Procter & Gamble Co. is slashing the list price of two leading over-the-counter drugs in a move expected to accelerate a categorywide shift to value pricing.
The company announced last week that it will reduce the list price of Metamucil fiber laxative an average 20% and Scope mouthwash an average 16%. The cuts, set to take effect June 13, expand on P&G's earlier price reductions in other categories. Metamucil and Scope are the company's first healthcare products to see prices slashed.
P&G's move follows a 20% price cut for Johnson & Johnson's Imodium A-D antidiarrheal, begun last month. Johnson & Johnson said its reduction is in effect through Oct. 31, but analysts don't expect the price to go back up.
"This is part of a wave of activity by drug marketers across the country," said Gary Stibel, principal at the New England Consulting Group, Westport, Conn. "Smart companies have been reducing costs in order to be ready to selectively-by product, category and maybe even geography-reduce prices."
The reason? In two words: private labels.
"Branded manufacturers have to narrow the gap between what they charge and what private label charges. I expect many other companies will follow P&G and J&J in this," said Bob Brown, CEO of the Spar Group, a Tarrytown, N.Y.-based marketing services company.
Growth in OTC-drug store brands is a relatively new phenomenon. Shoppers used to resist private-label drugs, suspecting they weren't as reliable as name brands.
"Private labels are better in quality today, and consumers are getting smarter," Mr. Brown said. "They understand there often isn't a difference between store brands and name brands."
The marketers had no comment on whether special advertising would be tied to the price cuts. Tatham Euro RSCG, Chicago, is Metamucil's agency; D'Arcy Masius Benton & Bowles, New York, handles Scope; and Lintas, New York, has Imodium A-D.
P&G and Johnson & Johnson have picked their products carefully. Metamucil is the leading fiber laxative with 24% of the market, but it has faced strong competition from private labels, which now have a 19% share. No. 2 ranked Scope, which trails Warner-Lambert Co.'s Listerine franchise, has 16% of the mouthwash market; store brands have 15%.
And Imodium A-D is competing in a category where private labels grew 378% in dollar sales in food stores and 801% in drugstores last year.