For decades, hundreds of top-rated marketing minds from highly regarded schools poured into P&G, where they presided over the world's biggest marketing budget.
So what if creative types sniffed at their formulaic, slice-of-life ads or laughed about the dozens of revisions and months it took to create them? They were masters of the marketing universe. And they knew it. If P&G's conservative culture wasn't to their liking, they could always parlay their P&G resume into a choice assignment elsewhere.
But just like clockwork, the dawning of the 21st century put a hitch in the swagger of the 20th century's undisputed marketing powerhouse. P&G's frenzied effort to re-invent itself as a nimble, Net-savvy 21st century company ran into the harsh reality of strong competition, missed earnings expectations and a savaged stock price.
Long the nation's leading ad spender, P&G has slipped to a perennial No. 2 and could be dropping. As questions grow about the company's value as a training ground for marketing talent, P&G itself appears to be acknowledging that it may have at least as much to learn from new hires as it has to teach them.
Does P&G still matter? The question seemed almost unthinkable even a year ago. Then again, so did the "retirement" of Chairman-CEO Durk Jager, who stepped down in June, or a $62 stock price last week, roughly half its value in January.
As the company prepares for its latest analysts meeting this week in New York, the simple answer to that question is yes. P&G is a heavyweight in most categories where it competes, and its marketing executives still field calls from headhunters for far sexier and trendier businesses.
The real answer, of course, is not simple, as the world around P&G keeps getting more complex.
"More than anything, [P&G's standing among marketers] is affected by what's happened to business in general and e-commerce," says Kevin Keller, professor of marketing at the Tuck School of Business at Dartmouth College and author of the text "Strategic Brand Management." "If you go back 10 years, a lot of people were hired from P&G to bring marketing expertise to those companies. Now [high-tech] marketing is really different from the classic packaged-goods marketing. And those companies have developed a lot of their own skills. If you look at who's doing great marketing, you might be looking at Intel and Microsoft and Apple and a lot of the high-tech companies. . . . That, in combination with some of the difficulties they've experienced, has probably led to [P&G] not being seen as the standard-bearer of marketing anymore."
Judging from the number of phone calls P&G executives still get from headhunters and executives of new economy startups, "somebody out there is valuing the quality of our marketing people," says Bob Wehling, global marketing officer at P&G. "The reason is that the venture capitalists seem to want for these start-up companies a better blend of people with real marketing expertise and experience who can help them with strategic and business planning, combined with the technical savvy and the ideas that the people who are engaged in the start-up have."
By most quantitative measures, however, P&G's standing as a marketer has slipped. Though P&G still ranks as a top global ad spender, it has fallen to No. 2 in recent years in the U.S. and through the first half of 2000 to No. 3, behind General Motors Corp. and Philip Morris Cos., whose proposed acquisition of Nabisco Foods could put it ahead of P&G for years to come.
P&G's sales growth of 4.8% last year was its biggest gain since 1996, when sales rose 5.3%. Compare that to last year's gains for blue-chip tech marketers, such as Microsoft Corp., up 16% to $22.9 billion, or Intel, up 18% to $16.3 billion.
P&G's measured ad spending has grown even more sluggishly. While spending behind launches of new brands such as Swiffer and Dryel was a factor in the earnings disappointments that led to P&G's recent management shakeup, P&G's global ad spending rose more slowly than sales, up only 3.6% to $3.7 billion in the fiscal year ended June 30. Even at that, P&G's reported ad spending was lower than in 1998.
And the proportion of sales P&G spent on advertising last year -- just less than 9.2% -- hit its lowest point in at least six years.
In all, P&G has increased reported ad outlays only 5.7% since 1997, a period that has seen prime-time TV rates soar 30% to 40%, says Erwin Ephron, president of media planning consultancy Ephron Papazian & Ephron. Mr. Ephron says he believes the spending patterns reflect a fundamental shift in economic realities: Players with better margins or products that are newer and more responsive to advertising are crowding out old-line package-goods brands such as P&G's.
"If you're a package-goods brand in markets that are reasonably mature, the response to advertising is not as great as it is in some other markets -- pharmaceuticals, entertainment, even fast-food," he says. "And I think as a result they've gotten priced out of the market."
But he adds that the shift doesn't necessarily make P&G less significant.
"I just think they've changed their game plan, which is fascinating. P&G is one of the few big advertisers that is really trying all sorts of things. They've moved a lot of money into magazines and outdoor and radio. So I think they're quite significant still."
Says Mr. Wehling, "It's a heck of a lot harder to judge anymore who is the No. 1 advertiser. In today's environment, you'd almost have to ask who is the No. 1 communicator, because of the array of options available. . . . Today, I don't care whether you look at a GM or Procter or Yahoo! or Pillsbury, you've got to look at what are they doing to communicate with their consumers in total. How much are they spending . . . on TV print, radio, outdoor, Internet, direct mail, events [and public relations]?"
After years of swinging for the fences with huge TV ad budgets, P&G is remaking itself as a master of what baseball managers call "small ball," advancing brands one base, in some cases one consumer, at a time. The brand's "Club Physique" online community, developed to launch its new haircare brand this year, has more than 1 million members. It was built largely through a viral marketing campaign in which consumers could enter a sweepstakes by referring 10 friends to the site.
P&G today tracks total marketing support money for its brands, which includes not only the full range of consumer marketing vehicles but also retailer co-marketing, which doesn't necessarily show up either in P&G's reported ad spending or in tracking.
"The money we're spending jointly with Target that ends up with Tide on television, I don't get that counted as Tide advertising spending," Mr. Wehling says. "It's coming in a different way."
P&G's total marketing spending, counting all such vehicles, is "up significantly," he says. "I've never cared about where the company was ranked [in ad spending]. I'm not sure that if you looked at the total [marketing support] that we wouldn't be No. 1. I haven't seen any evidence to the contrary."
P&G isn't the No. 1 TV advertiser anymore, but even there the picture changes on a brand-by-brand basis, Mr. Wehling says, noting that Downy and Olay moisturizer have more than doubled their TV spending in the current fiscal year over last. Mr. Clean's TV spending is up 20%, Pampers is up 10%, Puffs is up 40% and Iams pet food is up 50%.
Other brands may use less TV, but that doesn't necessarily mean less impact, he says. P&G's Physique haircare brand, launched earlier this year, earmarked only 15% of its launch budget for TV, with the rest dedicated to everything from bar glasses and coasters to outdoor, print and online marketing. Physique is on pace to deliver more than $100 million in sales in its first year and paid back its marketing investment in six months, P&G Chief Financial Officer Clayton Daley recently told a Prudential Securities conference.
Now P&G is applying its Physique experience to a similar restyling of its Pantene brand to focus on a line of products to deliver "a look." To get that message across to consumers, P&G will spend 10% of the Pantene relaunch budget in stores, about five times the amount the brand normally spends on in-store marketing, Mr. Daley said.
P&G's increasing shift to less expensive, more targeted communication approaches is, in part, an outgrowth of its new agency compensation plan, tested on 10 brands last fiscal year and applied across the board this year. Rather than earn a commission on media, which rewards agencies for spending on expensive media, P&G shops now get a cut of sales. While many marketers have moved to performance-based compensation systems, most are more complicated and retain some element of either media commissions or fees, according to compensation consultant Arthur Anderson, a principal with Morgan Anderson Consulting.
New compensation has helped P&G reshape the way it develops ads, Mr. Wehling says. In the past, P&G brands invariably started with TV copy, budgeted for it, then decided how to divvy up the rest of the budget, among other approaches.
For Bounty towels and Cover Girl cosmetics, two brands that tested sales-based compensation last year, it was a different story. Both brands brought in Internet shops, public relations agencies, direct mail specialists and TV and print creatives from their agencies early on to look at a whole range of media options before deciding how to move forward. "Because all the disciplines were there from the beginning, things were effectively integrated from the outset."
For example, a Bounty ad based on a home video dovetailed with the launch of a revamped Web site (bountyfamily.com) that has a contest soliciting more home videos for future TV ads and shows loops of some of the submissions on the site.
Still, results haven't been great. The brand's share of the U.S. paper towel category was down two points to 40% in the 13 weeks ended July 15 compared to a year ago, according to ACNielsen. Rival Kimberly-Clark Corp. gained two points with an improvement to its Scot brand and the first media advertising for that brand in a decade, though Bounty gained sales globally as it expanded in Europe.
An executive for one P&G competitor says the new system seems to have resulted in the surprising move by P&G ad agencies taking more interest in marketing that takes place in-store, including such things as floor graphics. That's a trend he expects other package-goods marketers and their agencies to follow.
Mr. Wehling says it's too soon to judge results of the new system overall.
"It will take time to see the results of that kind of planning, and obviously it will take a couple of years until all the changes we've put into place and the possibilities we've made available get into the culture and become the normal way of doing things. But this year we'll have a group of assistant brand managers around the world for whom this will be the normal and only way to approach a marketing plan. And in a few years I think we'll have a lot of success stories to share."
Just changing marketing plans, however, isn't going to fix the problems P&G faces, says Seth Godin, author of "Permission Marketing" and VP-direct marketing at Yahoo!
"They mastered the art of spending $1 interrupting people with unanticipated, irrelevant ads and making $2," Mr. Godin says, adding that the fragmentation of media and burgeoning personal control over media are among factors that have meant P&G's "core competencies aren't as important and rewarding as they used to be."
P&G's strengths in R&D into package-goods products have also lost value, he says, adding, "How much better can personal care products get? Is there an odor they haven't conquered yet?"
Steps P&G has taken to market its products through online communities -- and through Yahoo! -- may be a step in the right direction, but it's too soon to say P&G has turned a corner.
"I don't think the stagnation of P&G is wrong, or sad or anyone's fault," Mr. Godin says. "I think it's time for a new era. Maybe P&G can build another great company or maybe not. But they're not going to `fix' this company by doing a better job [of their traditional approach]."
Former P&G marketing executive and current Microsoft Exec VP-Chief Operating Officer Bob Herbold agrees that the woes of P&G, and other consumer products marketers, go beyond marketing.
"The product innovation rate has been so slow in the consumer products business that consumer product marketers have been put into the unfortunate position of not having much to market," Mr. Herbold says. "The fun factor is a whole lot higher for a marketing person when there is real product innovation."
In fairness, P&G's record on new-product innovation may have been overlooked in an otherwise dismal year for the company.
P&G's first stab at being a dot-com is meeting with some success. A year after its announcement, P&G's Reflect.com venture claims to be the No. 3 online beauty care site, with 500,000 unique visitors monthly, 10% of them stopping to customize products and 20% of business coming from repeat buyers.
Mr. Daley said Reflect's customer acquisition costs are well below that of other e-tailers. Armed with $30 million in new venture capital from Redpoint Ventures, Reflect is now preparing to launch a revamped site featuring easier navigation, customized fragrance offerings and higher prices.
Sales of three new P&G brands launched in the past two years, Febreze, Swiffer and Dryel, reached $900 million in the fiscal year ended June 30 -- more than the $854.7 million in sales Yahoo! recorded for the fiscal year ended Dec. 31 and just shy of the $1 billion in sales for the fiscal year ended June 2 logged by Palm, the maker of handheld computers whose market capitalization soared past P&G's on the day of its IPO before falling back to earth.
What's more, Febreze and Swiffer are tracking higher than brands such as Pampers and Pantene in their first years, according to P&G. By the standards of their package-goods peers, Febreze, Swiffer and Dryel stand apart for one big reason. New products in package goods in recent years have taken 95% of their sales at the expense of existing products, says Jim Miller, president of ACNielsen Bases. P&G's three new brands fell almost entirely in that slim 5% sliver of the pie chart representing new business.
P&G's acquisition of Iams and Eukanuba pet foods turned a fast-growing business that had logged sales increases of 16% in recent years into a faster-growing one, with sales up 25% to $1 billion last year. Within six months of the acquisition, P&G had new advertising for both via Saatchi & Saatchi, New York, and new distribution for Iams in grocery and mass channels, a big change for a company that in the past spent more than a year just consolidating and rethinking businesses such as Tampax or Millstone coffee after acquiring them.
That's the good news for P&G. The bad news is that most of its business continued to slog along at low single-digit growth or worse. Take away Iams and its three biggest new brands, and P&G's sales were virtually unchanged from a year ago. As P&G launched new brands, some of its old ones went hungry. Two of P&G's billion-dollar brands, Pampers and Always, have lost share globally in recent years.
P&G's baby care business was up only 1% globally, and sales for its feminine care business fell 7% globally last year, 4% after accounting for currency effects.
Meanwhile, in the first year of an Organization 2005 restructuring aimed at making P&G's management truly global, the company delivered some of its most disparate regional results ever. Sales in North America, under A.G. Lafley's watch for the fiscal year ended in June, were up in the high single digits, the strongest results in several years. In Canada, which Mr. Lafley -- now president-CEO of the company -- describes as a "classic 1-2-3 market" with years of single-digit sales growth, sales soared 15%.
Sales in northeast Asia, including Japan and Korea, were up 23% -- around 10% after currency effects. Weighing down those results were China, Europe and Latin America, where economic woes, added to the effects of reorganization and intense competition, took their toll.
For all the benefits in getting products and ideas around the world faster, some former P&G executives believe global management may be to blame. "It's just not possible for me to know what's going on in Japan the way I know what's going on here," says one alum, who faces similar challenges in his own business.
"Just giving executives profit-and-loss responsibility for overseas markets doesn't suddenly give them the power to change things," said another.
The problem is not with trying to superimpose ad copy from region to region, something P&G has done rarely, Mr. Wehling says. Rather than an indictment of global marketing, he sees P&G's results in its first year of Organization 2005 as a sign it needs to do a better job of global marketing management.
He compares P&G's problems with that of Cincinnati's public schools, long a focus of his volunteer work. "I could walk from here to two elementary schools. One [is] doing excellent work. Kids are getting good results. Classrooms look like good learning environments. And we could walk a couple of blocks to another one, and it's not working."
Why? "This school will tell you they're different, they have a unique situation . . . and so people don't apply learning in the education environment because they're convinced they're different. Our brands are very much the same. . . . I've got to do a better job of convincing people that some of the learning we generate about media effectiveness and copy effectiveness and integrated marketing has broad application. We try, but it's this conviction people have -- it must be human nature -- that they're different that I think leads to not following on some of the principles that we know have higher odds of success. So we're always doing repair work."
As it grapples with ways to get the points across to marketers, P&G is mulling ways of changing how it trains them. Traditionally, new hires were brought in as assistant brand managers, inculcated in the ways of P&G consumer research and marketing, and given a chance to cut their teeth on lower cost, lower risk promotions and other assignments.
Among approaches P&G plans to pilot this year are so-called multifunctional "Innovation Hot Teams," in which some new hires will be involved in a sort of internal consulting role and report to senior P&G managers before they begin their formal P&G training.
"One advantage is getting input from students before they are trained the P&G way," said Bill Reina, P&G's director of North American recruiting, in a recent memo. The system should give new hires "the ability to be innovative with solution proposals since they are unencumbered by the expectation they will get the right P&G answer," he said.
It's an approach similar to what P&G has used with interns from top business schools in recent years, assigning them to deal with a marketing issue and report directly to the CEO, according to former executives.
Such a seemingly radical revision in traditional P&G training is "a work in progress," Mr. Wehling says. Already, the traditional brand management track has been divided into conventional strategic brand manager work building brand equity; more tactical, retailer- and local market-focused market development organizations; and work on multifunctional new business development teams. One focus at a global meeting of P&G marketing managers in mid-September was exploring how best to train and develop P&G marketers as their roles increasingly diverge from the traditional brand management path.
"We do know that over the last 20 to 30 years we haven't involved enough marketing people early enough in upstream product development to marry commercial opportunity and consumer needs with technological innovation . . . to maximize the potential for the technology," Mr. Wehling says. "We've been trying over the past four or five years to move a substantially greater number of marketing people at all different levels into that upstream work as much as we can. We know it will pay a large future dividend."
It's one of many changes in a company that in recent years has evolved considerably from the monolithic, stodgy, old-economy dinosaur image still held by many.
Some changes are cosmetic -- such as the everyday casual dress code that dealt a crushing blow to the Brooks Brothers store in downtown Cincinnati. Some are more tangible. "There's less fear," Mr. Lafley said at a recent P&G alumni reunion, recalling his own trepidation at walking down some hallways for fear of running into one of P&G's harder-nosed managers.
"They've really allowed people more and more opportunity for self-expression and differences," says John Yengo, former marketing director at P&G who's now a partner in Barefoot Advertising, a Cincinnati shop whose clients include some P&G brands.
Gone is the legendary one-page memo, piled with pithy cover notes from each manager who handled it on its way up the P&G hierarchy. Memos have been replaced by more free-form e-mail and an intranet that includes sometimes lively debates on issues facing the company. The hierarchy remains, albeit with fewer rungs following two reorganizations in the past decade.
Also gone is some of the certainty and swagger that came from knowing one's place in the P&G cosmology. P&G's Organization 2005 restructuring essentially rewrote job descriptions of every marketing executive in the company, sending many brand managers to Market Development Organization posts where they didn't actually manage brands.
That change as much as anything helped spur an exodus of managers from the company the past year, says David Wiser, an alum from the early 1990s whose recruitment company, Wiser Partners, placed several P&G managers in posts with dot-coms.
Things aren't just unsettled among the foot soldiers. A company whose intricate succession planning was once legendary is now on its fourth CEO in six years.
"I think they have a hard time figuring out who they are anymore," says Jim Ebel, president of positioning consultancy CenterBrain and a veteran of Kimberly-Clark, among other package-goods marketers. "You've got young people trained in the new system. You've got folks still around trained in the old system. A company has to have a sense of culture, and there seems to be no compass there anymore.
"Kimberly-Clark, they may be conservative, but they at least know what their culture is about. They know how things are supposed to be done."
One of the more glaring examples of marketing inconsistency at P&G was the spring launch of Swizzle, an online community for teens developed in cooperation with Excite U.K. The site features live sex chat rooms and message boards, one of whose more shocking entries came from a 10-year-old girl, or at least someone posing as one, who bragged of extensive experience with oral sex.
This from a company known as perhaps the most conservative media buyer in the U.S.
"I think we learned from some of the experience in England," Mr. Wehling says, "and if we had it to do over again, we'd do that somewhat differently. I think we got involved with a site where there simply wasn't a sufficient degree of control. But I really do believe that it's one company with one basic philosophy and set of principles, and we're trying to execute them as best we can in an increasingly difficult environment."
If nothing else, it's a sign P&G is experimenting more. Also failing more, as with such products as Pampers Rash Guard, now delisted by some retailers. Rash Guard was one of the first major line extensions launched without a formal test market. And while the experience may not have been pleasant, P&G has stayed on track with less of the sort of sequential testing that led to seemingly close-in products such as Bounty Napkins spending seven years in development.
Obsession with research was one reason P&G marketers were never prized in some corners of the marketing world.
"We hired very few people out of the package-goods model because most of those people have a dangerous reliance on statistical research and layer upon layer of qualitative probing pretests in areas of creative concepts in advertising," says Scott Bedbury, a former marketing executive at Starbucks Coffee Co. and Nike, where "Just do it" was not just a slogan but also a way of doing business.
"In all my time at Nike, we never pretested one concept," he says. "None of the Super Bowl stuff was ever shown to consumers before it ran. . . . We made several million-dollar mistakes, but we learned from them. Part of the culture was mistakes are OK, as long as you don't make the same one twice."
Strangely enough, given his reputation as a tough guy, Mr. Jager tried to make a similar point at P&G. Shortly after presiding over the disappointing Rash Guard launch in the U.S., Jeff Ansell was promoted by Mr. Jager to president of newly acquired Iams, whose expansion into mass channels has become one of P&G's major successes of the past year.
Mr. Jager's departure, widely believed to have been "coached" by P&G's board, didn't exactly send a similar message of redemption. But some P&G executives insist his principles live on. Mr. Jager's phrase "make a little, sell a little, learn a lot" is still a watchword for launches such as Crest Whitestrips, where P&G is testing ads and consumer responses through Internet and other direct sales as it also tries to develop word-of-mouth buzz in preparation for a conventional mass media-backed retail launch.
Though he talks of a need for "balance" of core brands and new brands and a need for more attention to detail, Mr. Lafley won't be a wet blanket on innovation, insists Nathan Estruth, marketing director for i-ventures at P&G and a member of the original Reflect.com team.
"The fact that A.G. Lafley, as our CEO, has been sitting as a board member on a Silicon Valley start-up [Reflect.com] next to venture capitalists and an empowered team that's learning how to run a dot-com business for the last year is a tremendous advantage for all of P&G," Mr. Estruth says. "It's one thing to hear about what Internet speed is; it's another thing to actually be there at monthly board meetings and actually personally experience it."
For all P&G's troubles and all the world has changed, Mr. Zyman says that if he were staffing up a marketing department today, he would probably still lean just as heavily on P&G talent. Indeed, he's pursuing one P&G alum to head a new unit of his Z Group consultancy.
"I don't think that we went after Procter people [in the early 1990s]," he says. "I think we said let's go out after the best marketing people in the world, and it just so happened that Procter had a lot of them. And I think that the same thing would be true today. . . . Procter continues to have a great process and great philosophy to go about getting consumers to buy their stuff. Companies go through cycles. But I think Procter remains one of the giants of marketing, and I think everybody is going to see them re-emerge as an incredible company."