Procter & Gamble is Ad Age Marketer of the Year

Only two years ago, things looked dire for Procter & Gamble Co. The company had been losing market share since the Great Recession began in 2007. Conventional competitors and direct-to-consumer startups gnawed away at its customer base. Activist investor Nelson Peltz had just won a board seat after a nasty proxy fight. Even after shedding 100 brands and a fifth of its sales, P&G faced calls from some analysts for a bigger breakup. Now, that’s almost a distant memory. P&G has gained share in most businesses this year, posting 7 percent organic sales growth the past two quarters. That’s a rarity for any big company, particularly one implementing a major restructuring. Squeezing out more than $1 billion in annual agency, production fees and media waste since 2016 has knocked P&G from its longtime perch as the world’s biggest advertiser. Even so, it’s put out notable creative in the past year that includes original productions from James Corden and John Legend for SK-II and Pampers, while embracing risks and taking social media heat for ads from Gillette and My Black Is Beautiful that take controversial stances on gender and race relations. P&G has also enlisted a broad array of outside creators, including National Geographic and Arianna Huffington’s Thrive, for everything from documentaries to “micro-habits” consumers can think about while brushing their teeth. Relying less on conventional surveys, the company has adopted the methods of d-to-c startups by rolling out dozens of new brands and ideas direct to consumers and pivoting based on results. As it takes more risks, P&G’s growth has pushed its stock price up more than 30 percent this year and 65 percent from recent lows in May 2018. Tighter budgets might help P&G Chief Brand Officer Marc Pritchard sees it, cutting creative and media budgets while limiting how often people see ads forces P&G to do higher quality work that has more impact. “Data and application of analytics and technology are allowing us to increase reach, even with the same spending,” he says. “It probably disrupts the definition of the world’s largest advertiser. It’s not about spending. It’s about reach.” Efficiency helped, but crediting success to any single strategy or product is impossible when most things are going right for P&G. Long-struggling big brands such as Olay and Pantene are again growing share as new brands like Zevo insect control and high-end Opte skincare devices are introduced. Momentum is gaining and is broadly based. Both P&G and its categories have seen sales growth steadily rise in the U.S. since spring 2018, topping out at 3.1 and 2.5 percent, respectively, for the 52 weeks ended Oct. 5, according to Nielsen data from Bernstein Research. P&G’s U.S. sales rose 4.3 percent for the four-week period ended Nov. 17, according to IRI data from Evercore, a full percentage point faster than the prior period, as 90 percent of P&G’s brands were growing. Even Gillette, the company’s most troubled big brand, grew 3 percent, its best U.S. showing since the Fusion system launched in 2005. Behind all this is a broad strategy, beginning in 2016, that unfolded mostly under Chairman-CEO David Taylor. But P&G’s rebirth started years before as the company began shedding those 100 brands and focusing on a portfolio of more likely winners, where performance, not fashion or fads, drive consumer choices. That meant, for example, spinning off CoverGirl and Wella, which have fared worse under new owner Coty. Simply irresistible For the remaining brands, P&G demanded “irresistible superiority” and revamped its organization to be more agile and accountable, in part by having marketers do more for themselves with “hands on the keyboard,” as Taylor puts it in an interview. “And then we’re looking to constructively disrupt ourselves.” Yes, this is still P&G, which means some novel buzz phrases are packed in there. Let’s unpack them, starting with “irresistible superiority,” a phrase whose chutzpah provoked ribbing by analysts when first unleashed on an earnings call in April 2017. Taylor describes it as a “strategy based on meaningful superiority, not technical superiority. It’s about the product, the package, our communications and brand building, our go-to-market on and offline, and value for the consumer and [retail] customer.” Get all those things right and you’ve achieved “the five-fecta,” as Pritchard puts it. P&G measures “irresistibity” in part through deprivation testing. Consumers rate their current brand, then try P&G’s version, which is then replaced with their current product, Taylor says. If consumers prefer the new P&G version and rate their old brand lower, the company knows it’s on its way to “irresistible.” Taylor acknowledges the ribbing, but isn’t gloating about stronger results. “It’s a good start,” he says. “I’m not declaring victory. What I’m declaring is progress.” ‘Constructive disruption’ Sustaining that progress is where “constructive disruption” comes in. This principle is defined as changing anything except core purpose, value and principles (PVPs in P&G parlance), “to get back to winning,” Taylor says. “That opened up all kinds of possibilities. It meant looking again at what advantage looked like. Not just a better piece of advertising, but reconceptualizing how we communicate and engage with consumers [and] the role we had with agencies.” In P&G speak, constructive means “in a way that creates value, treats our employees well and is respectful of the many stakeholders we interact with,” says Taylor. Disruption, however, isn’t so easy for big holding company agencies amid a host of changes and agency models P&G has unleashed. That includes “Fixed and Flow,” a system in which primary agencies of record receive a fixed retainer, but a growing amount of project work goes to smaller or new agencies, including independent Badger & Winters on Olay or MDC-backed Forsman & Bodenfors on SK-II. P&G’s Fabric Care business has created multi-agency hybrids, with Publicis Groupe and WPP agencies working alongside P&G’s in-house media planners in North America (Woven) and Asia (Fluid). P&G also has pushed agencies to co-locate with brand teams in Cincinnati, London, Singapore and elsewhere, speeding work and sometimes supporting in-house efforts, Pritchard says. Hands on the keyboard Those keyboard-busy hands are what Pritchard sees as the predominant change in agency model for P&G. That’s mainly meant using internal data, analytics capabilities and staff for media planning, and brand marketers on self-service platforms from Facebook or Google doing their own media buys and performance marketing. But it’s also meant Secret deodorant doing almost everything in-house, including a TV ad shot in P&G’s old wood-paneled boardroom in Cincinnati with music the general manager helped write. That commercial was done for 10 percent the cost, and in one month vs. five compared to agency work from Wieden & Kennedy, says Pritchard. SK-II skincare, which has helped P&G’s beauty business go from company sales laggard to sales leader in only a few years, also has led in adopting agency model changes, says Pritchard. That includes having a fixed agency (Publicis Groupe, managed by its Marcel artificial intelligence platform) with “flow” work from F&B. It’s also gotten considerable help from outside talent that includes Katie Couric, James Corden, Chloe Grace Moretz, Naomi Watanabe and John Legend, among others, the last making up a funny original song this summer about SK-II’s key ingredient, pitera. His and other SK-II videos have drawn 641 million views, increased search by 27 percent and boosted sales, adds Pritchard. P&G is also making inroads with old-fashioned infomercials for brands like Mr. Clean Magic Eraser aimed at showing people how to use the product for better results—an approach rolling out across more brands. Growing categories Such ads, which aim to encourage consumers to use products more often and successfully, are part of an effort under Taylor to focus less on taking share from rivals and more on growing or creating categories. One example is Downy Unstopables scent beads, a business with more than $750 million in global sales that’s moving the brand from fabric softening to adding lasting fragrance to clothes. Another is Zevo, an all-natural insect spray using essential oils, which moved earlier this year from d-to-c into limited distribution at Home Depot and Target. “Sixty percent of our customers are new to the category,” says Chief Research Development and Innovation Officer Kathy Fish, as the brand attracts people who’ve resisted using other bug sprays. Zevo is also part of P&G’s “lean innovation” movement, one of 180 seed stage projects that start with limited d-to-c rollouts, moving to broader distribution if they succeed. “The rate of learning has gone up significantly,” Taylor says. “We have smaller teams looking for bigger ideas, and then once it’s found and we validate it, then we can scale it.” P&G has established GrowthWorks units in each business unit and corporately, he says, aiming both to expand existing businesses and move into new or adjacent categories. Reorganization without chaos Constructive disruption also means reorganizations, something P&G already did plenty of under different names as it went from a head count of 135,000 in 2008 to 97,000 today. The latest reorganization in July divided the company into four large businesses, each headed by its own CEO. Sales and some other functions, which were in separate organizations, now mostly report up to those CEOs in the same business units as marketers. And P&G has sent most of its corporate staff, more than 5,000 individuals, to work in those four groups. That includes having Global Media Director Gerry D’Angelo handle media duties directly for beauty brands. In the past, having three internal organizations weigh in on decisions slowed things, Taylor says, sometimes making scale more burden than blessing. Eliminating that complexity was nonetheless so big a change that some analysts last year asked whether it would be at least a temporary disruption. The 7 percent organic sales growth on both sides of implementation suggest the disruption really was, well, constructive. Taylor gives credit to “clarity and accountability” in the new organization plus “resilience of P&G people.” Better accountability, in particular, has fueled P&G’s recent success, says Bernstein analyst Ali Dibadj, the company’s toughest critic among analysts in recent years. “It’s not that their people were bad,” he says. “It’s not that they had bad brands. It’s not that they didn’t have resources. But they didn’t have accountability. It was much more of a political structure.” Now, he says decision-making is simpler and key executives are compensated far more for performance of their specific businesses. Burt Flickinger, principal of consultancy Strategic Resource Group, credits Taylor with leading a cultural change beyond the organizational streamlining. “David Taylor has restored P&G to being a meritocracy after years of uneven leadership,” he says. The Peltz effect? Of course, P&G’s turnaround has come mainly since Peltz joined the board. So isn’t it all really about him, or the wake-up call he delivered? Taylor notes Peltz’s answer at CNBC’s Delivering Alpha conference in September, where they appeared side by side. “He said when he came he found a company and management team moving in the right direction,” Taylor says. Peltz and the full board added “a sense of urgency to push even further,” Taylor adds. But Taylor notes the strategy he outlined at the Consumer Analyst Group of New York meeting in 2016 began unfolding two years before Peltz arrived. “There were some investments needed to effect these changes,” he says. “And it took time to implement the strategy, which is why I think it’s sustainable.”

Procter & Gamble is Ad Age Marketer of the Year

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