It is a phenomenon that has often plagued shoppers in supermarkets,
particularly in the US. First, they stop, stunned by the vast array of
items on sale, and the variety of special offers around. Second, they
dither, unable to choose between them, and finally they walk away -
sometimes without buying anything.
Over the years, a terrible tyranny of choice has developed, one that has
been actively fostered by the large retail manufacturers, who fondly
believed that offering the widest ranges dressed up in special deals
would help them maintain their market position. But recently a quiet
revolution has occurred. A revolution led by that most conservative of
companies, Procter and Gamble.
Under the stewardship of its Dutch-born president, Durk Jager, and the
man who is now his boss, the chairman and chief executive officer, John
Pepper, the world’s biggest consumer goods company has drastically cut
back its product price promotions and product ranges as part of a
gameplan called ECR - Efficient Consumer Response.
ECR has four components. First, to make the introduction of new brands
more efficient; second, to improve stock replenishment; third, to make
promotions work for, not against, the product; and last, but by no means
least, to streamline the assortment of brands on the shelves.
’Consumers were drowning in far too many products,’ Jager told the Wall
Street Journal at the beginning of the year. ’We all know that variety
is good, but not too much variety.’
In the average British supermarket, for example, the number of brands
and variations on brands is at 17,000 stock keeping units (SKUs), 35 per
cent higher than five years ago.
P&G, however, has been working against the trend. It has cut total SKUs
in the laundry sector by 20 per cent in the UK and a staggering 34 per
cent in the US. And in case anyone questions the logic of ’less is
more’, the move has resulted in extra sales. An additional 8 per cent,
for example, in the UK in all the categories where SKUs were cut.
’We believe we can go a lot further,’ Dick Johnson, P&G UK’s corporate
affairs director, says. ’We believe we can cut a further 20 per cent and
still meet 95 per cent of our customers’ needs.’ So, as a result, the
’regular’ version of Ariel is set to disappear, just as the ’ultra’
variant has been banished from British and European shelves, leaving the
super-compact as the flagship form. And management predicts even more
improvement for the bottom line - by the time simplification of the
laundry category is complete, they expect a 40 per cent increase in
total system profit.
Perhaps the most noticeable of all P&G’s ECR initiatives, however, is
its drastic cutback in product promotions. These, the company began to
realise, not only confused the customer but caused peaks and troughs in
demand which upset the manufacturing process. They also made retail
prices a moving target, and only those shoppers with time on their hands
could calculate the optimum moment to buy.
Worse, research showed that such offers did not encourage brand
One London Business School survey, for example, came up with the
startling conclusion that, in P&G’s British laundry products sector,
although 70 per cent of promotions were multi-buy offers, more than
two-thirds of these were snapped up by just 14 per cent of shoppers.
These bargain hunters, racing from store to store buying what they
could, were effectively being subsidised by the 86 per cent of shoppers
The bewildering series of promotional gimmicks, money-off coupons and
multi-buys has now been drastically curtailed. Instead, the money has
been ploughed back into giving better value consistently through what is
known as Every Day Low Pricing.
Equally damaging to the overall business were the inefficiencies
stemming from P&G’s near medieval relationships with supermarkets.
Fractured chains of command and a sales philosophy that cared only for
the filling of quotas, and ultimately the state of the corporate bottom
line, made P&G an ogre to supermarket managers, but one that was too
powerful to upset.
In the US, replenishment became a nightmare for retailers. It was
completely unstructured, predicated by the needs of the sales teams to
meet their quotas rather than on what was actually sold. Today,
deliveries are based on what is actually required and when - a system of
continuous replenishment which, in the UK, has cut retailers’
inventories of P&G products by 50 per cent.
The introduction of new items is another area that had started to run
out of control and, to an extent, remains a problem. Grocery
manufacturers launched 16,000 items (including brand variants) across
the board in the UK last year, yet 80 per cent of them survived less
than a year, against an average life expectancy of five years in 1975.
P&G has now introduced stringent internal criteria for measuring
success, and says that its launch failure rate is down to 5 per
Despite these changes, P&G claims that advertising has remained
virtually unscathed. Efficiencies have been introduced in the area of
media buying which have cut costs, but company officials argue that
advertising budgets will nevertheless continue to reflect and sustain
the company’s market share. Fluctuations in exchange rates and
advertising rates across the world make this claim difficult to confirm,
but the latest figures the group will discuss are that the dollars 3.3
billion 1995 advertising budget increased by 1 per cent for 1996.
P&G is at pains to make clear that ECR is an ongoing process. ’To
paraphrase Winston Churchill,’ a P&G document proclaims, ’we consider
ourselves to be at the end of the beginning, not the beginning of the
But, the company will tell you, it has become nicer to consumers and
nicer to retailers without damaging its advertising profile as a result
of the initiative. Such a profound change appears to have been
financially worthwhile, too. Profits for the financial year which ended
on 30 June last year were up 15 per cent to dollars 3.05 billion on
sales that were up only 5 per cent at dollars 35.3 billion. But the
better news was on margins. These were at 8.6 per cent, the highest for
more 45 years. Not bad results for making life simpler.