P&G Gets Aggressive With 'One Company' Approach

Company's Been Successful by Throwing Its Weight Around, but Analysts Ask Whether It's Going too Far

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. was called a bully today at an analyst meeting in Cincinnati -- and that's not necessarily a bad thing for the company.

The company's new go-to market strategy, which has major implications for P&G's marketers, competitors and agencies, has helped fuel a sales and market-share rebound in recent quarters, but in an meeting in Cincinnati today, but it's aggressiveness also prompted an analyst to ask whether the company risks going too far as a "bully in the schoolyard" with the program.

For the past couple of years at least, P&G had been on the whole a market-share donor. The last time the "b" word came up much was in 2006 or before, when P&G was roundly beating its competitors on the top line. Subsequently, it began its slide toward the bottom half or quarter of its peer group in organic sales growth. But in recent quarters P&G has been in the top half to third of its peer group in organic sales growth, gaining market share by its own account in 60% of its category/country combinations last quarter.

Part of what has gotten P&G to the point where it's flexing its muscles and drawing "bully" questions again is a substantial reshaping of how it makes decisions, funds marketing plans and works internally over the past 18 months under Chairman-CEO Bob McDonald, according to key executives in an unusual panel discussion during the meeting.

In the past, product-launch plans for P&G were driven largely by the global business units that controlled most brand marketing budgets and planning. The company's country-focused market development organizations implemented the plans, making changes largely only when it was impractical to launch too many things simultaneously.

The MDOs ran multibrand marketing efforts, but the funding generally came from the global business units via what Mr. McDonald and many others have described as "tin cupping." Often, Mr. McDonald acknowledged today, those tin cups came back many coins short of a significant budget.

Now comes what Mr. McDonald describes as P&G's new "One Company" approach -- a name that bears a resemblance to its rival's "One Unilever" movement to streamline decision making five years ago or even PepsiCo's much older "Power of One." P&G's plan shifts substantial power and resources from global units toward regional MDOs and even the centralized marketing organization headed by Global Brand-Building Officer Marc Pritchard.

The idea is for GBU and MDO leaders to jointly plan multibrand initiatives and multiple launches in countries or regions, including simultaneous initiatives in the past year in toothpaste, hair care, laundry and other products in Brazil that produced a 30% sales bump.

Instead of the MDOs "tin cupping" for GBU funds, executives of the two organizations jointly plan budgets and increasingly pool resources for multiple brands into single companywide efforts, such as the Winter Olympics corporate program earlier this year, the multibrand NFL sponsorship program or the global effort planned around the 2012 Summer Olympics.

That lets some smaller P&G brands tap into resources they could never otherwise get on their own, said Rob Steele, vice chairman-global health and well being, noting that Vicks, a $500 million brand, could tap New Orleans Saints quarterback Drew Brees as a spokesman, just like $9 billion global brand Pampers has in the past year. Ed Shirley, vice chairman-global beauty and New England Patriots fan, joked that the company should plan on signing likely 2011 Super Bowl MVP Tom Brady. More seriously, he said of the new system, "It's a big cultural shift. We weren't wired this way in the past."

Mr. Shirley, the highest-ranking remaining executive brought in from the 2005 acquisition of Gillette, has been instrumental in pushing for the shift, first as head of P&G's North American business three years ago and more recently as head of its global beauty business.

Among the most common criticisms of P&G among the Gillette executives who left following the acquisition was that P&G's global and regional organizations didn't coordinate or communicate well.

P&G Chief Financial Officer John Moeller said the company is "only in the third or fourth inning" of the streamlining effort. It won't accelerate restructuring spending, he said, but it is likely to generate cost savings that can be re-invested through "more time on the air or we can take to the bottom line."

The effort also appears likely to result in more marketing executives moving from global to regional units to avoid duplication. "By taking out these resources, there's no one who can duplicate the work," said Werner Geisler, vice chairman-global operations, who oversees all of the regional units.

P&G's plan also means shifting work and new opportunities for agencies. One is Wieden & Kennedy, which, despite work on Old Spice that for several years was widely lauded by senior P&G executives, never got additional major assignments until this year when it won a pitch to lead the multibrand Winter Olympics effort.

The new coordinated planning process is producing plans through which P&G hopes to enter 250 new category/country combinations globally by the year ending June 30, 2016, up 13% from the current 1,900.

Where the alleged bullying comes in is that consumer and retailer needs aren't the only criteria shaping marketing plans these days. Potential impact on and response from competitors also plays a role.

Among examples of integrated planning P&G pointed to from the past year in the U.S. were near simultaneous and seemingly unrelated decisions to launch the Crest 3D white oral-care line for beauty-focused consumers and Gain dish soap targeted largely at Hispanic consumers while acquiring the super-premium Natura pet food business. One common and not coincidental thread is that all three go after key consumer segments and product lines of Colgate-Palmolive Co., a company about a fifth P&G's size.

After P&G executives discussed those initiatives, Citigroup analyst Wendy Nicholson asked: "Is there a risk you're so focused on being the bully in the schoolyard that you push out an initiative that shouldn't happen?"

The answer, said Mr. McDonald, is no: Regardless of the competitive implications, each initiative needs to make sense for consumers and retailers on its own merits.

The idea, said John Chevalier, director of investor relations for P&G in a media briefing later, is "to create the best possible environment for each of those initiatives to succeed. That environment spans not only individual categories and individual countries but across product categories in a country and could expand across multiple geographies also. ...To the extent that we can coordinate [initiatives] at the same time, it can make it more difficult for [competitive] resources to be shifted around from place to place. We've seen it when other competitors do those kinds of things and we try to figure out what to do next."

He acknowledged that many competitors don't like P&G's more aggressive posture, with some saying, at least privately or obliquely, that P&G is "destroying value" through price battles. With tougher, more streamlined competitors than P&G faced years ago, the growing number of competitive battles appears to have hit profit margins industrywide, according to analysts.

Mr. Chevalier said price battles are often initiated by the competitors when they don't have another immediate response to P&G initiatives, but that they generally subside eventually.

Mr. McDonald noted earlier that P&G's competitors increasingly are run by former P&G executives who "play by the same rules" and often use the same language, dismissing the threat raised by Deutsche Bank analyst Bill Schmitz of "mutually assured destruction" from the growing number of industry competitive battles.

Echoing a comment by Mr. McDonald earlier in the day, Mr. Chevalier said, "Promotion wins quarters. Innovation wins decades. ... As long as we're doing it the right way, with innovation, frankly, I don't care what [competitors] call us. What I want is more consumers buying P&G brands."

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