A.G. Lafley's Shares His Secret for P&G Success
When wily veteran pro quarterbacks such as Peyton Manning and Drew Brees drop back into the pocket for a pass play, everything slows down for them -- the charging linemen come at them not as heaving beasts but in an orderly assault, and their pass catchers break into their routes and melt seamlessly into the flow of the play.
A.G. Lafley, who in his tenure as chairman of Procter & Gamble doubled P&G's sales and more than doubled its billion-dollar brands to 23 from 10, tried to emulate what happens on the football field.
"I did try to slow things down," he told me in a wide-ranging video interview that reminded me more of a really great college seminar. "And I did try to bring us back to fundamentals. It's funny: I knew the market was moving fast and change was accelerating, so I felt like we had to simplify what we did," he explained on the same day he was inducted into the Advertising Hall of Fame .
"We tried to start with goals and strategy. We viewed strategy as choices about what business we wanted to be in and what businesses we didn't want to be in. We viewed it as choices of where we wanted our brands and categories to play and how we wanted to win in each category," he added. One of Mr. Lafley's key strategies was to attack on both the high end and the low end. P&G created a new segment in beauty care called "mass-tige," and took a tired old brand like Olay from the mass $6-to-$10 price point to $10 to $25 with a range of innovative products -- Olay Total Effects, Olay Regenerist, Olay Definity and even Olay Pro-V at $50. What P&G learned, Mr. Lafley said, is that its normal channels of distribution would support high-technology products. P&G compared Olay's performance with the best department-store brands and gave the products to dermatologists and clinicians who tested and endorsed them. And Olay joined the ranks of P&G's billion-dollar brands.
Mr. Lafley had several tours of duty in Asia, where outside of Japan, products had to be very affordable. In China, Procter researchers came up with the "core-chassis" concept for personal-care and beauty-care formulations. For example, Mr. Lafley said, the core chassis for toothpaste is cleaning and cavity prevention. The core chassis P&G created in China became the core chassis around the world, enabling the company to dramatically lower the basic cost of Crest in the U.S. Onto the core chassis you can add whitening, breath freshening, gum health, mint flavors -- just like Ford can add leather seats and navigational equipment to its own core chassis.
P&G these days is making a mighty effort to lower costs (including switching a big part of its ad budget to digital), but Mr. Lafley said that when he was at the helm, he tried to focus on productivity.
Here's where the college professor comes out in Mr. Lafley: "If you step way back and you look at our company or industry or any national economy over time, demographics, innovation and productivity drive growth, right? So more households form, the demographics are positive, there's more innovation, more creation of new products and services that add great value, and there's more productivity. So we get more things made, more things done per person or per unit of time."
Mr. Lafley continued: "If you get too fixated on costs, especially short-term costs, or you get too fixated on quarterly earnings -- which we tried very hard not to do -- or even annual earnings … then you can let that pendulum swing too far in one direction or another."
On the advertising front, Mr. Lafley said the company focused on incentives for P&G and its agencies to grow together. "There was a base that was pretty much guaranteed, and then agencies had a lot of potential to earn above that ." If the ads worked, Procter spent more money, just like the old commission days. "Most of my career was spent in the commission days and we wanted to incent people for growth . . . for advertising that works," he said.
Great advertising -- advertising that works -- has two components, in Mr. Lafley's view. "It has what I would call a big idea and it has an execution that engages the prospect or the target . The big idea brings the brand and product promise to life."
And he would push for brands to stay the course. "Too often brands are in too big a hurry to change their position, as opposed to reaffirm, retake and re-establish their position. I always felt that we had to be very careful not to walk away from the users that we had."
Mr. Lafley called Gillette "the largest and most successful acquisition" the company has done to date. More importantly, Gillette put P&G in new categories and regions "in a way that would have taken us one, two or three decades to get there on our own." And it strengthened P&G's positions in countries such as Brazil, Korea, India and Russia.
On the other hand, Mr. Lafley told me he regrets selling Aleve and Clearasil. "I think exiting pharmaceutical drugs was a good move for us. But I think branded over-the-counter drugs and branded unregulated health-care products are very fertile categories for us."
The coffee business is another sore point for the Mr. Lafley. When he joined the company, Maxwell House was the category leader. Procter's Folgers turned that around after 30 years. But Folgers eventually fell behind. The big winner was Starbucks, "which created a totally new business model," he said. Winning on the homefront are Nespresso and Keurig. Mr. Lafley said P&G tested the single-serve concept but "we didn't get it as right as Keurig and Nespresso did."
My final question to Mr. Lafley was what he was proudest of over the span of his chairmanship at P&G. "I'm proudest of the strength, the depth, the breadth in the organization that was there on the last day I served the company. As P&G people go, so goes the company, and we had a fabulous decade. We attracted and recruited a lot of fabulous people, and we had a lot of opportunity to grow a lot of great people, and most of them are still there."