P&G confronts newest marketing rival--itself

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When Procter & Gamble Co. Chairman-CEO A.G. Lafley appeared last month at a get-acquainted meeting with Gillette employees, he joked that he needed a Braun coffee maker to go with his Folgers and Millstone coffee. Gillette Chairman-CEO Jim Kilts quickly obliged.

Perhaps he shouldn't have moved so fast: Braun was about to launch into the U.S. a Tassimo coffeemaker that only uses coffee pods from P&G rival Kraft (see story below). P&G's Folgers and Millstone have been striking similar alliances with a host of appliance makers lately-none of them Braun.

The age of partnerships is colliding with a trend toward consolidation in the package-goods and appliance industries, as P&G's massive $57 billion acquisition of Gillette Co. suddenly creates a multitude of strange bedfellows.

Consider P&G's Tremor teen buzz-marketing program, with more than 200,000 teens selected for their propensity to spread product news to friends. For years, it's been open to non-P&G brands, too-with entertainment marketers especially welcome to keep participants' interest up. A recent Tremor e-mail newsletter, however, tells members to look soon for "a smooth new program" from Energizer Holdings' Schick Quattro-Gillette's main rival.

A P&G spokesman said Tremor isn't at liberty to discuss what clients the program works with and generally offers limited-time category exclusives. "I suspect we probably would have an issue with [working with brands that compete with P&G]," he said, but that's not the case here until the acquisition closes.

Then there's Philips IntelliClean, a power toothbrush hitting stores this month from Philips Consumer Electronics that dispenses a specially formulated liquid whitening toothpaste from P&G's Crest. Philips and P&G were natural oral-care allies five years ago when the joint-development venture began, and even six months ago, when the product was announced. After all, both competed in distinct segments against a common foe in Gillette's Braun and Oral-B. But now that P&G is buying Gillette in a deal expected to close by fall, P&G's Crest is paired with the main rival of P&G's newly acquired Braun high-end rechargeable toothbrushes.

Likewise, the Tassimo one-cup coffeemaker, a joint venture with Altria Group's Kraft, whose Gevalia, Maxwell House, Suchard and Twinings brands will provide the liquid-concentrate coffee and tea pods for the fall launch, was an obvious hookup in 2003, when the companies started selling Tassimo in Europe. After all, Kraft CEO Roger Deromedi is on Gillette's board. But P&G buying Gillette now means it will be distributor of a system designed to work only with coffee pods from its main category rival.

It appears even the marketers are confused about partnerships with the new blended family. "We'll have to wait and see," said a spokeswoman for Philips, when asked whether the P&G-Gillette merger would affect its relationship with Crest. "Your guess is as good as mine," said a Crest spokeswoman, when asked how the merger would affect the partnerships.

Harry Shulman, president-CEO of Applica, partner to Folgers and P&G in its one-cup HomeCafe launch, seemed nonplussed by the pairing of Braun and Kraft. "I don't think it poses any issues," he said. P&G's Folgers and Millstone are already paired in similar deals, anyway, with rivals Krups and Sunbeam.

HERE TO STAY

Mr. Lafley has spoken extensively of P&G's efforts to link with outside companies and product developers in a program termed "Connect and Develop," which aims to bring 50% of the company's product innovation in from outside while also licensing P&G brands and technology. Though Gillette, with businesses such as Braun and Duracell, makes it less necessary to find outsiders for gadget-oriented joint ventures, the spokesman said P&G "will continue to be seek outside partnerships."

Consolidation or no, it appears joint ventures are here to stay for P&G and other package-goods players. "Partnering is no longer a competitive advantage but a competitive necessity," said a report by Deutsche Bank analyst Bill Schmitz, who noted that most industry players are making such deals to reduce costs of innovation.

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