“This is poised to be the year of reality TV in China because of last year’s ‘Super Girl’ success,” said J. Alfonso (Pon) De Dios, P&G’s associate director, media in Greater China, based in Guangzhou, referring to a Hunan Satellite TV talent contest, China’s most successful television show to date. “What P&G is doing in this area in China depends on where you are and which brands we’re marketing.”
The company recently invested nearly $1 million with the same Hunan provincial channel, which has national distribution through cable and satellite media, to make Gillette Vector the title sponsor of a folk art show and a series featuring outdoor singing performances.
P&G has teamed up with News Corp.’s Star network, “which has very good ideas,” said Mr. De Dios, for its Whisper brand to sponsor "Dance Competition." The popular reality show on Star’s Mandarin-language Xing Kong channel hunts for the most entertaining and talented dancer across China. The deal entitles P&G to sponsor billboards after each break and promotional events in Beijing, Shanghai and Guangzhou.
P&G has a multiyear arrangement with Viacom’s MTV Networks for Head & Shoulders to co-present the "MTV Super Talent Search" show in China. Also with MTV, P&G has created a promotional initiative aimed at university students in Beijing to promote Olay through sponsored campus events.
Elsewhere P&G has signed a deal with Chongqing TV to search for the best smile in that city, including TV coverage and a road show sponsored by Crest.
Although P&G isn’t trimming much off its traditional media budget in China, branded content and co-sponsored events are a cost-effective way to deflect the increasing cost of airtime on TV, said Mr. De Dios, particularly on the country’s national network CCTV (although P&G remains CCTV’s largest advertiser), and to help cut through the clutter of China’s media market.
$400 million media spending
Despite a rocky start, China’s largest advertiser is feeling pretty good these days. Procter & Gamble, in mainland China since 1988, spends about $400 million on media per year, according to Nielsen Media Research. Its distribution arm reaches consumers in 2,000 Chinese cities and more than 11,000 towns and villages.
The investment is paying off with strong growth and brand leadership in nearly every category. Crest’s share of China’s toothpaste market, for instance, increased eight percentage points last year, to over 25%, according to P&G figures.
China is now the company’s second-largest company by volume and its fifth-largest in value, up from 10th place just three years ago, according to Jim Stengel, P&G’s global marketing officer based in Cincinnati. “And that’s pre-Gillette, although Gillette will not provide a huge short-term bump here.” (See related Player Profile on Jim Stengel.)
Too expensive for Asia
P&G was not always such a nimble competitor. A decade ago, the company approached Asian markets by following the same pattern that had made it a giant in the U.S.--develop better products through innovation, 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.
That approach didn’t work in Asia, where most consumers earn a few dollars a day, limiting P&G’s appeal to a sliver of the population. Unilever, meanwhile, drew on its earlier start in Asia, Africa and Latin America. Instead of selling large bottles of shampoo in stores, for example, it sold small, inexpensive packets to rural consumers through village markets.
As P&G struggled to find its footing in Asia, the company made a strategic decision to focus on China. As a relatively new consumer market, China offered a level playing field; unlike in India, P&G wasn’t fighting for market share against an established rival like Hindustan Lever. And there were few local players with credible brands and national distribution at that time.
“Witnessing the fast-growing affluence of Chinese consumers, P&G was keen to heavily invest in television commercials, supported by its unrivaled financial capabilities to woo Chinese consumers,” said Heng Sheau Jing, a Euromonitor cosmetics and toiletries analyst in Shanghai.
Shift in thinking
P&G resolutely slashed production costs and streamlined distribution, said Jeff Bradley, Leo Burnett's regional brand director, P&G, Asia/Pacific in Hong Kong. "They made a huge commitment to approach their business in a way that would allow them to drive a lot of costs out of their system without stripping their brands of quality. Instead, they said, 'This is what we want to offer our customers, so how can we do it from the ground up?' It was a huge shift in thinking and very liberating."
It also invested heavily in market research to better understand consumers, even sending senior P&G execs on pilgrimages to third and fourth tier cities. They bunked with local consumers, shopped with them and helped clean their homes to better understand how they live and what would appeal to them. The experiences paid off with sometimes simple but important insights.
“If you go to a market like the Philippines,” said Irwin Lee, P&G’s Guangzhou-based VP of fabric and home care in Greater China, “you’ll find they wash lots of clothes together. So our formulation needs to be altered to address the fact that their wash loads are 40 garments at once, whereas in China, on average there are only seven garments per wash load.”
Such cultural differences also mean P&G needs to understand how to speak to consumers about product benefits: “Take a product like Tide, a big brand of the people. We would reach out to consumers in China in a charming way, something like a traditional house courtyard setting." In India, the style would be more Bollywood, he said.
P&G also established an R&D center in Beijing, now one of the global company’s most important research hubs. One Beijing development--a more affordable, higher quality Crest formulation--is rolling out beyond China.
“Also, we are working closely with India on detergents. We have some breakthrough technologies that are superior to mass-market products yet are very affordable,” Mr. Lee added. “And we have just begun an intensive program on personal cleansing, adding whitening technology and moisturizer into body cleaning products.”
Another significant decision that helped P&G pull ahead of rivals was the introduction of a tiered pricing structure in 2003, when P&G introduced a 320 gram bag of Tide Clean White for 23 cents, compared to 33 cents for 350 grams of Tide Triple Action. While the Clean White version did not offer all the stain removal and fragrance benefits of its pricier cousin, it was more affordable and still outperformed every other brand at that price point.
The China experiment grew sales without damaging Tide’s brand equity. P&G expanded the tiered pricing concept to other brands such as Crest, Whisper, Pampers and Olay, and other markets, even the U.S., where Bounty Basic and Charmin Basic launched last year.
P&G has also bought out local partners to cement control over its operations in China’s shady manufacturing and distribution worlds. In 2004, for example, the company purchased the remaining 20% stake of its joint venture with Hutchison Whampoa for $1.85 billion.
But P&G credits its growth and scale in China to its determination to understand consumers. When Mr. Stengel visits China each year, he said he personally visits the homes of middle class and poor consumers “to better understand how Asians live,” and pokes around stores. However, he said, “China is in a state of constant development. It’s never static.”