Value positioning becomes a priority

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For most of its history, premium-brand giant Procter & Gamble Co. treated the poor much like well-off persons treat panhandlers-avoiding direct eye contact but handing over some spare change in the spirit of philanthropy.

But something happened in 2001 when Chairman-CEO A.G. Lafley started making his top global managers spend time with consumers in homes or stores once a quarter. Take Rob Steele, for instance. P&G's president-North America was standing in the checkout line one day with his research subject, and she asked him to come up with the participation fee right then and there so she could pay her grocery bill.

Due to experiences like this, top P&G executives began realizing how many poor people there really are in the world, what a big potential market they made up, and how seldom they could afford or wanted to buy high-price P&G products.

At the same time, private labels and such rivals as Unilever's Suave and Alberto-Culver Co.'s VO5 were snatching money from P&G's wallet more figuratively as their value brands took share from P&G's stable of premium ones.

Close encounters with the cash-strapped have helped change the way P&G thinks about brands and marketing as it launches more value brands, value versions of premium brands and other marketing initiatives geared toward lower-income consumers both in the U.S. and overseas.

"It's important just that they've acknowledged as they try to become a global company that 80% of the world can't afford their stuff," said an executive for one P&G competitor. "It's just part of the gale force of competition with Unilever and Colgate, which are already value companies. At the same time, advertising prices are going through the roof. At some point, their business model has to evolve."

closing the gap

Just in North America, P&G could add $3 billion in sales overnight if it could close the gap with rivals among low-income, African-American, Hispanic and French-Canadian consumers, Mr. Lafley said at a December investor conference.

Symbolically, P&G's most dramatic shift toward value may be with Ivory, its oldest surviving brand. Dubbed "The House that Ivory Built" in a 1987 Advertising Age commemorative issue on P&G's 150th anniversary, the company 15 years later sold the house that built Ivory-its century-old Cincinnati Ivorydale plant-to a Canadian contract manufacturer.

Following cost cuts derived in part from the outsourcing, P&G today markets Ivory as a "midtier" value brand, priced 10% to 15% lower-per-ounce than such rivals as Dial Corp.'s Dial or Unilever's Dove. Unlike most P&G brands, Ivory has no agency of record, but gets media support on a project basis from Benchmark Group, Cincinnati.

As P&G integrated its 2001 Clairol acquisition, it has similarly taken many of the lesser acquired brands, such as Daily Renewal 5x, Aussie and Infusium, down several price points. Most dramatically, Daily Defense, a failing premium brand Clairol had yanked in the U.S. as the deal was closing, came back last year priced at 99› or lower, positioned as what P&Gers called "a Suave killer."

The strategy hasn't immediately helped P&G's sales or share in U.S. hair care, both of which were down in 2003. But it did end several years of double-digit sales growth for Suave and helped ensure Unilever lost share in hair care despite its $100 million launch of Dove shampoo and conditioner.

different venues

Diana Shaheen, a hair-care marketing director whose portfolio spans Physique products priced north of $7 to Daily Defense, said having such a range "gives me more exposure to consumers in different venues. In shampoo, loyalty is not high, so learning their needs, having a lot of offerings and accelerating growth are really important."

Since the value strategy is global, P&G is sharing learning about appealing to low-income consumers among developing markets, lower-income European markets such as Poland and developed markets.

Mr. Lafley, in an interview with Ad Age, said he has been one of the chief drivers behind value brands, along with Kerry Clark, president-global market development, who oversees the units that handle local marketing and media buying efforts throughout the world.

Executives experienced in marketing to low-income consumers overseas are taking their knowledge to the U.S. and vice versa. Alex Tosolini, an Italian national who was marketing director for low-income consumers in P&G's U.S. fabric-care business, developing products for dollar stores, moved last year to become general manager for P&G's business in Poland. There, encroachment by German "hard discounters" like Aldi threaten to change the game in a market that had been one of the most favorable in Eastern Europe to premium brands, said Deutsche Bank analyst Andrew Shore.

different audiences

P&G's shift to value clearly won't mean heavy media advertising for these brands. Even if the thin-margin products could support the spending, it wouldn't necessarily be the right thing to do, said Dimitri Panayotopoulos, P&G's president-Central and Eastern Europe, Middle East, and Africa.

Value consumers "are very much different from the consumers who buy [premium] brands, which is good, because we don't cannibalize volume from the premium tier," he said. "Consumers who buy premium brands are more left-brained and pay for premium performance. [Value consumers] don't care so much about watching advertising and demonstrations and so on. They pride themselves on being savvy consumers who look for value."

After an initial ad push that included TV and print from Barefoot Advertising, Cincinnati, Daily Defense is now off the air, maybe for good, said an executive close to the company, though he added that the brand may remain on store shelves because it offers retailers a decent margin.

But the value focus isn't all about price, thin marketing budgets or even low-income consumers. Susan Arnold, president of P&G's global personal and feminine-care business, which markets some of the company's priciest products, last year had each of her top managers spend a month living on the median household budgets of their countries.

"The idea wasn't to think about price," she said. "It was to think about the value of our products compared with all the other things you could spend your money on with a limited budget."

Even well-off consumers often want value as they trade luxury in one area for thriftiness in another, said Paul Polman, P&G's president-Western Europe. "The Aldi consumer is not necessarily a low-income consumer," he noted. "You'll see plenty of Mercedes' in the parking lot."

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