Late last week, Procter & Gamble Co. revealed its sales expectations for the next few years, and things don’t look good: 2009 will increase 2-3% (below prior forecasts), and 2010 will be worse, perhaps climbing only a percentage point or two above flat.
I give P&G credit for even providing such guidance, as so many other companies have used the current economic malaise to throw up their hands and avoid it altogether (which I think is the same thing as admitting they have no idea what they're doing).
But the company is in a pickle: its profit margin on premium-priced household staples is threatened by a sharp decline in household spending, combined with an increase in the availability of just-as-good, but much cheaper brands. The competitive pressures are going to stick around, even when the economy improves.
Its plan? To lower prices and sell cheaper new products, while finding new qualities to add to its brands so that consumers will pay more for them, whether now or later on.
"Innovation is P&G's lifeblood," said CEO Lafley to investors. "It stimulates growth in our industry even in economic downturns."
Squeeze me?
I know that P&G wrote the book on consumer packaged goods marketing. Legions of people trained in its crucible of brand management have gone on to teach generations of marketers how to lead brands as businesses, and never write plans that can't fit on a single page of paper.
Only that book was conceived in a different time and place, and its theological truths aren't eternal, but rather deeply ingrained in the context and content of the mid-20th Century. At its core, the P&G bible reads like this: first there was The Concept, followed with other ideas and feelings attached to it, which are then distributed to The Consumer. Chapter and verse declare reasons why people should pay more for whatever it was P&G sold, and consumers genuflected accordingly.
P&G has worked valiantly to keep its faith, doing everything from inviting every conceivable new media guru to reveal new doctrine in Cincinnati, to swapping employees with Google to better immerse itself in the future. If there were any chance that it could adapt its time-tested ways to this new world of ours, P&G would have already done it. More importantly, it would be yielding sales and profit results.
Only it isn't. "Innovation" doesn't stimulate growth, other than in the bank accounts for all the consultants who wax poetic about it.
P&G's challenge isn't to find ways to make square pegs fit in round holes. The key is to make round pegs. Only that would mean changing the very premises of its business.
Here's some heresy for its bible:
- People don't want to join a social network to talk about my toothpaste
- They don't need to "engage" with brands, but rather need to clean clothes, etc.
- New media aren't channels as much as places
- Every conceivable element of brand perception is now beholden to the reality of experience
- The context of brands -- from competitive choices, to the "noise" of the economy and life in general -- are integral aspects of branding, not apart or around it
So no amount of innovating based on old ideas is going to cut it. I think we’re talking "complete reinvention" or "blow everything up, and rebuild it anew." A better Tide won't command the price premium the company needs. Only a different one will.
This is the sort of heretical language in which the sequel to the consumer packaged goods bible will be written. As of last week's announcement, I don't think P&G has figured out that it needs to start looking for a new book.
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