Small Brands Could Be J&J'S Next Big Thing

Company Pushes Niche Skin-Care Line as Rival Behemoths Lose Share

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BATAVIA, Ohio ( -- Selling big, heavily extended brands at large retailers has been a cornerstone of success for the personal-care marketers for most of the decade. But as that business model shows signs of fraying, $61 billion Johnson & Johnson increasingly is trying something a lot more entrepreneurial.
Proactiv: In the crosshairs of Johnson & Johnson's new SkinID.
Proactiv: In the crosshairs of Johnson & Johnson's new SkinID.

In the past year, J&J has quietly ramped up a major assault on direct-response skin-care powerhouse Proactiv with the SkinID brand. The Neutrogena subbrand offers customized acne-fighting and other skin-care products and is sold online.

Years ago, according to executives familiar with the matter, J&J passed on a chance to buy Proactiv, though the company declined to comment on that report. But now that industry peg Proactiv's sales north of $1 billion annually, the price tag on a buyout is looking far more prohibitive, leading J&J to start its own response from scratch.

The SkinID push, moreover, looks to be the start of something bigger at J&J. Recent job postings for the company indicate it's preparing a host of niche brands and initiatives in the U.S. One recently sought a manager of shopper marketing whose duties would include launch and development of "limited-outlet" offerings such as a U.S. rollout of Piz Buin, a sunscreen with roots in the Swiss Alps and distribution up to now mainly in Europe, Australia and New Zealand.

The job also covers other yet-unnamed developmental initiatives outside J&J's conventional food, drug and mass-merchandise outlets, including online retailing and premium specialty channels such as Nordstrom Rack, Ulta and spas. The position also covers developing new retail environments at existing retailers and developing a "beauty-adviser program" to be used there.

J&J executives declined to comment for this article.

Losing share
Clearly, J&J has benefited from the big-brand, big-retailer model up to now. Information Resources Inc. data reported by Deutsche Bank shows the company gaining share in key categories such as acne products, facial moisturizers and cleansers in recent quarters.

With global sales estimated by people familiar with the company at $2 billion to $2.5 billion, Neutrogena is neck and neck with other global megabrands, such as Procter & Gamble Co.'s Olay and Unilever's Dove.

Yet both of those rival brands have slowed within the past year and begun losing share, at least in tracked U.S. channels. And even the biggest brand behemoth in mass, L'Oréal, with global sales estimated at more than $5 billion, has begun losing share in cosmetics and hair colorants in the past year in U.S. tracked channels. L'Oréal is losing out to smaller P&G brands Cover Girl and Clairol, which have been resurgent even as the two biggest horses in the company's stable -- Olay and Pantene -- have started to struggle.

Should the same fate befall Neutrogena, at least J&J has skin in another game. J&J launched SkinID by "Neutrogena Dermatologics" on a limited basis in April, then ramped up spending behind infomercials featuring former "American Idol" contestant Katharine McPhee starting in May. Omnicom Group's Roberts & Tarlow, New York, handles.

As with Proactiv, the products are customized assortments available only by phone or online, but Neutrogena ads bill SkinID products as "twice as effective as Proactiv." The tack appears to be working, with traffic to running at around half the level of traffic to after only a few months of all-out effort by J&J, according to web-data company Alexa.

An apparent run-up in Proactiv web activity in June and July, likely in response to defensive advertising, dissipated in August, though Alexa data show that Proactiv's web traffic recently has settled back to the same level as before the SkinID launch.

"We're revolutionizing skin care through questions to our consumers," said Cal Schmidt, VP-sales and marketing for J&J unit McNeil Nutritionals, referring to the early stages of SkinID in a talk at an Advertising Research Foundation forum in April. "We are offering our customers specific products tailored to them. ... And then you have this ongoing dialogue."

Not to mention ongoing sales. What likely makes the proposition most attractive to Neutrogena is automatic replenishment, which keeps consumers buying and prevents the switching common at a retail shelf, said Jeffrey Nugent, who ran Neutrogena for J&J before becoming CEO of Revlon. He's now an investor in and adviser to privately held personal-care and medical-device companies.
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