During an annual swing through Asia earlier this year, Jim Stengel, Procter & Gamble's Cincinnati-based global marketing officer, visited the company's China headquarters in Guangzhou, a two-hour drive from Hong Kong. While there, he took part in training sessions, met with the heads of P&G's ad agencies in China, visited retail sites and did in-home visits, both with low-income and middle class consumers, to better understand their lifestyles. He met with AdAgeChina Editor Normandy Madden to talk about how China is changing and P&G's plans to grow its business.
AdAgeChina: How has China changed since your visit last year?
Jim Stengel: It's more developed, there are more services, there is more dynamism, it's pretty amazing. This market is an interesting one for embracing telecommunication changes with huge growth rates on mobile, interactive and Internet. It's a really sophisticated market technologically, and also very aggressive. It's interesting for us to experiment as much here as we do in the U.S. and the U.K. in terms of how the communication model is changing. We're doing a lot of innovation here.
AdAgeChina: Gillette has not been a big player in China so far. What are your plans now that it's part of P&G?
Mr. Stengel: Here, it's going to be about working with them to really look at consumer understanding in the local markets in a deep way. This is a strength that we have that they're looking forward to tapping into. Our network of distribution in this country and consumer understanding is about unrivaled. We have to unleash that with Gillette, to learn more segmentation, targeting, opportunities. The category is still relatively small here. Braun's Oral-B brand is an interesting brand here, that has some scale, high shares, good equity, so we're thinking about Crest and Oral-B together, that's probably the nearest-term opportunity. Both categories are well-developed and oral care is a strong category for both of us.
AdAgeChina: P&G has an R&D center in Beijing; what has it been working on that might have potential in other markets?
Mr. Stengel: We do a lot of development on oral care there that goes around the world. Most of the laundry R&D for the Chinese market for both Ariel and Tide is also done in the Beijing technical center. Plus, recently we moved our personal cleansing category R&D from Japan to Beijing, so China has a big chunk of oral care, laundry and personal cleansing, which is the bulk of our business here. We've got over 100 R&D staff in Beijing and it ranks as one of the largest R&D centers P&G has globally.
P&G also has a new innovation center in Guangzhou, which I visited [during this trip]. It's a lab we built here to learn more about commercial things, in-store programs, latest technologies, it's more consumer understanding and innovation.
AdAgeChina: P&G has been working on introducing the tiered-pricing strategy you developed in China into other developing markets. How is that working and how has the approach had to be altered?
Mr. Stengel: Those decisions have to take into account the local situation. China has been a real leader for the company in what we call value sweet spots, taking a principled approach to the market, the consumer understanding, the competitive set, and thinking about where we play.
We don't like to think about price tiers, we like to think about benefit tiers. We may have a low-priced Tide, but it's formulated for a specific consumer and how she uses the product and what she appreciates. If she appreciates a stronger scent, we'll reformulate for that.
It's a principled-based approach and China has led this work. We have a network around the world looking at this area, but it's not just countries like India, we've taken some of this into the United States, where we've introduced Bounty and Charmin [as low-priced extensions], Basics we call it. We launched both of those in the last three or four months, so [the tiered approach] is really making its way around the world. We've also introduced Olay in Poland and Spain a bit through the tiered model learned here.
AdAgeChina: Is P&G becoming more beauty marketer than detergent company?
Mr. Stengel: It's definitely true in China and it's healthy for the company. The margins in beauty are good, it is very responsive to our approach to the consumer and the category plays to our strengths in deep consumer understanding. I think it helps us in other categories, we learn a lot in beauty about service, counters, different marketing models that can help us in our other businesses.
But all the categories and brands have a role. Sometimes it's fun and glamorous and a bit new to talk about P&G and beauty, but fabric and home care is still growing, very profitable and has a lot of growth yet. There are categories we deal with outside of China that aren't even here yet. If you look at the company globally, the innovation we've brought to home care through brands like Febreze and Swiffer, these have been rockets with hundreds of millions of dollars in sales that are being exported to markets around the world.
AdAgeChina: China has severe media inflation and consumers are watching less television. How are you trying to overcome these challenges?
Mr. Stengel: We're preparing for a world in which all consumers are spending less time watching television, in the way we display our brands, having consultants in stores, testing new ways of engaging consumers when they want to be engaged and in ways that are relevant and make them think about our brand differently.
But TV is still important here and I find consumers here do want to see advertising. The ones I visited with yesterday see it as a kind of validation, it gets the brand into their competitive set. To them, it's important that their brand's advertising have a reputation, that they can trust it. I find that [feeling] a bit higher here than I see in some other markets.
AdAgeChina: What observation, will you take back to Cincinnati as the most important thing to understand about China and P&G's business here?
Mr. Stengel: The GDP numbers are incredible and they're continuing to go up. The formation of new households rate is incredible, which is really pivotal to our business. We've got to be in touch with that, we've got to make sure we're building our capabilities for the future. We've had a lot of talks here about that, how do you get ready for the kind of growth rate we're on? That's probably the core issue. We need to stay ahead of the market, that's what management's job is.