Beyond Online Ads: P&G Sets $4 Billion E-Commerce Goal

Aims to Grow Online Sales Eightfold -- Equal to Drugstore Channel

By Published on . 6

BATAVIA, Ohio (AdAge.com) -- E-commerce has never reached even 1% of Procter & Gamble Co.'s sales, but now the company is looking to increase that share more than fivefold as it seeks to capitalize on its growing investment in digital media.

P&G -- and new CEO Bob McDonald -- is counting on e-commerce, including sales through such outlets as Amazon and Walmart.com as well as through its own websites, to become as much as a $4 billion or bigger business for the $79 billion company. That's more than eight times the $500 million a year P&G gets today from e-commerce.

Tellingly, P&G included both digital media and e-commerce in the job responsibilities of Lucas Watson when it appointed him global team leader of its digital business last year. Traditionally, the company has kept its retail sales and brand marketing functions mostly divided. But giving him responsibility for both has a strategic purpose, as the interconnection is both obvious and growing.

"Some categories see as much as 30% to 50% of their business in e-commerce," Mr. Watson said. "Our forecasts don't suggest consumer products will ever work like that. But it's not out of the realm of possibility e-commerce will be more than 1% of our sales. Getting north of 10% would be an aggressive goal, but somewhere in between that would be, we think, within the realm of possibility."

That would put e-commerce on par with such channels as dollar stores and drugstores, he said.

Tough road
InternetRetailer.com pegs the entire sales of Walmart.com at less than $2 billion. P&G's global sales to Walmart Stores alone -- mainly offline -- are about $12 billion.

Forrester pegged total online retail sales at $156.1 billion last year and projected growth to $229.1 billion, or 8% of total retail sales, by 2013. But fewer than a third of online consumers purchase package goods online today.

Nielsen earlier this year projected e-commerce sales will grow 20% to 25% annually for consumer package goods in the years ahead.

Alice.com, a new venture-capital-funded site for CPG e-commerce that lets manufacturers keep the profits, is off to a fairly fast start since its May launch, with its 387,000 visitors in July, surpassing Diapers.com.

Online sales dovetail with P&G's growing investment in digital media, Mr. Watson said. "The ability whenever the consumer raises her hand and says, 'I'm ready to buy,' to connect her directly to a purchase rather than have her wait and go to a store, we think of it as providing better service."

Paying off
P&G has increased its marketing spending on digital -- to 4% of total spending in the first quarter, per TNS Media Intelligence, and likely a much higher proportion if all spending on such things as search, video and behaviorally targeted ads were included. Online sales help pay the freight, though Mr. Watson said P&G likely will never make direct sales a major part of its business model and looks mainly at the impact on offline sales to measure impact from digital spending.

And digital is delivering rising return on investment, as measured through marketing-mix models, even as the company spends more, he said. "Many people predicted it would not happen that way."

Increasingly P&G looks at digital spending the same way, be it via media or online trade marketing. And those lines are blurring as Walmart.com and Target.com sell banner ads on their sites.

"Whether it's an investment in a banner ad, in a search-marketing ad or in a shopping experience ... we will look at all of those and their ability to drive revenue for our company," he said.

For that matter, P&G is increasing the e-commerce profile of its own sites as well, adding more prominent "where to buy" and "shop" buttons on its websites, which are by no means digital backwaters. With 1.5 million unique visitors last month, Pampers.com had five times the traffic of Diapers.com, according to Compete. The "shop" button on the site leads to Drugstore.com, Target.com, CVS.com, Diapers.com, Amazon and P&G's own TheEssentials.com.

P&G isn't playing favorites: TheEssentials.com gets last listing when a shopper wants to buy diapers at Pampers.com. The site, with only about 30,000 visitors last month, is dwarfed by the others. But a growing number of P&G brands -- also including Tide, Old Spice and Secret -- have begun selling their wares in the past year on the site.

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