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
Anything that its agencies can do to accelerate the process is
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
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?