P&G's Lafley Tells What Went Wrong With Beauty Division And How He Wants To Fix It

Too Many Leadership Changes, Too Much Fashion Week Among Problems

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A.G. Lafley
A.G. Lafley

In one of his first major appearances since returning as Procter & Gamble CEO in May, A.G. Lafley gave a remarkably frank rant today about what went wrong with the company's beauty business during the question-and-answer segment of his presentation at the Consumer Analyst Group of New York conference in Boca Raton, Fla. While he provided few details on turnaround plans, part of his answer for beauty and all of P&G is a move back toward the classic brand-management system the company has in some ways moved away from in recent decades.

P&G's beauty business tripled sales and earnings from 2000 and 2007 – just like Apple did in technology. The problem, said Mr. Lafley, is that P&G then "got stuck" at around $20 billion in sales while Apple went on to $150 billion.

"Depending on how you count, we had half-a-dozen leaders" on beauty since 2007, Mr. Lafley said. "Many of them had never spent a minute in the industry. We were enamored with the old GE and P&G development assumption that general management is fungible, and functional management gets developed by moving around every two or three years."

That wasn't how P&G managed its beauty growth spurt early in the millennium, with a team that had been on the business starting in the late 1990s and largely stayed intact, he said. At one point, P&G had aspirations of overtaking L'Oreal as leader in global beauty. By P&G's accounting, it's now No. 3, also behind Unilever, which has been gaining share in recent years.

"So we're putting it back together," Mr. Lafley said, "including bringing key managers back to the business -- and looking for outside assistance where we want it and need it.

"The last thing we need now is an acquisition in beauty care," he added. Instead, P&G needs to focus on the business it has.

He sees some progress in such categories as hair care, he said, "but this isn't a quick hit." Olay has been "disappointing," he said, but is still one of the strongest beauty brands in the world in terms of net promoter scores, consumer awareness, or products.

"Beauty is the great industry of promises made and never kept," he said, drawing laughs from the assembled analysts and investors. P&G's growth from 2000 to 2007 came from making simple promises that mattered to women and then keeping them, he said, "So you'll see us get back in the game."

Part of the problem, he said, "is we started thinking of ourselves as a beauty company. We spent all our time at the Oscars, the Grammys or Fashion Week, which now runs for months. We don't stay focused on the consumer."

While P&G's broader reorganization isn't just about fixing beauty or re-focusing on the consumer, it's meant to help by unifying a marketing effort that's been divided among two organizations.

The reorganization will have marketers who were assigned to P&G's regional market development organizations shift into its four global business units – beauty; baby feminine and family care; fabric and home care; and global health and grooming. Those are where most advertising decisions and other brand marketing already took place. But marketers assigned to some shopper marketing and other regional efforts had also been assigned to market development organizations.

Those will now be re-dubbed "sales organizations" more clearly focused on the retail trade, merchandising, distribution and "pricing execution," Mr. Lafley said. P&G is reducing from eight down to five such groups, combining all of Europe including Russia into a single organization. It is also putting India with the Middle East and Africa along with another group that includes the rest of Asia plus Australia. North and Latin America will remain unchanged.

While more marketing will shift into the global units, a P&G spokeswoman said in an email that: "We'll still have people in the markets doing important execution work" that includes "media buying and multi-brand coordination."

In describing the consolidation of marketing in the global units, Mr. Lafley said, "We are returning to brand management. It will be a system of four aggregated functions. Design, consumer and market understanding [market research], communications and marketing itself" will be part of "one integrated brand-building and brand-management organization. Brand management will again have single-point responsibilities for brand strategies, planning and the in-market results."

Whether that means headcount reductions isn't clear, though that remains a major P&G movement, as Chief Financial Officer Jon Moeller said the company is working to accelerate "role reduction" efforts as well as improve marketing efficiency by shifting more money to digital and social media, "improved message clarity," and squeezing "non-advertising" costs.

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