Earlier this month Proctor & Gamble (P&G) announced that it would be cutting more than half its brands, a drastic shift in strategy for the world’s largest consumer-products company. In the past, the company obtained brand after brand, even within the same category to ensure a hefty percentage of shelf space and leverage for consumers’ dollars. But as the retail landscape is shifting, P&G, along with other CPG companies, are having to adjust their paradigms and their portfolios.
From the Wall Street Journal:
P&G didn’t say which brands it will sell or shut down, but it will be a sizable culling of products that bring in around $8 billion a year in revenue. The company owns scores of lesser-known brands including Era and Cheer laundry detergent, Clearblue pregnancy tests and Metamucil laxatives. Dozens could prove attractive to private-equity firms that specialize in orphaned brands or companies in countries like China or Brazil looking for a more global presence.
“I’m not interested in size at all,” Mr. Lafley said in an interview Friday. “I’m interested in whether we are the preferred choice of shoppers.” He said some larger brands may be culled if P&G decides it cannot do well in those segments, and pointed to the company’s recent sale of its pet-food brands, including Iams which had over $1 billion in sales.
So it’s no longer about amassing a chunk of brands, but about keeping and focusing on those brands that are the best fit for the company. Though P&G has not declared which brands it plans to sell, likely some of its smaller, less productive brands will be let go. However, this doesn’t necessarily mean smaller, niche brands are going to be out completely, as long as they are niche market leaders, like Dreft baby clothes detergent or Fixadent denture adhesive.
In looking at this shift in strategy by P&G, it’s crucial to keep consumers in mind at the core of this shift. These days companies must wage battle for consumers’ attention through what seems like a ever-evolving number of channels. There are thousands of TV channels now, satellite radio, social media channels like Facebook, Twitter, Pinterest, with new ones popping up everyday, along with display and search advertising in addition to more traditional advertising, and that’s just a brief summation. While it’s ripe with opportunity to be able to reach consumers on so many levels, the only way to reap the rewards is if brands can break through to be seen and remembered. And when you have too many dogs in the fight for consumers’ attention, you don’t do any of your brands any favors by creating more competing “clutter.”
Additionally, think of the impact of technology has had on the state of retail given the physical store shelves are competing with virtual store shelves. On his blog Stratechery, technology strategist Ben Thompson addresses the P&G announcement within this context:
…Remember, dominating shelf space was a core part of their strategy, and while I’m no mathematician, I’m pretty sure dominating an infinite resource is a losing proposition. What matters now is dominating search… There are two big challenges when it comes to winning search:
- Because search is initiated by the customer, you want that customer to not just recognize your brand (which is all that is necessary in a physical store), but to recall your brand (and enter it in the search box). This is a much stiffer challenge and makes the amount of time and money you need to spend on a brand that much greater
- If prospective customers do not search for your brand name but instead search for a generic term like “laundry detergent” then you need to be at the top of the search results. And, the best way to be at the top is to be the best-seller. In other words, having lots of products in the same space can work against you because you are diluting your own sales and thus hurting your search results
The way to deal with both challenges is the same way you break through the noise: you put more focus on fewer brands.
I think Thompson hits the nail on the head, especially for such a large player like P&G in the CPG game. Time will tell if this move helps P&G’s bottom line and if the private equity firms expected to purchase the former P&G brands wind up with deals.
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