P&G adapts attitude toward local markets

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[Guangzhou, China] Procter & Gamble Co. likes to say it touches the lives of people around the world 2 billion times a day. Where it touches those lives increasingly is in developing countries like China, P&G's sixth-largest market.

Chairman-CEO A.G. Lafley says P&G's focus on such developing markets as China is one key difference between him and his predecessor, Durk Jager. P&G has been investing heavily in such countries as Russia and China since the mid-1980s, markets Mr. Lafley describes as favorites of Mr. Jager's predecessor, Chairman-CEO John Pepper. But now it's also increasingly looking to compete more effectively across a broader swath of the developing world, including such places as Vietnam and Iraq.

Mr. Jager "thought that the vast majority of the economic buying power is in Japan, the U.S. and Western Europe, and that's where all of our resources ought to go," said Mr . Lafley. "And I think we've decided in the past four years that there's a lot of opportunity" elsewhere.

nimble competitor

Since P&G entered China in 1988, it has invested well over $1 billion and is by far the country's largest advertiser, spending an estimated $404 million in media in 2002, according to Nielsen Media Research. Olay is China's most advertised brand, said James Stengel, P&G's global marketing officer. China had been only the 10th-largest P&G market just three years ago, so the leap to sixth is significant.

It's taken more than a decade to evolve into a nimble competitor. In the past, P&G approached Asian markets by following the same pattern that made it a consumer goods giant in the U.S.-develop better products through innovation and research & development, then slightly raise the price for an enhanced product. It also charged nearly as much for a box of Tide or bottle of Pantene in Asia as it did in North America.

But most Asian consumers earn just a few dollars a day, limiting P&G's appeal to a sliver of the total population. Unilever, with more experience than P&G in developing markets, is peddling tiny packets of shampoo for a few cents to rural consumers through village fairs and street markets.

So P&G's Guangzhou-based managers took a hard look at their own marketing and production methods in China, and resolved to slash production costs, streamline distribution channels and expand market research. P&G also established an R&D center in Beijing to develop new products.

"We've spent a lot of time getting close to consumers. A one-size-fits-all approach won't work in China," said Austin Lally, P&G's general manager-greater China, in charge of fabric, home and feminine care.

Two-thirds of China's population earns less than $25 per month. So P&G developed a tiered pricing initiative in March 2003 to help compete against cheaper local brands while protecting the value of its global brands.

P&G introduced a 320-gram bag of Tide Clean White for 23¢, compared with 33¢ for 350 grams of Tide Triple Action. Clean White doesn't offer such benefits as stain removal and fragrance, and contains less advanced cleaning enzymes, but it costs less to make and, according to P&G, outperforms every other brand at that price level.

The results have in some cases been dramatic. P&G now sells more Crest toothpaste in China than in the U.S., Michael Kehoe, president-global oral care, said in an investor presentation last December, though dollar sales in China still are below those in the U.S.

Asia is a P&G testing ground for moving away from the low-margin detergent industry and toward beauty care, including hair care, skin care and personal cleansing brands. One of P&G's greatest success stories in this region is the emergence of SK-II, a popular Asian skin-care line. The brand is already available in the U.K., and P&G was to roll it into 11 Saks Fifth Avenue stores in the U.S. this month.

In a December talk with analysts, Mr. Lafley acknowledged P&G has had trouble invading the "walled cities," where competitors, often aided by colonial legacies, got a considerable head start. (Colonialism cuts both ways: P&G has a big edge in the Philippines, a former U.S. colony.) But Mr. Lafley said P&G has done well in such markets as China and Russia, where it entered the same time as competitors.

Closer to home, P&G has been behind competitors in much of Latin America, but without European colonialism as an excuse. U.S.-based rival Colgate-Palmolive Co. owns more than 80% of the Mexican toothpaste market, which in turn has helped it win more than 50% of the U.S. Hispanic market-more than 20 points ahead of its overall share.

walled cities

Though much of its developing market progress has been limited to China, P&G is still trying to breach the walled cities of its competitors.

In India, where rival Unilever is bolstering its already huge lead by developing an Avon-style direct-sales force, P&G is countering with its own van sales program to reach rural areas, Mr. Stengel said. P&G also has followed Unilever by introducing low-cost single-use sachets of its laundry detergent brands.

P&G is finding new ways to compete in Latin America. In 2001, it launched in Mexico a new feminine protection brand, Naturella, with chamomile, alongside its existing Always and Tampax brands. Naturella allowed P&G to recapture share leadership in the country from Kimberly-Clark Corp. The brand specifically appeals to Latin women, many of whom prefer natural products, said Nancy Healey, VP-feminine care for P&G in North America.

These days, P&G also tries to be first in whenever new markets open. It was on the ground in June in Iraq, recruiting marketing executives for a new organization only three months after the U.S. armed forces landed.

"We say we have all the CNN countries in my region," said Dimitri Panayotopoulos, who became president-Central and Eastern Europe, Middle East, and Africa in 2001. "There's always a crisis somewhere. ... It's good because from crisis comes opportunity. You can use that to build market share."

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