If P&G can’t get it right, what will the rest of us do?
P&G the master of consumer branding recently reported a 11% year-over-year revenue decline, more than analysts expected. The maker of Tide, Pampers, Bounty, Charmin, Crest, and Olay blames market share losses for part of the drop as more consumers switch to lower-priced products (e.g., store brands).
According to the Wall Street Journal, “In recent years, Procter & Gamble has put more focus on higher priced products – like pricier Olay creams – in an effort to drive growth. That strategy has hurt the company during the recession as consumers cut discretionary spending in areas like beauty and traded down to cheaper pantry staples.”The key uncertainty facing P&G is:
Where is the consumer headed?
For national branded goods companies, Main Street or national big box retailers, Prada, in fact any company selling to consumers, there is no more important question today. Even B2B companies selling to B2C companies must ask this question.
The answer, at least in the only market I can speak authoritatively about (the US), is “We just don’t know if the recession-induced buying behaviors are permanent or not.”
So what should you do? You focus on what will remain certain in the midst of uncertainty and make sure these principles shape your strategy.
Price is not the endgame. Rather, consumer purchase decisions are based on value, which is the difference between perceived benefits and costs to acquire these benefits in the consumers’ mind. Benefits and costs can be
- Tangible–––lasts longer, saves money overtime
- Intangible–––dealing with this company is too frustrating
- Functional–––less time required
- Emotional––– I feel less lonely
- And/or philanthropic–––I’m making the world a better place if I buy this
It takes only one other equivalent competitor to be a commodity. When benefits are perceived as similar, price drives decisions. If you’re not lowest cost, become benefit differentiated.
Consumer’s core principles shape what’s a benefit or cost and oftentimes these principles change from generation to generation. In the words of my 20-year old, “I feel really torn as I adore fashion, but fashion drives you to want to keep buying new things, but that’s bad for the environment. Everyone I know is thinking differently it seems these days about what we are buying.” Lauren’s also totally net savvy. Add these two things together and consumer goods companies face very different consumption patterns than my generation at the same age.
The consumer doesn’t care about your company. They care about themselves and what’s of value to them. Your communications must focus on what matters to consumers and they’d best be two-way and informative, versus promotional.
There’s opportunity at the bottom of the consumer pyramid. If you take a global perspective, some of the best consumer opportunities are in the developing nations, but they will require different business models than what works elsewhere. Entrepreneurs are also discovering new business models to bring fresher produce to low-income US inner city areas.
Brands will continue to matter (they save time, can offer affiliation-benefits, and reduce shopping stress) but only if there is true differentiation versus advertising spin.
Brands will succeed only if they’re built upon true, hard-to-copy advantages. Advantages are unique, hard-to-copy skills and assets that enable you to be lowest cost or offer differentiated benefits. Business model innovation becomes the new requirement for success, as it creates the foundation of hard-to-copy advantages that enduring brands can stand upon.
According to the Wall Street Journal, P&G is testing Tide Basic, a stripped down Tide at a 20% lower price point with weaker product performance. This is a risky move for a “best in class” product. Do you think lower-performance is a good move for P&G over the longer term?