Industry titans such as Procter & Gamble Co. and Unilever have largely steered clear of price warfare during the past year and show no eagerness to start again. But higher product prices and consumer confidence shaken by lower housing prices have dampened unit volume among all players competing in P&G's wide-ranging categories. Volume for the group was down in the July-September quarter "for the first time in a long time in the U.S.," said P&G Chairman-CEO A.G. Lafley.
Sales for P&G beauty rival L'Oreal actually declined 0.1% last quarter in North America for the first time in recent memory, according to a report by Sanford C. Bernstein analyst Andrew Wood.
L'Oreal blamed consolidation of inventory in its prestige businesses as Federated Department Stores integrates its acquisition of May. But it's also facing tougher times in its traditionally strong mass categories of hair color, cosmetics and shampoo-conditioner. It has unleashed two rounds of buy-one-get-one-free promotions.
P&G itself set a record in coupon values last quarter with a $3 coupon for Infusium hair-care products, which generally sell for under $5. And Colgate-Palmolive Co. is battling the Crest Pro-Health threat to its Total franchise through unprecedented levels of price promotion.
So far, both Crest and Colgate have gained dollar share at the expense of smaller players since premium-price Pro-Health launched in August, but in different ways. Crest's average retail price rose 10.8% in the four weeks ended Oct. 8, according to Information Resources Inc. data from Morgan Stanley. Colgate's average price declined 2.3%.
The good sign for marketers: "This is one of the weakest periods for private labels in a long time," Mr. Lafley said on an earnings conference call Oct. 31. This time, big retailers don't appear to be setting the pricing agenda. The most likely reason, said analysts, is that Wal-Mart has no strategic advantage in increasing its price advantage in categories it already dominates.
Burt Flickinger, principal in the consulting firm Strategic Resource Group said retailers are more likely to pressure smaller players in more commoditized categories.
The bottom line: Rich brands will get richer because they fend off price dealing by concentrating on marketing and innovation, while poor brands in more commoditized categories will get poorer as they're forced to deal back price increases under pressure from retailers and stingy consumers.