Is Procter & Gamble Losing Its Edge?

Digital has been a hallmark of Procter & Gamble Chairman-CEO Bob McDonald's tenure, hailed as key to wringing $10 billion in overall costs and $1 billion in marketing savings out of its massive budgets in five years.

But while P&G has gotten plenty of media play lately -- social and otherwise -- over its digital ambitions, it faces growing questions about how much good digital marketing can do amid broader signs P&G is losing its edge. Some analysts and competitors question whether P&G can digitize its way out of its deeper issues, or enjoy the same scale advantages in a digital world that it had in traditional marketing.

P&G is far from collapse. It's still growing -- 4% organically on the top line -- and meeting its earnings, even if revising forecasts down recently. But for a company long seen as a world-beater, worrying indicators abound:

Share loss. P&G made progress last year, climbing toward the top third of its competitive set in organic sales growth and growing or holding market share in most of its categories and countries, powered by a ramp-up in marketing spending. But momentum slowed as P&G raised prices to recoup higher commodity costs, which resulted in lost market share across more than half of its business globally last quarter. Mr. McDonald has said that he expects P&G's results to improve as competitors match recent price hikes and P&G adjusts prices in places where competitors haven't increased prices.

Decreasing ad effectiveness. While P&G's Old Spice ads drew creative raves in years past, the company's broader array of advertising, according to consumer surveys by Advertising Benchmark Index in January and February, ranked in the middle of the pack or below household and personal-care peers. This was particularly true in TV and print, where P&G still spends the vast majority of its media dollars. A P&G spokeswoman said in an email that the company's research shows that "80% of our sales are supported by copy that is strong in comparison to a relevant industry database. In addition, the quality of our copy is increasing year-on-year over the past several years."

Sliding retailer ratings . Retailer ratings of P&G have slipped for four straight years in WPP's Kantar (formerly Cannondale Associates) surveys. At least P&G still leads others in that rating, whose methodology gives it an edge based on its sheer breadth of categories. A soon-to-be-released ranking by The Hub magazine shows P&G slipping to fourth in ratings by agencies in shopper-marketing excellence, behind rivals Unilever and Kimberly-Clark Corp. That's down from third in 2011. The P&G spokeswoman said the company is pleased it remains at the top of the Kantar survey, but that "we are not pleased our absolute scores have been declining."

Go-to-market issues. Hurting P&G in the eyes of retailers -- not to mention of investors and analysts -- has been its inability to fully deliver on product launches in recent years. The six-month delay of Tide Pods is the latest in a series of problems that included supply issues with Fusion ProGlide razors and Old Spice body wash. Some executives in and close to the company blame capital-spending constraints put in place after the $67 billion acquisition of Gillette in 2005.

Mr. McDonald noted in a February press briefing that P&G continues to deliver as planned on the vast majority of its product initiatives each month, even if some high-profile misses get all the attention. The P&G spokeswoman said unexpected consumer demand, not capital constraints, have mainly been responsible and that P&G has committed to ramp up capital spending in the years ahead to ensure that supply can meet demand.

Competitive woes. P&G's beauty and grooming businesses -- bolstered by $80 billion in acquisitions last decade that included Clairol and Wella -- have been a growing drag on the company's top line. After showing some positive momentum early last year, P&G the past two quarters has again slipped behind rivals L'Oreal and Unilever in top-line sales growth in personal care and is even further behind luxury and prestige player Estee Lauder.

The P&G spokeswoman said: "Clairol paid off quickly via the cost synergies we were able to deliver. Wella is a bit behind the curve. We've delivered the cost synergies, but we've lagged on the growth side of the equation."

P&G has talked increasingly about digital marketing and broader digitization as part of the solution. Mr. McDonald's plan to make P&G the most digitally savvy company around includes better use of digital tools to forecast demand and enabling innovation. One example he brought up at the Signal Conference, hosted by Federated Media at P&G headquarters earlier this month, was the use of prototyping to eliminate the "$50,000 diaper" that used to be created each time P&G developed a Pampers product.