of organizational change were obvious, and Procter & Gamble had to change the coach. This massive organizational change has brought about a big backlash. On the one hand, many regional leaders (MDOs) feel that they are being stripped of their powers and start working passively; in addition, organizational changes have brought about less internal communication efficiency and even chaotic management; third, many small-scale GBUs have high fixed costs, bringing development difficulties. This series of problems forced P&G to change coaches, and Lafley took over and began to deal with a series of problems. On the one hand, Lafley chose to focus on the core customers and core markets of the core brand; on the other hand, chose to merge 3 small GBU (baby care, feminie care, Tissue and Towel). Lafley emphasized that consumers are Gods, emphasizing that P&G needs to pay attention to two moments, that is, consumers choose P&G products in the retail channel, and consumers use P&G products 3 billion times a day, the former 3 billion times a day, the latter 30 million times a day. Lafley also did some people optimization and began to emphasize partnerships with other companies to enter new businesses.
P&G partnered with Walmart to connect data
From game to win-win. Historically, the relationship between P&G and downstream retail channels has been more like a game relationship, with P&G forcing retail channels to give a better position, while the latter forcing P&G to give more discounts (7-20% discount rate), which directly affects the brand equity accumulated by P&G over the years. However, with the rapid development of national retail chains such as Walmart, it quickly became P&G's largest customer (the transaction volume reached $700 million in 1985), and Procter & Gamble also became one of Walmart's largest suppliers. However, at that time, the relationship between the two companies could be said to be cold. Walmart internally considers Procter & Gamble to be one of the most difficult suppliers to deal with, and its boss, Sam Walton, once wanted to deepen the relationship between the two and prepare to present the award to Procter & Gamble, but Procter & Gamble did not return his call. Eventually, however, Walmart grew larger and larger, and Procter & Gamble had to rethink the relationship between the two. In 1987, the top management of the two companies finally met, reflected on the original relationship handling, and decided to reconstruct the relationship between the two - in fact, Procter & Gamble and Walmart have become a community of destiny, they serve the same customers, to provide customers with better service is the most fundamental source of their profits, and the two sides can be a win-win relationship. The two sides decided to deepen the cooperative relationship in an all-round way, from the previous sales to procurement (1-1) to all-round cooperation and docking (inverted triangle, into a positive triangle).
The two companies spent 1-2 years to build an information exchange system that integrates P&G's consumer perception and Walmart's sales details, as well as some third-party data analysis. Instantly interoperable sales and inventory information can benefit both parties and improve the efficiency of the overall supply chain, and P&G's sales to Walmart increased by $250 million between 1989 and 1990, with both parties reaping tangible benefits.
P&G changes pricing. Traditional retail stores use the Hi-Lo system, that is, high pricing and low discounts, and P&G's pricing system is basically in line with this system. However, the rise of large-scale retail channels such as Walmart and Costco at low prices every day has made this pricing system uncomfortable. And the continuous discount will also damage the brand premium that P&G has accumulated for many years. In 1990, P&G decided to implement The Value Pricing, a fixed pricing system, which abandoned the original discount allowable range and instead fixed a discounted price, which was 12-14% lower than the original price.
P&G enters the Central European and Russian markets
In 1990, sensing the opportunity after the collapse of the Soviet Union, P&G decided to fully enter the Central European market (rather than the traditional step-by-step entry strategy). It developed different products and promotion strategies according to different markets, and quickly achieved success, and by 1995, the annual revenue of the European market reached 1.3 billion US dollars. After that, the company entered the Russian market in cooperation with St. Petersburg University (and later in China with Tsinghua), which soon became the largest TV advertiser in Russia, accounting for a tenth of the share. The Russian business also started well, with revenues of $630 million in 1995 ($78 million the previous year). However, the depreciation of the ruble in 1998 made everything change, the Russian business was in trouble, similar to the Mexican market strategy, in difficult times, Procter & Gamble did not reduce prices, insisted on building brands through brand advertising, during which many competitors withdrew from the Russian market, after the economic recovery, Procter & Gamble's Russian business began to recover.
Stories about the Ivory, Crest and Olay brands
Ivory: Strengths turn into weaknesses. Interestingly, Ivory, a century-old brand, initially relied on 99.44% purity to hit the market, and with the advancement of synthetic technology, high purity has become an obstacle to its evolution (only 0.6% of the ingredients can be changed). In 1957, Unilever introduced the Dove brand of synthetic soap, which made P&G a bit powerless to fight back. In the end, Ivory chose to stick with Purity's positioning.
Crest: Persistence comes at a cost. Since 1955, Crest has been positioning oral health outcomes, but its over-success has attracted many competitors to imitate, and its market share fell from 42% to 28% in 1979-1985. Later, Crest launched the Tartar anti-tartar series, once again increasing the market share to more than 40%. In 1988, competitors proposed the concept of baking soda, gaining 10% of the market share, but Procter & Gamble believed that such an ingredient was not good for oral health, so it did not follow. It wasn't until 1997 that Colgate launched a Total series that combined all oral health outcomes into one product and received FDA certification, and for the first time, P&G's market share in the oral market was lower than that of Colgate. Since then, P&G has launched whitening tooth patch products White Strips (launched in 2001) and Spinbrush (low-cost electric toothbrushes, which quickly succeeded) based on the Crest brand, and in 2001, Crest became the 12th brand in P&G history to sell more than $1 billion.
Olay: A successful attempt to platform brands. In 1985, through the acquisition of RVI, Procter & Gamble acquired the Olaya brand, which was already a leading position in the skin care track, especially in mainstream markets such as the United States and Europe, which was already the first choice of anti-aging skin care products for middle-aged women. However, lack of awareness of the cosmetics market and technological backwardness have kept Olaya stagnant and even losing market share. However, after in-depth research on market demand, P&G extracted 7 key points of the core concerns of female users for skin care, and developed an Olay Total Effects full-purpose care product based on this. For this new product, the ambition behind P&G is not only to improve, it wants to completely reposition Olay as the company's skin care platform brand, and position itself high-end, at that time, the general skin cream price of $8, this product priced at $19.99. In addition, on the channel, P&G cut the layout of the outlets of the discount store and increased the counter layout of the department store, further deepening the high-end positioning. The attempt proved successful, and in 2003 Olaya became the company's brand with annual sales of more than $1 billion. Olay's success has also created a precedent for P&G to platform a brand (develop a series of products), which is contrary to the traditional core concept of focusing on the brand, and the facts tell us that the direction of the platform is as long as the values and efficacy that the original brand wants to convey are naturally extended, and will not cause consumers to understand and confuse, it is feasible.
P&G in China: Continuous learning and improvement
Open the market with shampoos. The reform and opening up in the 1980s made the Chinese government open to foreign investment, which immediately attracted P&G's interest – the 1 billion-person market could not be abandoned. P&G was initially ready to open up the market with cleaning supplies, but found that Chinese consumers were not sensitive to the quality of cleaning products. Unexpectedly, market research found that Chinese consumers are particularly fond of shampoos because they can directly change the appearance. Procter & Gamble is ready to cooperate with Hutchison Whampoa (Li Ka-shing) to enter the Chinese market together, in 1988 Procter & Gamble launched a small bag of Haifei silk (0.5 yuan / bag) in parts of Guangdong, which is sought after by the market, even in the countryside, consumers will buy Haifeisi to use it when they go out (understandably, to face). Soon, Haifeisi was strategically reaching 15% in Guangdong's urban areas, and by 1989, even if the coverage area only focused on Guangdong and surrounding areas, China was already the fifth largest sales market in the world. Since then, Procter & Gamble has launched products such as Pantene and Shufujia in China, and its revenue reached $100 million in 1992, doubling year-on-year. In addition, P&G also found that Chinese consumers have a very direct understanding of the concept of advertising (first perspective), and an advertisement that is very popular in the Philippines has not been transplanted to China, but the effect is not good, mainly because the content has nothing to do with the lives of ordinary people.
Cleaning products meet local competition. After that, P&G began to introduce cleaning products, positioning Bilang as high-end, Tide as mid-range, and acquiring local manufacturer brands (such as Panda) as low-end, forming a three-tier product route. Revenue from cleaning products in China began to rise rapidly, reaching $800 million in 1995 and maintaining a rapid growth rate. However, P&G soon encountered local competition in the Chinese market, and competitors led by NAES (carved brands) reduced the cost to a very low level (labor costs, basically do not do research and development), the price of the tag was only one-third of the tide, and Procter & Gamble began to lose market share. Since then, Procter & Gamble has had to cut the price of Tide, shut down many local brands, and fully face the Chinese brands. Oral products have a similar experience, Unilever's Chinese toothpaste is only priced at 3.5 yuan, while Crest reaches 10 yuan, and the high price makes it far away from the mass consumer market. Without compromising on product efficacy, P&G had to continuously optimize its formulations, reduce costs, and eventually launch the Crest Snow series, increasing its market share.
With long-term preparations, P&G continues to do organizational construction in China. In order to operate in China for a long time, it is necessary to complete the local deployment of technical and management talents, and from the 1990s onwards, P&G began to increase recruitment efforts in China. P&G has also established a technology research and development center in Beijing and cooperated with Tsinghua University to develop new products. Similar to the Japanese experience, products developed for Western markets must not be suitable for the Chinese market, and localization product development is a necessary condition for winning in the Chinese market for a long time.
Postscript: The brand management set of the company - Procter & Gamble
Confucius said that "warm the old and know the new", P&G's story is really too much worth remembering, and it directly created the longest note in the history of this public account. Let's first take a look at the author's summary of P&G's 200-year history of brand management. First of all, from the company level, P&G insists on doing 5 things:
Insist on focusing on branded consumer goods: The core growth drivers come from endogenous growth, such as Ivory, Crest, Pampers. Extension is only a means. Insist on doing in order to often do new, in order to continue to accumulate.
Cut into brand building in all directions. What is a brand? How do you build a brand? P&G's answer to branding is certainly not just marketing (DowDaunt is not very good), every innovation on the branding link may be able to create a brand. On the contrary, if a track product cannot be differentiated and the efficiency cannot be significantly improved, P&G will feel that it is not its strength.
Trial and error, identify opportunities & reduce risk. This is very advanced, basically similar to the underlying logic of the modern Internet company ABTest playing style. Practice leads to true knowledge, trial and error is also an important way for P&G to learn new abilities.
Extreme execution efficiency. Want to get to do, always strive for the first, not to be left behind is the Procter & Gamble creed, it has also done, in the brand encounters a crisis can always be revitalized, in the emerging market development can always find a way.
Balance is the core strategy of the company's long-term operation. Internationalization is good or not, developing new products is good or not, short-term growth is good, sticking to old products is good, and sticking to tradition is good. This all makes sense, however, 200 years of history P&G tells you that these are not immutable, balance is the most important, to create synergy when the organization needs to work together, and to give power when it needs autonomy. The fool is not enough, the wise man is too good, and the saint can be just right.
In addition, the author also summarizes the ten principles of brand management:
Go the right way and persevere. Wisdom sometimes looks a little silly in front of short-termists, insisting on being a brand, insisting on quality without compromise, and insisting on its long-term core values. In the long run, it is wisdom, not cleverness, that determines fate.
Strong desire to win. Always strive for the first.
Fight a protracted battle. The essence of the brand is both rational (quality) and emotional (loyal), the latter needs to be accumulated.
The customer is God. How to break through the innovator dilemma? The case of P&G tells us that it is very simple to treat customers as gods and let the market win or lose.
Give employees full freedom. Crest, Ivory, Tide, these cornerstone brands of product creativity found that are bottom-up innovation, employees can not achieve innovation without freedom.
Adhere to the improvement of the process system. Only by doing each link in place and constantly improving can the probability be maximized.
Continuous innovation. P&G's annual R&D expense rate of 4-5% may seem small, but considering the huge revenue volume and sustainability, it is actually not small.
Lead the way. It is better to expect others to subvert themselves than to subvert themselves.
Leverage partners. Many people are powerful.
Make friends with downstream channels. Establish a community of destiny relationships, such as the relationship between Procter & Gamble and Walmart.
The author has already said it comprehensively, and the blogger adds two more points:
1. Do the right thing for a long time – wisdom. P&G's experience tells us that the commonality of material consumption and spiritual consumption is that some of them have accumulated markets, and they can make businesses that cross bulls and bears, through technology, and through channel changes. Typical cases are Procter & Gamble and Disney, whose development without exception is the needs of users for a better life. Inspiring content can generate spiritual IP, which can be accumulated continuously. While brands that represent high-quality goods can generate IP (and also have spiritual attributes), Brand Equity can continue to accumulate. A hundred years of Mickey Mouse, a hundred years of Tide, Ivory, there is something in common. The benefit of the consumer industry is that demand is always there, that the right thing for the long term represents long-term sustainable growth, and it turns out that in 1946-2003, P&G maintained a 10% increase in profits cagr for more than 50 years.
2. Systematic thinking – searching for wisdom. Unexpectedly, it is reasonable, it is the most we say in this article. When we make investments, we often overemphasize the uncertainty of the individual (intelligence), but we do not see the certainty of the system (wisdom). Whether it is from creating content IP or building brands, the single body undoubtedly has uncertainty. But P&G's history tells us that there is certainty behind the uncertainty of these individuals, Ivory, Crest, Tide, these seemingly unexpected results, are actually reasonable, and its basis is a sound brand building system, as well as a bottom-up relaxed atmosphere. Thinking about certainty often makes us prefer channel-based companies. However, from a long-term perspective, systematic thinking can allow us to find certainty companies like Disney and Procter & Gamble that are cloaked in "uncertainty".