OPINION: MILLS ON ... P&G AND THE ’E’ FACTOR

By DOMINIC MILLS, campaignlive.co.uk, Friday, 17 March 2000 12:00AM

The stock market, as any public company knows, is an unforgiving place. This much Procter & Gamble found out last week when it announced that its earnings growth for the year to June 2000 would be only 7 per cent, not the 13 per cent previously forecast. As a result, Wall Street took 31 per cent, or dollars 35 billion, off the value of the company in less than a day.

The stock market, as any public company knows, is an unforgiving

place. This much Procter & Gamble found out last week when it announced

that its earnings growth for the year to June 2000 would be only 7 per

cent, not the 13 per cent previously forecast. As a result, Wall Street

took 31 per cent, or dollars 35 billion, off the value of the company in

less than a day.



Of course the share price fall is an over-reaction, but the lessons are

clear for any of P&G’s peers. Not delivering on your promises is always

a bad mistake, but it pales by comparison with a more fundamental issue:

old-line value stocks like P&G, once a favourite of investors because

they could be relied on for steady delivery of earnings, are seriously

out of favour.



Instead, investors want growth stocks - usually shorthand for something

with the magic ’i’ or ’e’ prefixes. Sadly for it, the fact that P&G

makes an array of products that millions of Americans, Germans, Britons

and Brazilians buy every day - real consumer interactions of the kind

that the dotcoms would kill for - doesn’t count for much anymore; nor

does a pretty impressive track record in new-product development,

including this year’s hot product, a dust mop called Swiffer; and nor

does the fact that while the whole world moves online, people will still

need to clean their teeth and wash their clothes. Today’s reality:

boring companies (in investment terms) like P&G ain’t where it’s at.



The imperative then for P&G is to reposition itself, if not as a dotcom,

as a growth stock. How it does this has implications for agencies, and

not just those on its roster?



The simplest way to do this is to accelerate the new product development

programme. But P&G is a slow mover at the best of times and it needs to

sell an awful lot of Swiffers in a short time to make much

difference.



Anything that its agencies can do to accelerate the process is

essential.



The quicker route is to acquire and acquire big in less mature sectors

with faster growth rates. P&G has one such acquisition under its belt

with Iams, the pet foods company. Simply putting P&G’s distribution

muscle behind Iams will make a huge difference. But P&G’s last attempt

to buy into a growth sector - by gatecrashing the pharmaceuticals

industry in January - got the thumbs-down from Wall Street and forced

P&G into an ignominious retreat. And now, with a downgraded stock price,

P&G’s acquisitions currency is devalued, making any targets more

expensive.



The most interesting development, however, is one that may ultimately

give P&G a sprinkling of the magic ’e’ dust. This is Reflect.com, a

standalone range of cosmetics available only on the internet and which

allows consumers to create their own personalised products.



The twist? Well, it will work only if P&G unlearns all the rules it has

applied to date - namely bypassing the normal channels of distribution

and building a genuine two-way relationship with its customers. It’s

possible that P&G may have figured this out. Why else would the Reflect

site fail to mention the P&G name?



This article was first published on campaignlive.co.uk

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