P&G's Pritchard at the ANA confab on how to combat the direct-to-consumer threat

Terence Kawaja, whose Lumascapes showing the vast jumble of marketing-tech players have been staples at marketing conferences for years, unveiled his latest creation at the ANA Masters of Marketing Conference in Orlando, Florida on Thursday. This one shows direct-to-consumer startups that have been eating away at big established behemoths like Procter & Gamble Co. "D-to-c in 2018 feels like programmatic in 2009," Kawaja says. That includes "rapid company formation, fragmented ecosystem, rampant venture funding, nascent consolidation and a sector poised for huge growth." The founder and CEO of investment banking firm Luma Partners even has a separate slide focused on 45 P&G brands under attack by d-to-c startups. Expect more, he says, as venture capital dump trucks back up to fill the coffers of players he says are rendering the tactics and business models of traditional marketers like P&G obsolete. P&G Chief Brand Officer and ANA Chairman Marc Pritchard wasn't at the talk, but he had some counterpoints in an interview later. He says P&G has launched more than 100 seed-stage experiments recently and even turned its big established brands loose to do direct-to-consumer sales recently to act more like startups. As for that P&G versus the startups slide: "I've lived that slide," Pritchard says. "It's not like he's surprising me." Here are some of their points and counterpoints. Kawaja: ANA CEO Bob Liodice noted research last year showing more than half of Fortune 500 companies aren't growing. Kawaja says he knows the reason. "Marketers and their tactics are old." The new generation of d-to-c marketers "take a completely different approach to advertising" from the "spray and pray" approach of traditional advertisers, with a focus on performance marketing tailored to individuals based on first-party data, he says. Pritchard: P&G just delivered its best sales growth quarter in five years despite spending 6 percent less on marketing. Part of that is a move from "mass blasting to mass reach, but still with greater precision," Pritchard says. That includes investing in large data management platforms in China and the U.S., populated at least in part with first-party data generated by a growing number of consumer-direct initiatives. "We're seeing brands like Olay and SK-II spend less on TV, focus on one great ad rather than changing ads all the time, and then spending more time creating talk-able content that will drive people in," he says. Kawaja: The new generation of d-to-c startup marketers are "digitally native" operations attracting venture capital because they look and act like tech companies filled with younger, data-driven marketers. "You think you can be cool and launch your own d-to-c brands?" Kawaja asked traditional marketers in the room. "Think about a middle-aged white man trying to dance." He then showed a GIF of former New Jersey Gov. Chris Christie doing just that, threatening to leave it up for the rest of his presentation. Pritchard: He's not about to break into a dance, but P&G, he says, is trying hard to be more nimble by letting its 20- and 30-something brand managers and directors act more like they're running startups. "We've got over a hundred seed-stage experiments that we're doing," Pritchard says. "It's very exciting, because people are discovering how quickly they can stand up a website, create ads, buy ads, and then look at Google and Facebook analytics, do A/B testing, figure out what's working and then get more sales. It's a good way to get with the consumer and learn how we can optimize." Those seed-stage experiments, he says, are "where people are identifying a consumer problem, then creating minimal viable prototypes, and then just iterating to figure out what works or doesn't' work." These efforts aren't just about new brands, though some are emerging that way. Pampers Pure, which has become the top natural diaper brand in the U.S. retailers tracked by Nielsen since its launch in February, was developed the same way. Kawaja: Venture capitalists are funding d-to-c startups because they look and act a lot like tech companies. Pritchard: P&G is trying to look and act a lot more like a tech company with the seed-stage experiments, which he described as a "pivot" he's been working on with P&G Chief Technology Officer Kathy Fish "applying lean-innovation principles from Silicon Valley." Advising the company has been Eric Reis, entrepreneur, blogger and author of "The Lean Startup." Kawaja: D2C startups "take a completely different approach to advertising," using precisely tailored marketing based on first-party data and artificial intelligence. Pritchard: In recent weeks, following the company's most recent Signal internal tech conference in July, a growing number of P&G brands, including Tide, Olay, Crest and Charmin, have been doing direct-to-consumer sales via Facebook, Instagram and other channels. "That's part of our whole focus on getting hands on the keyboard and the ability to have data and access," he says. Kawaja: Razor d-to-c startups Dollar Shave Club (now owned by Unilever) and Harry's have grabbed a 12 percent market share from P&G's category behemoth Gillette since 2012. He called P&G's response, Gillette Shave Club, "a copycat business model that screams inauthenticity." He did show a slide, though, indicating Dollar Shave Club revenue started plateauing shortly before its $1 billion sale to Unilever in 2016. Pritchard: Gillette Shave Club did very well last quarter, Pritchard says. [In fact, growth of Gillette Shave Club was a big part of how P&G delivered a revenue surprise last quarter, fueled by a 4 percent organic sales growth globally and 10 percent in the U.S. for its grooming business that defied sales and share declines in traditional retail channels measured by Nielsen. P&G data show Gillette's was the only online razor subscription service that grew membership last quarter.] Kawaja: D-to-c startups are disintermediating traditional retailers, with some of the more successful ones, like UntuckIt, developing their own brick-and-mortar stores. Can traditional marketers do that? "No, your distribution model is set," he says. Pritchard: P&G brands are no longer afraid of disturbing their traditional retailers by going direct to consumers, and the two approaches are compatible. "A lot of what's happening with d-to-c is fairly small," he says. "And what it enables us to do is to learn quickly and then go into a retailer faster, and retailers like that because it allows them to get new and more differentiated offerings. Ultimately, what's going to happen is that we're going to experiment, and if the category grows, that's what matters the most." The Native direct-to-consumer deodorant brand P&G acquired last year recently moved into Target, much like P&G rival Harry's has moved into Target and Walmart. Kawaja: D-to-c startups aren't just bypassing retailers, they're bypassing agencies, though some d-to-c specialist agencies are emerging. Pritchard: "We've been outsourcing so much work to agencies for so many years, and there are so many touchpoints between the brand and the consumer. What we're finding increasingly, with data and technology and analytics, we can do it ourselves. So we're bringing media planning in house. We're doing much more creativity in house. These hands-on-the-keyboard performance-marketing experiments, same thing. Yes, it changes the nature of how we work. It allows you to go faster, take cost out of the system and get our brands operating like a startup, and that's a lot of fun." Correction: An earlier version of the story paraphrased Pritchard as saying Gillette Shave Club's performance was a big part of P&G's revenue surprise last quarter. He said the club did very well, but did not describe its performance as being a big part of the revenue surprise.

P&G's Pritchard at the ANA confab on how to combat the direct-to-consumer threat

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