European Union

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When the restructuring ax fell at Procter & Gamble Co. in 1999, nowhere did it hit harder than Europe. P&G paid the price as its Western Europe business went into free fall, joining an Eastern European business already reeling from Russia's 1998 currency collapse.

That sales on both sides of Europe have bounced back for P&G to levels seen before the restructuring began has been a key element in the company's broader turnaround. While Chairman-CEO A.G. Lafley has publicly praised Europe for its turnaround, he's acknowledged that P&G so far has only dug its way out of the hole. Now, he's pushing P&Gers to go from making up lost ground to gaining new turf.

It's a tough assignment as most of P&G's key global competitors-Unilever, L'Oreal and Henkel-are based in Europe. But Paul Polman, president-Western Europe, believes it will happen. "In Europe, we've focused on winning in Germany, and we're seeing our business there grow," he said in an interview with Advertising Age during a trip to P&G's home base of Cincinnati. "We're one of the few consumer goods companies that's actually growing in Germany. If we win in Germany, then we've got a stronger business in the rest of Europe as well."

In Germany, P&G is up against not only Unilever, L'Oreal and Henkel, but also hard discounters that have little regard for any branded products. Some, such as Aldi, carry no brands at all. Mr. Polman likens the hard discounters to the Southwest Airlines of retailing. "They are revolutionizing the industry with a very lean cost structure, a very simple and transparent shopping experience, a high density of stores. ... Life is tougher with them than without them, and that's good. They make our company better."

Mr. Polman acknowledged P&G's restructuring hit Europe especially hard, largely because it had so many countries with separate management. Many suddenly found their authority subsumed by global and pan-European bosses. "It wasn't clear who was responsible for what," said one agency executive.

Mr. Polman also attributes P&G's Western European turnaround to better execution, exemplified by hitting copy-testing and share-lift targets twice as often. "We had about 30%-40% of our copy being really effective [a few years ago], and now we have about 80% of our copy on air being effective."

P&G's European agency executives could do without the copy testing, but some say P&G is at least letting them test better ads, and they appreciate the new emphasis P&G has placed on "watchability" in copy tests.

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