About two weeks ago, A.G. Lafley, chairman and CEO of Procter & Gamble, announced that the company was going to sell off, discontinue or merge more than half of its brands to focus on its top 70 to 80 products. He noted that the retained brands account for more than 90 percent of their revenue and 95 percent of their profit, so the plan seems to make financial sense, but still, it’s a stunning move.
As a world leader in packaged goods for consumers, P&G is what’s often called a “house of brands,” where each product is separately branded and marketed, and its performance is directly measurable. As an example, Anheuser Busch is also a house of brands, with Budweiser, Michelob, Busch and numerous other brands under their roof. Sam Adams, on the other hand, is a “branded house” that actually sells more kinds of beer that Anheuser Busch, but all under the main brand name of Sam Adams.
So the P&G house is about to have 90 fewer brands in it, once the marketing giant can figure out how to best dispose of them. Mucho moneymakers like Pampers, Gillette, Charmin and Tide are safe from the axe, but what about brands like Vidal Sassoon or Londa Professional? Mr. Lafley has pretty much announced that if a P&G brand isn’t making money according to plan, it’s likely on the block.
Excuse me, Mr. Lafley, but I have a question: If P&G can’t make money with these brands, who can? Your company is the heavyweight champion of building powerful, beloved, and profitable brands in recession-proof categories like laundry detergent, paper towels and toothpaste. You have one of the world’s best R&D departments, oodles of top brand managers and spend more than a billion dollars a year in advertising. You’ve got clout. Who can bring more to the party than that?
Many well-known companies actually have far more brands under their umbrella than we often realize. Coke is best known for its namesake and brands like Sprite, Minute Maid, and Powerade, but actually owns more than 300 beverage brands. GE may be best known for appliances, but has very successful product lines in aviation, locomotives and financial services. The normal ebb and flow of brands within these companies is small. Brands are bought and sold. New ones are created, tested and marketed. Some survive, some don’t.
But while Coke or GE may cause a marketing tremor when they decide to jettison a brand or two, P&G’s plans are, by comparison, a seismic event in the marketing world. They have essentially thrown half their brands into the bargain bin and marked them as damaged goods. There are a few marketing giants like Unilever that could buy a cast-off brand and make a go of it, but would P&G be willing to sell to a direct competitor?
Mr. Lafley stated that he probably should have led this streamlining charge when he was chairman back in 2008-2009 during the depths of the recession. Back then we saw some long-standing brands discontinued or sold for pennies on the dollar, like Pontiac, Saturn, Saab and Hummer that all ran out of gas at General Motors. But even in those dark days, no major company eliminated half its brands, although some may have cut enough to equal the 10 percent revenue drop that P&G expects from this bloodletting.
My guess is that P&G knows that dumping this many products onto the market at the same time is not likely to bring them top dollar for the brand equity they possess. He hinted that some of the brands might be merged into ones that have been retained. But essentially P&G has decided to follow a strategy that bigger isn’t necessarily better. What’s better are brands that make their profitability targets.
In a sense, Procter & Gamble can make a move like this precisely because they are a leader with a house of brands approach to marketing. They may have fewer brands to offer, but the ones they have are powerhouse leaders in their categories. Every retailer wants Pampers, Duracell and Crest on their shelves. So P&G gives up very little clout with this move, compared to a smaller company that might be seen as shrinking or in trouble by making a similar move. Put another way, even with this gutsy addition-by-subtraction strategy, P&G still comes out looking like the brand leader that has made even their initials a household name.
As published in the Central Penn Business Journal and Lehigh Valley Business.