P&G get back to the core
My old company Procter & Gamble (P&G) recently announced solid if not spectacular organic sales growth of 2% for the last fiscal year, up from 1% growth last year. Core earnings per share increased 11% in constant currency. The company has the “right plan in place” for continued growth according to comments reported here from CEO David Taylor [in case you didn’t know, I run P&G in my spare time 😉 ]. Key to this growth plan is a refocusing on the core in terms of categories, brands and competences, as I outline below.
1. Focus on core competences
First and most fundamentally, P&S seems to be re-focusing on its core competences. The rather fancy term given this strategy is a focus on “irresistible superiority” in product, packaging and advertising.
Irresistible superiority is very much what made P&G famous. I saw this firsthand when working there at the start of my career. The whole business was built on two key foundations. First, develop a blind-test winning product. Second, communicate this in a way which is above all effective. And this very much seems to be the P&G approach again today. “Product and pack benefits need to be communicated with exceptional brand messaging – advertising that makes you think, talk, laugh, cry, smile, act and of course buy,” observed Taylor.
P&G is still struggling in some categories, including shaving where Gillette is under a lot of pressure from ‘insurgent’ brands like Dollar Shave Club. But there are also encouraging signs from other brands that the strategy of driving success through superiority is paying off. Taylor pointed to washing-up liquid brand Fairy’s UK market share growth, from 55% to 70% in the last decade, behind messaging focused on superior performance to own-label products. Fairy’s US equivalent, Dawn, increased share from 40% to 50% during the same time period.
2. Focus on core categories
The second part of P&G’s re-focusing effort concerns categories, which have been cut from 16 to 10. The comments of CFO Jon Moeller here give some clues as to how these core categories were selected.
The first criteria is a focus on categories where product superiority matters. “We want to be in categories where purchase motivation is driven by the ability of a product to meet a need in a demonstrable way,” added Moeller. The categories that P&G has exited from in recent years were ones where “purchase intent was driven by something else – fashion, flavours, fragrance, self-image.” Categories falling into this camp include fine fragrances and make-up.
Second, the company is focusing on products used on a frequent basis, where the superiority highlighted above is easier for consumers to perceive. “Categories that we really like are those where a product is used daily or even more than one time a day,” Moeller said. This helps explain why P&G sold off the Duracell battery business, as this is a category that has infrequent consumer interaction.
3. Focus on core brands
The third area of focus is to concentrate time, talent and money and on a smaller number of brands. This focus on core brands has been partly driven selling off brands in line with the category focus discussed above: P&G has cut the number of brands from 170 to 65. In addition, the bulk of money is being invested on the most important ‘power brands’ in the resulting, smaller portfolio. And this focus seems to be showing early signs of paying off, with eight of the ten leading brands grew faster than the company average. “There’s no question in my mind we can accelerate growth on our core brands,” commented David Taylor here.
Taylor also made some interesting comments about the importance of having leading brands in an increasingly online world. “If anything online, consumers look at less brands,” he observed. “When you online, you’ll probably look at page one, maybe page two. And strong brands tend to occupy the majority of page one and page two.”
In conclusion, P&G is a good example of a company re-connecting with what made it famous and focusing on the core in terms of competences, categories and brands. It will be interesting to see if the company can use this focus to drive stronger growth in the 2017/18 financial year.