New P&G; Picking Up the Pace : Hurt by Competitors, Firm Brings Products to Market Faster
Shortly after bottles of Colgate Tartar Control Mouth Rinse began showing up on store shelves early last month, executives at archrival Crest were already planning a counterattack.
Procter & Gamble, maker of Crest, speeded up the introduction of its own rinse--Crest Tartar and Cavity Fighting Rinse--and began shipping the first cases to New England supermarkets last week.
It was an aggressive move that is becoming characteristic of once-smug P&G;, the consumer products giant. “Five years ago they would have sat around and watched it happen,” said John T. Thomas, a former P&G; brand manager. “Now Colgate comes out with Colgate mouthwash and bang-o, P&G; comes out with Crest mouthwash.”
Besieged by intense competition in key businesses, Procter & Gamble--maker of such household staples as Ivory, Crisco, Tide and Pampers--has changed its ways and entered new industries as it celebrates its 150th birthday. If the company’s legendary marketing and advertising departments were assigned to promote P&G;’s transformation, it would probably use the words “New!,” “Improved!” and “Faster Acting!”
Built on the sales of household products that most people take for granted, P&G--the; nation’s leading seller of diapers, toothpaste and detergents--is a $17-billion-a-year colossus that has infiltrated many of America’s cupboards, medicine cabinets and laundry rooms. To promote its products, the company produced radio programs such as “Oxydol’s Own Ma Perkins” that became known as soap operas. Daytime television has been a home for many P&G-created; characters, like Mr. Whipple, Josephine the Plumber and Mrs. Olsen.
P&G;, despite its influence, has kept a relatively low profile for a company its size. The Cincinnati-based company has been associated with Midwestern values: reliable, practical and conservative. Never flashy. And, until recently, never very fast on its feet.
But after dominating the consumer products industry for years, P&G; suffered several setbacks in the 1980s. “P&G; fell asleep at the wheel,” Salomon Bros. analyst Hugh S. Zurkuhlen said.
The period left many P&G; executives shaken. “You go through an experience like this,” said P&G; President John E. Pepper, “and you emerge with additional dedication . . . to the fact that we need to stay out in front in our performance. It’s our job to not let that happen (again).”
At a time when corporate America has been criticized for its fascination with short-term profits and goals, P&G; has been knocked for hanging onto losers longer than necessary. “There have been times,” Pepper said, “I’m sure, we have pursued too long. No doubt about it.”
In other unusual moves, the company is more apt to make painful decisions, like cutting costs, personnel and products. In June, P&G; said it would write off more than $800 million to cover the costs of closing down some of its older factories--including one in Long Beach. And, in a humbling move, it was forced to drastically curtail its cookie-making production after losing the “soft cookie war” it started in 1983.
As a result, P&G; announced in August a $324-million loss for the fourth quarter--its first quarterly loss since 1949.
“They seem much more inclined to do things like that,” said Marvin B. Roffman, an analyst at Janney Montgomery Scott, a Philadelphia brokerage house. “If something does not go right,” he said, “they pull the plug.”
Besides being quicker on its feet, P&G; has also branched out into the fast-growing and highly profitable health and beauty care products field. In 1982, the company shelled out $370 million for Norwich Eaton Pharmaceuticals--maker of Pepto Bismol and Chloraseptic throat spray--and paid $1.2 billion for Richardson Vicks--maker of Metamucil, Vicks Vapo-Rub and Oil of Olay--three years later.
As a result of these acquisitions, P&G; ranks as the largest seller of over-the-counter drugs in the nation. Health and beauty products account for nearly 20% of profits--a figure expected to rise into the 30% range by the 1990s.
“If you take P&G; in its total,” said Geoffrey Place, a vice president of research and development, “we’re going all the way from cleaners to heart muscle.”
Backed by Advertising
The worldwide P&G; empire of today traces its roots to Cincinnati where, in 1837, candle maker William Procter and soap maker James Gamble decided to join forces. Each man chipped in $3,596.12 to begin their new enterprise.
Since then, the company has set the standards for creating and selling household products.
The company’s research and development department, boasting an annual budget of more than half a billion dollars, nurtured ideas that became the first heavy-duty synthetic detergent--Tide--and the first widely used disposable diaper--Pampers.
And when those products reached the supermarket shelves, the company backed them by heavy doses of advertising and marketing. P&G; ranks as the world’s largest advertiser, spending more than $1 billion annually to tout its products.
Intensive scrutiny in P&G; laboratories and in test markets kept product failures to a minimum. But the cautious and conservative approach also meant several years would pass before a new product would end up in consumers’ hands.
Competitors, many staffed with former P&G; employees, “know Procter’s weak point was being so goddamn thorough,” Thomas said. “Being so thorough takes so long.”
Rivals Put Heat On
The time P&G; lavished on its products worked well in the 1950s, ‘60s and early ‘70s when it dominated the households goods industry. But by the ‘80s, competitors were rolling out new products nationwide while P&G; versions were still being tested.
By 1985, the company’s commanding lead was in jeopardy for a time. Kimberly Clark’s Huggies disposable diapers significantly increased its sales at Pamper’s expense. Colgate toothpaste came within a hair of toppling P&G;’s Crest brand as the nation’s top-selling toothpaste. Adding to its woes, the company’s expansion into food products--Duncan Hines cookies, Citrus Hill orange juice--struggled to win appreciable markets during that time.
The tough competition, coupled with product expansion and acquisitions, triggered the first decline in profit in more than 30 years. Profit for fiscal 1985 fell sharply to $635 million from $890 million the year before.
P&G;’s profit decline served to speed up changes already under way. “There’s more competition than ever before,” Pepper said. “What all this means is you’ve got to be sharper.”
Among the changes inside P&G;, the company has diluted the power of its brand managers, who once single-handedly decided the fate of the products under their domain. Ironically, the brand management approach started at P&G; and has since become a standard at most consumer product and food companies.
Now, at P&G;, instead of a brand manager calling all the shots, a group of managers from manufacturing, research and other departments meet with brand managers to map out strategies and discuss problems. The groups, known as “business teams,” have been given credit for cutting down the time necessary to get products to market. The successful introductions of Liquid Tide, Tartar Control Crest and Ultra Pampers managed to regain sales lost to competitors.
Bringing products to the consumer, said Pepper, should not be done in a time-consuming, “baton-like way, where one person starts, then the next, then the next. It’s more important that everybody who is involved be together.”
Managers Are Younger
Often criticized for being too bureaucratic and centralized, P&G;’s top management has sought to give lower-level managers greater responsibility and a more active role in making decisions. After being given the nod of approval, “groups (of managers) move out to execute plans without having to go up to the top of the company the same way we did before,” Pepper said.
The company has been promoting employees faster, said Thomas, who compiles an official directory of P&G; alumni. “It used to take maybe 15 to 20 years to become a plant manager,” he said. “Now there are plant managers under age 35.” These younger managers, he said, are “much less conservative and quicker reacting” than their predecessors.
New blood has been injected into management ranks from recent acquisitions. A Richardson Vicks manager, for instance, now heads P&G;’s Asia Pacific division.
“We are making greater use of consultants, greater use of universities today than I think at any point in the recent past,” Pepper said. Seven thousand to 8,000 P&G; managers have attended seminars by management guru W. Edwards Deming, a proponent of the teamwork style of management.
“By tapping into outside expertise,” Pepper said, “we can get stimulated in terms of what’s going on out there. What are the new thoughts? We’ve got to do that.”
High on New Product
P&G;’s efforts seem to be paying off. The company’s toothpaste and diaper products have beaten back competitors, and its orange juice business has also picked up.
While the company enjoys the resurgence of its traditional products, P&G; executives are gushing over the most heralded product to come out of its research labs this decade: Olestra, a calorie-free fat substitute to be used like shortening or cooking oils.
The calories in a pack of McDonald’s French fries would drop to 140 from 225 if they were fried in oils composed of 75% Olestra, company executives say.
Recently submitted to the Food and Drug Administration for testing, Olestra could be approved--or rejected--for consumer use within two to seven years. If accepted, some analysts predict that the ingredient could be worth billions of dollars to P&G.; “It’s amazing, isn’t it?” Pepper said.
But some analysts are skeptical. “There are too many questions on my mind,” said Zurkuhlen. “Clearly, it could be a big market, but it’s much too iffy.” Still unknown is how long Olestra will be on the market before competing products appear and whether it will have any significant impact on P&G;’s revenue--totaling $17 billion in fiscal 1987--and profit.
And other questions linger as well. As P&G; rushes to get products to market faster, the risks of failure increase. That might make grocers “become skeptical of their next new product” and less willing to make room for it on their precious shelf space, Thomas said.
Entering the health care field is a good idea, most analysts agree. “It certainly grows a lot faster than soap,” said Edward Froelich, an analyst at Pershing & Co. “But they might be years away from anything meaningful.”
And when it comes to health products, analysts warn that consumers are fiercely loyal to brands that worked for them in the past. Getting people to switch and try a new dish-washing liquid, analysts say, is much easier than persuading an ailing consumer suffering from a cold or a stomachache to try a new and unfamiliar product.
To overcome these and other obstacles, P&G; will be counting on its new-found aggressiveness. “Procter has enough muscle,” said Thomas, “but it’s got to use it.”
