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014the scoop

By Marilyn Graham,2014-05-08 10:16
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014the scoop

History

    For the past decade and a half, Procter & Gamble has found itself battling

    rumors of a connection to black magic: that its Moon and Stars logo is a

    satanic symbol (needless to say, it’s not) and that its president once discussed

    Satanism on the talk show Donahue. In turn, the company, which has a

    reputation for being secretive, sued Amway and some of its high-level

    distributors for allegedly circulating the rumors. (Courts found the claim

    baseless in 2000, and ordered P&G to pay Amway’s legal costs.) But the real story of Procter & Gamble is hardly unholy just simple good business. The P&G story began when William Procter and James Gamble arrived in

    America with their eyes set on the wide-open West. But both Procter, a candle

    maker from England, and Gamble, who apprenticed himself to a soap maker

    after arriving from Ireland, ended up settling in Cincinnati, where they met

    after marrying sisters. The father of their wives convinced them to become

    business partners. On August 22, 1837, Procter & Gamble each pledged

    $3,596.47 toward a partnership to produce and sell soap and candles.

    By 1859, as America was sliding toward civil war, Procter & Gamble, with

    80 employees, reached $1 million in sales. During the Civil War, the company

    supplied soap and candles to the Union armies, helping to build its reputation

    outside of Ohio. And then, in 1879, the second generation of Procters and

    Gambles made a breakthrough. Chemist James Norris Gamble developed an

    inexpensive, buoyant white soap; Harley Procter read the words “out of ivory

    palaces” in the Bible one Sunday morning in church. Ivory Soap – 99 and 44/100ths percent pure floated into the market.

    The 20th century at Procter & Gamble sounds like a commercial for a

    compilation of consumer goods’ greatest hits. The company’s research

    centers have churned out a remarkable string of successful innovations:

    Crisco, the first all-vegetable shortening (1911); Tide, the “washing miracle”

    that was the nation’s first synthetic laundry detergent (1946); Crest, the first toothpaste with fluoride clinically proven to fight cavities (1955); and

    Pampers, the first mass-produced disposable diaper (1961). More recently,

    the company has introduced Pantene Pro-V (1992), the world’s leading

    shampoo, and in 1996 received Food and Drug Administration approval for

    the use of Olestra, a calorie-free fat replacement.

    Acquisitions have added to the P&G empire, often providing the company

    with leverage in either an international market or a new product area. P&G

    The Scoop

    Procter & Gamble

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Procter & Gamble

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    bought Duncan Hines cake mixes in 1956, Charmin Paper Mills in 1957 and

Folgers coffee in 1963, all of which represented the company’s first foray into

    the products’ respective areas. The additions of Noxell in 1989 and Max

    Factor in 1991 made P&G the country’s largest cosmetics company. P&G

    began manufacturing in Japan in 1973 after acquiring the Nippon Sunhome

    company and opened operations in Eastern Europe in 1991 after buying

    Rakona in then-Czechoslovakia.

    In the never-ending search for growth in mature markets, the company has

    continued to find it expedient to buy powerful brands. Examples include Iams

    pet foods in 1999 and Clairol hair care products (a $5 billion purchase) in

    November 2001. The new management isn’t afraid to drop or sell poor

    performers either; Jif peanut butter and Crisco vegetable shortening were

    spun off to shareholders in May 2001 for $150 million; the brands were then

    sold to J.M. Smucker for $900 million. Failed brands like Physique premium

    shampoo (the company’s first new shampoo product in 20 years), Fit fruit

    wash and Olay Cosmetics have vanished from store shelves.

    Procter & Gamble has also been a major player in the history of advertising

    and marketing techniques. The famous Ivory Soap campaign of the late 19th

    century was one of the first to advertise directly to the consumer. In 1923,

    Crisco sponsored cooking shows on the radio; in 1932, P&G began

    sponsoring daytime radio dramas. The company aired its first TV

    commercial during the first televised major league baseball game in 1939.

    And long before Peoria, Ill. became popular among politicians gauging the

    pulse of America, P&G knew about it Pampers were test-marketed there in the early 1960s. Today, the company is turning to public relations spin doctors

    to help convince the public that its fat substitute, Olestra, is still the next great

    thing. The firm certainly has the resources with a $3.7 billion marketing budget, Procter & Gamble is the world’s biggest advertiser. But should the

    company prove unable to make Olestra popular in anything other than

    Pringles potato crisps, P&G has a trio of fast-growing hits with the Swiffer

    floor sweeper, the Crest SpinBrush children’s electric toothbrush and Crest

    White Strips tooth whitener.

    On top of the whirl

    Procter & Gamble is the undisputed champion of the consumer goods

    industry. With $40.24 billion in annual sales, it easily outpaces competitors

    such as Avon ($6 billion), Colgate-Palmolive ($9.4 billion) and Kimberly-

    Clark ($14.5 billion). Like most mega-corporations, Procter & Gamble made

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    some serious hay while the sun shone in 1998, delivering its shareholders

    record-breaking net earnings of $4.35 billion, or $3.59 per share.

    The company, however, is far from satisfied. In 1996, P&G announced a goal

    of reaching $70 billion in sales by 2006, an almost inconceivable doubling of

    sales in a decade to realize such lofty ambitions, the company would have

    to increase sales by 7 percent or more each year. Alas, the company fell short

initially, posting increases in net sales of 1 percent in 1996 and 1997. Newly

    appointed CEO A.G. Lafley’s goals are nearly as ambitious – 4-6 percent annual sales increases coupled with double-digit core-earnings-per-share

    growth. And in 2001, the company managed to achieve them.

    Restructuring: Think globally, act locally

    The company has taken serious steps to counter its shortfalls of the late

    1990s, notably through corporate restructuring. In September 1998, P&G

    announced that it would eliminate the company’s past practice of dividing

    business into four regional groups. Instead, the focus shifted to marketing

    products on a global scale. To do so, profit responsibility rests in the hands of

    executives who manage global product units, such as baby care, beauty, and

    home products, among others. Durk I. Jager, then the company’s “hardcharging” chief operating officer, led the way in the reorganization. Jager was

    promoted to chief executive officer in January 1999, joining John E. Pepper

    to concurrently hold the position until Pepper’s retirement in September of that year.

    In 1999, P&G announced the creation of eight “market development organizations” to, in the words of the annual report, “provide deeper knowledge of local consumers and stronger partnerships with our customers.” As examples of the kinds of problems these groups will address, The Wall

    Street Journal offers currency troubles in Asia and supermarket retailing in

    Latin America. These groups are not charged with profit-and-loss

    responsibility.

    P&G also streamlined its corporate staff, a change that evoked the 13,000

    layoffs and multiple plant closings that took place from 1993 to 1997. The

    company acknowledged that some jobs would be lost at the time, but

    distinguished the measures from earlier ones. “It’s not a cost-cutting effort,” spokesperson Simon Denegri told The Wall Street Journal, “but a global reorganization of our structure and culture to accelerate growth and meet

    business goals.” Another streamlining took place when Lafley took over in 2000, to the tune of 9,600 jobs. This time, Fortune magazine characterized

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Procter & Gamble

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    the layoffs as a combination of expense cutting and trimming of unprofitable

    ventures.

    Discussing the reorganization, Pepper commented to The Wall Street Journal:

    “I saw it being the most important thing we’ve done in the company, if not ever, certainly for generations. In an organizational change that was designed

    to get real clarity around decision making…that also argued for very clearly one person at the helm.”

    In the end, however, it appears that one person will be Lafley. Jager left the

company suddenly in mid-2001, after just 17 months in the captain’s chair.

    His strategies unifying brand names worldwide, scattershot launches of new

    products in hopes of finding the next big seller had not been successful, and sales of even the best brands were stagnant. Lafley, a quiet and unassuming

    figure compared to so many spotlight-hogging CEOs, took the company in

    hand when it was losing focus. Focus, he saw, was the key: Identify P&G’s

    core brands (the company currently has 12 that bring in $1 billion or more

    annually) and get as much profit as possible out of them.

    New products: looking for the magic bullet

    Beyond tinkering with corporate structure, P&G has also sought to bring back

    the good old days when it created whole new product categories, such as

    disposable diapers with Pampers and fabric softener with Downy. If

    successful, such moves can bring in billions, although one analyst told The

    Wall Street Journal that doing so is “like finding a needle in a hay stack.” For instance, the soap giant has found that its $11.6 billion Fabric and Home Care

    category (the company’s second-largest revenue generator) is a mature area;

    the unit grew just 1 percent in 2002.

    Febreze on its way

    Procter & Gamble, the diligent consumer products giant, is looking for an

    entire new home cleansing category. The company is now targeting not the

    $4 billion laundry market (of which the company holds a 51 percent share),

    but the entire $10 billion clothing and fabric cleansing market. P&G hopes

    that the “fabric refresher” category could jump to sales of $1 billion in the

    next five to 10 years. One promising attempt has been the testing of Febreze,

    a spray used to eliminate odors. After a disappointing market test, the

    company nearly canned further testing of Febreze until Kerry Clark, then

    president of the North America laundry products business, noticed that

    Febreze had a knot of huge fans. Upon interviewing the Febreze enthusiasts,

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    P&G learned that they were not using Febreze on clothing, as the company

    had intended, but on carpets, curtains and pets. The company also discovered

    that some consumers believed that Febreze, originally packaged in a kitchencounter

    like bottle, would be too harsh on fabrics, and switched the packaging

    to a smaller, friendlier bottle. P&G brand marketing geniuses also redesigned

    the package label to emphasize the safety of using Febreze and to

    communicate a wider variety of uses for the freshener. But P&G hasn’t ignored its core laundry products it has tweaked Tide with a “mountain spring” scent, after discovering that some consumers preferred a “high impact” laundry smell.

    Boosting pharmaceuticals

    P&G is also trying to muscle its way into the lucrative pharmaceutical

industry. Even with popular items such as Pepto-Bismol and Nyquil, the

    company’s $500 million business ranks well below its competitors in

    worldwide drug and other health-care sales. In April 1998, P&G scored a

    victory when the FDA approved risedronate, its drug for the treatment of

    Paget’s bone disease. The disease, which weakens bones, afflicts around 3

    percent of people over 55. P&G anticipates that the product could bring the

    company as much as $1 billion in sales. With this figure in mind, the company

    has struck a co-marketing agreement with Aventis Pharma AG. By March

    2000, Actonel (risedronate’s brand name) had received approval in several

    countries for the treatment of post-menopausal osteoporosis. Approvals

    continue to roll in (Japan approved the drug in January 2002), and studies

    completed late in 2002 have shown that risedronate increases bone density

    and reduces the risk of vertebral and other fractures in post-menopausal

    women by 70 percent.

    Running with Olean

    One not-so-bright spot has been olestra, a fat-substitute that P&G markets

    under the name of Olean. Olestra, a soy-based product used largely to

    produce fat-free snack foods, has suffered numerous setbacks, including loud

    protest from consumer groups, condemnation by Harvard nutritionists, and an

    FDA labeling program that requires Olestra products to bear the warning that

    olestra may cause “abdominal cramping and loose stools.” The FDA has

    declared olestra safe for consumption, although the labeling requirements

    seem to have scared many consumers off. P&G, meanwhile, has promoted

    olestra through a line extension of fat-free Pringles, emphasizing that the

    potato snacks are as tasty with olestra as without. So far, P&G seems to have

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    a hit with fatless Pringles; volume of Pringles sales has risen steadily since

    August 1997. However, the company appears willing to cut its losses; in

    February 2002, P&G sold its Cincinnati olestra plant to Twin Rivers

    Technologies. Twin Rivers will continue to operate the plant and supply

    olestra to P&G.

    International expansion

    North America is P&G’s largest market, with $21.2 billion of the company’s

    2002 sales coming from the U.S. and Canada. And P&G continues to grow in

    its home: unit volume increased 7 percent in fiscal 2002. Procter & Gamble

    execs like to point out that while half their business comes from North

    America, only 5 percent of the world’s population lives there. The company

    expects and hopes for its largest growth in coming years, percentage-wise, to

    come in emerging markets, especially Eastern Europe, China and the

    southern cone of South America. In 1993, for the first time in the company’s

history, more than half of sales came from outside of the U.S.

    P&G’s increasingly global strategies take many forms. In China, for example, P&G has taken the uncharacteristic step of running ads that feature no

    particular product, but rather develop the company’s overall image. “Consumers do care about which makes the product,” P&G’s Yvonne Pei commented to The Wall Street Journal, “if the company has a good image, they trust the product.” Apparently, the song that accompanies the advertisements takes up the refrain “the dreams of the last generation are the fruit of the next generation.”

    Meanwhile in Latin America, P&G is concentrating less on dreams and fruit,

    and more on lobbying against unfair business practices. P&G, whose business

    in Latin America represents only about 6 percent of its global totals, has had

    to play catch-up to rivals like Colgate-Palmolive and Unilever that have

    snapped up significant market shares. To this end, P&G has aggressively

    pursued the acquisition of international companies, most recently adding

    three laundry detergent brands from Brazil-based Bombril S.A. in 1996.

    Acquiring companies hasn’t been its only strategy, however. P&G has also taken advantage of the tightening anti-trust law climate in many Latin

    American countries. For example, The Wall Street Journal reports that P&G

    helped convince the Conselho Administrativo de Defesa Economica, Brazil’s anti-monopoly commission, to block Colgate’s acquisition of a local brand. In Argentina, P&G contacted regulators to accuse Unilever of sabotaging

    P&G’s release of its laundry detergent called Ariel. The company alleges that Unilever has ties to Ariel del Plata SA, a local toilet seat manufacturer that

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    introduced television advertisements featuring its distinguished products

    along with close ups of derrieres and a voice-over that repeats “Ariel, Ariel, Ariel.” On a more positive note, P&G entered an alliance in January 2002

    with TechnoServe, a non-profit organization devoted to building businesses

    in developing countries. P&G has provided $1.5 million to help small-scale

    coffee growers in Latin America.

    P&G’s media agenda

    P&G has always led the field in the use of new forms of media for marketing.

    The company first grasped the intimacy of radio, and later applied the same

    techniques as television emerged, creating whole genres in support of

    products.

    The Internet, however, seems to have stumped the world’s largest advertiser only 0.4 percent of P&G’s total advertising budget is devoted to online endeavors. To overcome its uncertainty, in August 1998, P&G invited 400

    executives, some from competitors, to a two-day conference on how to use

    the Internet. The conference covered such issues as the dearth of slogans

created on the new medium, and the general failure of banner advertisements.

    Possible solutions included pop-ups and interstitial ads (new concepts at the

    time, but they appear to have caught on). The problem, of course, is that many

    of Procter’s products are “commodity products,” fairly mundane products like toilet paper and cooking oil, which need the magic of a widespread

    marketing campaign to differentiate them. While Internet advertising is a

    superb medium for direct-to-consumer marketing, it is a poor way to build an

    overarching brand image something Procter & Gamble needs to do with its

    products.

    As such, Procter & Gamble appears to have pulled back from the Internet as

    an advertising medium, concentrating instead on advertising through

    association. In July 2002, P&G teamed with G4, a cable TV network devoted

    to computer and video gaming of all stripes, to launch Cheat! Pringles

    Gamers Guide, a half-hour weekly show offering tips for gamers to improve

    their playing performance.

    Back in TV land, P&G has also teamed up with its cohorts to address their

    advertising role in the face of the changing content of today’s programming. The coalition, known as the Forum for Responsible Advertising, met recently

    in New York, and included P&G, Johnson & Johnson, The Coca-Cola Co.,

    Sears Roebuck & Co. and Ford Motor Co. P&G spokesperson Gretchen

    Briscoe articulated the Forum’s goals in comments to The Wall Street

    Journal. “We want access to high-quality, family friendly programming that

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    attracts a mass audience,” she said, adding: “It’s going to take a collective industry effort.”

    Using marketing strategies to improve the

    gender balance

    In recent years, P&G has been recognized for its commitment to women in

    the workplace in such publications as Fortune, Working Mother, Working

    Woman, The Wall Street Journal and others. It wasn’t always this way. As recently as 1992, only 5 percent of the companies’ vice presidents and general managers in advertising and brand management the mainstay of Procter &

    Gamble’s business – were women. John Pepper himself admitted to The Wall

    Street Journal, “There have been meetings where you look around at 30 people in the room, and they’re all men.” A study conducted in 1991 revealed to the company that two-thirds of good performers who left the company

    were women and, contrary to company assumptions, were not leaving for

    family reasons, but rather to take jobs elsewhere. To stop the talent flight,

    P&G applied some of its own marketing expertise to the problem, introducing

    “products” such as mentoring programs and benefits packages designed to

keep women at the company. To promote these products, the company

    launched internal “ad campaigns,” featuring videos in which senior P&G women explain the advantages of staying at the company. For now, the effort

    seems to be paying off. The number of women general managers, for

    example, had risen to 31 percent as of September 1998.

    In a May 2001 address to the company, CEO Lafley noted the improvements

    the company had made in gender balance: “We now have nearly 300 women at the director and associate director levels, which ensure us a strong talent

    stream to fill future officer-level positions. There are now 40 women at the

    vice-president or general manager level in our company. And today, four of

    our corporate officers are women. This represents real progress. In 1990,

    there were no women corporate officers at P&G, and only 6 at the VP/GM

    level.” On the other hand, the heads of the company are still overwhelmingly

    male: just two of 18 directors and three of 36 top executives listed in the P&G

    2002 annual report are women.

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CEO’s Bio

    A.G. Lafley: Chairman of the Board, President

    and Chief Executive

    As would be expected of a company that stresses loyalty and internal

    promotion, Procter & Gamble has a veteran employee at its head. New leader

    Alan G. (A.G.) Lafley, a member of the company since 1977, took over the

    president and chief-exec roles in 2000 from Durk Jager, who himself replaced

    John E. Pepper in 1999. Lafley was elected chairman in April 2002,

    completing the corporate Triple Crown after Pepper stepped down from the

    board.

    Procter & Gamble has found new life under Lafley’s leadership; since his ascension, P&G net sales have climbed 3 percent (4 percent before figuring

    in unfavorable exchange rates), and earnings growth in the individual

    business units is up, ranging from 11 percent (Fabric and Home Care) to 34

    percent (Health Care). The company’s stock price has climbed 40 percent since Lafley assumed command.

    A native of Keene, N.H., Lafley is P&G’s 11th president and CEO. Agraduate of Hamilton College with a degree in History, he holds a Harvard MBA as

    well. After a 5-year term with the U.S. Navy, he joined P&G in 1977 in the

    Marketing department. He worked his way up through several positions in

    P&G’s laundry and cleaning business before being named group vice president in 1992.

    In 1995, Lafley became the executive vice president for Asia. In 1999, he was

    named president of P&G’s global Beauty Care business and of North American market development. North America business achieved record net

    sales during his tenure. He implemented innovations in beauty products and

    marketing, bringing fresh growth to P&G’s Hair Care business, especially

billion-dollar brand Pantene.

    Key Officers

    Bruce L. Byrnes: Vice Chairman, President of Global Beauty & Feminine Care and Global Health Care

    Organization

    Procter & Gamble

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Procter & Gamble

    Organization

    R. Kerry Clark: Vice Chairman, President of Global Market Development & Business Operations

    Richard L. Antoine: Global Human Resources Officer

    G. Gilbert Cloyd: Chief Technology Officer

    Clayton C. Daley Jr.: Chief Financial Officer

    Stephen N. David: Chief Information Officer, Business-to-Business Officer James J. Johnson: Chief Legal Officer (General Counsel)

    Ownership

    Procter & Gamble is a publicly traded company on the New York Stock Exchange (its stock ticker symbol is PG). A partnership for its first 53 years, it incorporated in 1890. Current and retired P&G employees own about 25 percent of the company.

    Business Units

    Baby, Feminine and Family Care

    This euphemistic segment is where customers turn for cleaning up after biology. Brands include Pampers and Luvs diapers, Puffs facial tissue, Charmin toilet tissue, Bounty paper towels, Tampax tampons and the Always line of feminine hygiene products. The unit’s sales in 2002 totaled $11.9

    billion, making it the company’s largest segment.

    Fabric and Home Care

    This former company leader has fallen to the No. 2 spot with $11.6 billion in sales. Major products include the laundry detergents Tide, Cheer, Bold and Era; fabric softeners Bounce and Downy; Dryel home dry-cleaning care; Joy, Cascade and Ivory dish soaps; Mr. Clean and Swiffer floor care; and Febreze fabric deodorizer.

    Beauty Care

    The products that started it all. Since introducing Ivory soap in 1879, Procter & Gamble has been the nation’s soap leader. By 1890, the company was

    . 2002 Vault Inc. 12

Procter & Gamble

    Organization

    selling more than 30 different types of soap. These days, P&G also makes

    Head & Shoulders shampoo; Noxzema and Oil of Olay skin care products; Max Factor cosmetics; Clairol and Pantene hair products; and Secret deodorant.

    Health Care

    Favorite brand names include Crest toothpaste, Metamucil, Fixodent denture adhesive, Pur water filters, Vicks cold medicines (including NyQuil) and Pepto Bismol antacid. Some may find it entertaining that this unit is also responsible for Iams and Eukanuba pet food and products. P&G has formed alliances with Aventis SA, Glaxo-SmithKline and Tarrytown, N.Y.-based Regneron Pharmaceuticals, Inc. to produce prescription drugs as well. Food & Beverage

    Currently the smallest unit in P&G, with $3.8 billion in 2002 sales. Major products include Folgers coffee, Hawaiian Punch, Pringles potato chips and Sunny Delight.

    Major Product/Brands

    Baby, Feminine and Family Care Products

    . Pampers

    . Luvs

    . Charmin

    . Bounty

    . Puffs

    . Alldays

    . Always

    . Tampax

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Procter & Gamble

    Organization

    Fabric and Home Care Products

    . Tide

    . Downy

    . Gain

    . Cascade

    . Cheer

    . Bold

    . Swiffer

    . Bounce

    . Dash

    . Dawn

    . Joy

    . Febreze

    . Era

    . Dreft

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