Talk about the health of any consumer-products multinational, and China will inevitably enter the conversation.
Loudly, in Procter & Gamble's case. On an earnings call last week CEO Bob McDonald said P&G has a $3.5 billion to $4 billion business there, far bigger than any rival. There are challenges -- P&G Chief Financial Officer Jon Moeller on the call faulted market-share losses in China for the company holding or gaining share in only 45% of its business globally last quarter. Still, P&G's business in China is growing at a healthy clip -- 16% in the last fiscal year -- bettering results from developed markets like the U.S. and Europe.
"P&G is so entrenched in China. They made the investments early and their brands have great cachet now. So, they're kind of like the team to beat," Deutsche Bank analyst Bill Schmitz said.
How has it gotten there? With early investment, insight-driven marketing and product innovations. P&G and Unilever are now about the same size in Asia, both with more than $18 billion in sales, but in China P&G is more than twice the size of Unilever.
In fact, P&G earlier this year relocated the global headquarters for its beauty and baby-care businesses to the Asian business hub of Singapore to better serve consumers in the region. Its ad agencies in China include Saatchi & Saatchi, Grey Group, Wieden & Kennedy, Leo Burnett, BBDO and Publicis. Citing a quiet period, a P&G spokesman declined to make Greater China President Shannan Stevenson available for an interview.
P&G's innovations include skin-whitening products from Olay and SK-II, which play into the dominant mentality in Asia that pale skin is beautiful. Crest toothpaste comes in flavors such as green tea. Tide Naturals has been a success in India, targeting the 200 million families there that still wash clothes by hand.
Chinese consumers buying washing machines for the first time are often given a complimentary packet of Ariel detergent, while Crest teaches kids in lower-tier communities how to brush their teeth.
In China, P&G's Head & Shoulders, Rejoice (formerly known as Pert Plus in the U.S.) and Pantene are the top three shampoo brands, commanding a combined 33.2% market share, according to Euromonitor data. Crest is China's top oral-care brand, while Olay is the top brand in the all-important skin-care category.
The crux of P&G's $10 billion cost-cutting plan calls for focusing on its 40 largest and most profitable businesses, the 20 largest and most promising innovations and the 10 most important developing markets. P&G execs have not named specific brands and markets, but Pantene is almost certainly on the list. In China, its marketing strategy plays up concrete benefits to the demanding female consumer in a market where competition is fierce.
"In the past couple of years there has been an unprecedented level of competitive activity, especially from international brands such as L'Oreal and Dove, which have recently entered the hair-care market in China. They have already been established in other categories (i.e. skin care) and have come in with a strong halo of trust and quality," said Carla Govindji, Grey Group's senior VP-regional business director, Pantene Asia/Pacific, in an email interview. The local consumer "is tempted and seduced by these sexier new brands and the promises they're making, and we've created campaigns that address this head-on under the umbrella idea of "Only with Pantene health can beauty truly last,'" she said.
P&G has also introduced Clinicare by Pantene, targeting slightly older, higher-income women. The product combats what P&G calls "hair aging." The "Age Defy" campaign by Grey Group used the image of a restart button to educate women that hair ages just like skin does, Ms. Govindji said.
Meanwhile, Crest offers a portfolio of products targeting different demographics. The premium Pro Health Complete 7 toothpaste is aimed at top-tier consumers, while anti-cavity Repair is geared to a nationwide audience.
The marketing was built around the insight that "progressive modern life in China, oral health of Chinese people ... was depreciating," said Justin Billingsley, regional CEO and chairman of Saatchi & Saatchi Greater China, which handles creative for Crest. Complete 7 is positioned as fighting against seven oral-health issues caused by modern lifestyles, while anti-cavity Repair combats problems caused by sugary diets.
A key challenge for P&G going forward is stepping up in the beauty category, said Javier Escalante, executive director, Consumer Edge Research. He estimates that China will contribute 30% of the world's growth in the skin-care category over the next four years. Beauty offers high profit margins, and both men and women in China use skin-care products.
Contributing: Jack Neff