INTERNATIONAL: Procter and Gamble learns to make more by offering less - Nick Peters discovers how P&G’s product parsimony is comforting consumers

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.

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

loyalty.



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

who didn’t.



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

cent.



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

end.’



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.



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