Procter & Gamble Company Essay
Procter & Gamble Company
In November 1981, Mr. Chris Wright, Associate Advertising Manager of the Packaged Soap & Detergent Division (PS&D) of the Procter & Gamble Co. (P&G) was evaluating how the division could increase volume of its light-duty liquid detergents (LDLs). 1 The excellent growth of Dawn dishwashing liquid since its national introduction in 1976 meant that P&G now manufactured and sold three leading LDL brands, holding a 42% share (by weight) of the industry’s $850 million in factory sales. Based on input from the three LDL brand managers who reported to him, as well as his own knowledge of the LDL category, Wright believed there were three major opportunities for volume growth: (1) the introduction of a new brand, (2) a product improvement on an existing brand, and/or (3) increased marketing expenditures on existing brands. In preparation for an upcoming meeting with Bruce Demill,, PS&D advertising manager, Wright began evaluating the volume and profit potential of the three options.
Company Organization The company comprised eight major operating divisions organized by type of product: Packaged Soap & Detergents, Bar Soap & Household Cleaning Products, Toilet Goods, Paper Products, Food Products, Coffee, Food Service & Lodging Products, and Special Products. Each division had its own brand management, sales, finance, manufacturing and product development line management groups. One of the most important responsibilities of the brand group was the development of the annual marketing plan, which established volume objectives, marketing support levels, strategies and tactics for the coming year. The brand manager promoted the interests of his brand while the associate advertising manager assumed responsibility for building the business of all P&G brands in his or her category.
The brand groups worked closely with the following four line departments in both the development and the implementation of their marketing plans: Sales: The brand groups and sales force frequently interacted. While the brand groups managed categories and brands, the sales force managed markets and accounts. As such, the sales force provided important perspective and counsel on trade and consumer promotion acceptance, stock requirements to support promotions, competitive pricing and promotion activity, and newproduct activity. Each brand group worked closely with the sales force to develop the optimal sales promotion plan for its brand together with appropriate merchandising aids.
LDLS are defined as all mild liquid soaps and detergents designed primarily for washing dishes.
Product development department (PDD). Since superior product performance was key to the success of P&G products, each brand group worked closely with PDD to ensure continued improvement of its brand’s quality. Fifteen professionals worked exclusively on research and development for LDLs. The PDD continually strove to upgrade product quality or explore new product formulations. If a potential new product was developed, it was extensively tested in consumer and laboratory tests before any test marketing began. Manufacturing department. The brand group provided the manufacturing department with detailed brand volume estimates (by month, size, and form/flavor) to facilitate efficient production, as well as five-year volume base forecasts for capacity planning. In addition, the brand group discussed promotions requiring label or packaging changes with manufacturing to determine the most efficient production methods.
Manufacturing informed brand groups about ongoing manufacturing costs and provided potential cost-savings ideas. Interaction between the advertising and manufacturing departments was particularly frequent during any new-product development process, and included discussions on manufacturing requirements, custom-packing options for test markets, and critical paths for production. Finance department Based on volume and marketing expenditure forecasts provided by the brand groups, financial/cost analysts developed and fed back brand profit and pricing analyses as well as profit and rate-of-return forecasts on new products and promotions. This information was key in helping the brand groups to recommend action which would maximize volume and profit growth. Advertising services department. Within the department, there were nine staff groups which serviced the advertising department.
These were market research, art and package design, TV commercial production, media, copy services, field advertising, marketing systems and computer services, promotion and marketing services, and advertising personnel. PS&D market research included the following: 1. Market analysis, including bimonthly syndicated market data that P&G purchased from A.C. Nielsen Co., as well as selected data purchased from Nielsen, Selling Areas Marketing, Inc. (SAMI) and other suppliers for test markets. 2. Consumer research, including studies to: a. monitor how consumers used products and track consumer usage of, attitude towards, and image of P&G and competitive brands; b. test the performance of current products and possible product modifications under in-home usage conditions; and c. evaluate the advertising, packaging, promotion and pricing of P&G brands; also, to evaluate the potential of new-product ideas, using such techniques as concept research and simulated test markets.
LDLs could be conceptually divided on the basis of product benefit into three major segments: (1) the performance segment (35% of category volume) provided primarily a cleaning benefit; (2) the mildness segment (37% of category volume) provided primarily the benefit of being gentle to hands; and the price segment (28% of category volume) whose primary benefit was low cost.
Volume is measured in P&G statistical cases, each containing 310 ounces. Household growth was a better indicator of LDL volume than population growth (research indicated LDL household consumption varied only slightly with the number of people in the household). 4 ADW households still used LDL for pots and pans and small cleanups. Price brands were sold to retailers for an average of $7.50 per statistical case versus $17.00 per statistical case for the premium-priced mildness and performance brands.
the greatest growth in the past 10 years. Some LDL brand managers expected the performance segment to continue to grow at the expense of the mildness segment, since market research indicated that more consumers rated performance attributes (such as grease cutting and longlasting suds) as the most important (see Exhibit 2). The price segment had been in decline, but was expected to stabilize at its current share level due to increasing consumer price sensitivity resulting from the depressed state of the economy. LDL brand managers did not expect this segment to grow because most price brands were not a good value, requiring two or three times as much volume to create the same amount of suds as a premium brand. P&G’s Ivory Liquid, the market leader, used this comparison in its advertising to persuade consumers that Ivory was a better value.
The LDL market was relatively stable, with one new premium brand introduced every two and a-half years and an average of two price brands introduced and discontinued per year. As Exhibit 3 shows, 3 companies sold almost 75% of LDLs, with P&G holding a 42% share 6 of the market, Colgate-Palmolive Company a 24% share, and Lever Brothers, the U.S. subsidiary of Unilever, a 7% share. 7 The remaining 27% of the market consisted mainly of generic and private-label brands. As shown in Exhibit 4, marketing expenditures including advertising and promotion typically represented 20% of the sales of an established LDL brand.