Is P&G's retail rationing crafty strategy?

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Procter & Gamble Co. is telling retailers its factories are having a hard time keeping up-with six brands ranging from Prilosec OTC to Oil of Olay rationing shipments at some point over the past year on highly touted new products.

The growing frequency of products "going on allocation"-the phrase used to refer to rationing once considered rare for P&G and its industry-is leading some retailers and analysts to wonder whether it stems not from bad demand forecasting but rather from conservative cash management or cagey marketing strategy.

"P&G is too smart to have this many outages," said one analyst, who believes the company's growing use of outside manufacturers to limit risk-along with more conservative capital expense and inventory control-may play a role.


Shortages of P&G's blockbuster $300 million-plus Prilosec OTC have been well publicized, but rationing has also extended in the past year to Pampers Feel & Learn and Easy Ups diapers, certain sizes of revamped Luvs, Tampax Pearl tampons, Febreze Scentstories and Air Effects air-freshener products and Olay Quench hand and body lotion, retailers report. Pampers, Luvs, Tampax and Febreze products all have come off allocation since November, but restrictions on Prilosec OTC may remain for at least another month and Olay Quench has been in short supply since its official February launch date.

Why? The answers from P&G brands are eerily similar. "America's chronic heartburn problem was just bigger than we ever imagined," said a spokesman regarding Prilosec OTC. "The impact in the marketplace was greater than we expected," said another spokesman regarding Olay Quench.

Yet another P&G spokesman said the company is currently delivering more than 99% of retail orders, but that some disruptions have stemmed from "new to the world" technologies and new supply partnerships adding complexity to the system.

The analyst, however, remains skeptical. "You wonder if they may be devilishly doing it to cut back on trade promotion." Using rationing to smooth sales over a longer period with less promotion could result in just as much product being sold but at a higher net price, he speculated.

"There used to be a saying: `When in doubt, allocate,"' said Ken Harris, managing director of WPP Group's Cannondale Associates. "But you can't do it so often that people start to get wise or think it's not genuine."

Certainly, allocation has done no lasting damage to the brands yet. P&G's February diaper market share-two months after restrictions were lifted-is up 7% vs. year ago. Similarly, Tampax Pearl reached record sales and share last month.

Spokespeople declined to comment on how shortages have affected marketing plans, but all the brands have continued to run media advertising. Regardless of the reason, some retailers are mad. "Whenever you're on allocation, you wonder if someone else is getting more," said one supermarket buyer, referring to Wal-Mart Stores. "It's difficult when you can't merchandise as you'd like."

But P&G executives said its allocation policies are designed to be fair to all. Another retail buyer believes problems in demand forecasting stem from P&G announcing product plans closer to ship date to keep competitors in the dark longer.

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