Through a series of statements, speeches and marketing initiatives over the past year Procter & Gamble has thrown down the gauntlet to its peers in the packaged goods industry. It has, in effect, accused them of being flabby in thought and practice, of delivering below par value to consumers and less than sparkling profits to shareholders.
Last week, at an Institute of Grocery Distribution conference, UK managing director Paul Polman rammed home the full extent of the P&G challenge. Inspired by the concept of Efficient Consumer Response, it has spent the past couple of years turning over every stone in a ruthless search for improved efficiency. The picture it reveals of fmcg marketing is one of appalling waste, inefficiency and misdirected energy (my words, not his). If brands were part of a nationalised industry, the National Audit Office would be crawling all over them, and they would be the subject of a full-scale public outcry about the misuse of public money.
Here are some of Prosecutor Procter’s main accusations.
Charge number one: That brand managers have signally failed to practise what they preach when it comes to consumer focus, so much so that their new product development is mainly in response to competitors’ actions. They are guilty of corrupting marketing’s fundamental mission to create “new, improved products” and substituting a debased diet of dull, crass, me-tooism in its stead.
Evidence: The more new lines they introduce the faster they fail. Since 1975 the number of new stock keeping units (SKUs – units of different product lines and brands within those lines) introduced to the UK market has increased eightfold, to a figure of 16,000 last year. Back then, the life expectancy of a new SKU was five years. Today, it is only nine months.
Charge number two: That brand managers’ negligent pursuit of SKU proliferation has gone so far that many items on supermarket shelves simply choke precious shelf space, confuse consumers with meaningless choice, and add extra costs at all stages of the supply chain.
Evidence: According to P&G’s studies, 40 per cent of existing laundry SKUs could be axed and still 95 per cent of consumer needs would be met. Extra SKUs do not generate extra sales. Indeed, when P&G cut its laundry SKU count by 20 per cent, far from falling sales, volumes increased by eight per cent.
Charge number three: That grocery buyers have equally negligently misinterpreted and degraded the concept of consumer choice by selling numerous products that few people want.
Evidence: According to Polman, the average UK superstore holds 17,000 SKUs (35 per cent more than five years ago). Yet, he says, a typical consumer buys only 18 on a trip. A quarter of these 17,000 SKUs sell less than six units a week, and eight per cent sell less than three units a week.
Charge number four: That manufacturers and retailers have unleashed a tidal wave of promotional activity that rewards promiscuous shoppers at the expense of loyals, teaches consumers to buy deals not brands and adds extra cost and complexity throughout the supply chain.
Evidence: Over time, says Polman, promotions often contribute to a decline, not an increase, in sales. This year’s 71m promotional spend in the laundry category is 50 per cent higher than two years ago and now accounts for nearly ten per cent of total category sales. Yet, over the same period, total category sales have fallen by nearly ten per cent. Multibuys, which now account for nearly three quarters of the category’s promotional spend, “reward” only a tiny minority of shoppers. Seventy-one per cent of all multibuy volume is bought by just 14 per cent of households. Just two per cent of multibuy volume goes to 55 per cent of households.
And despite retailers’ best efforts to build loyalty, the average shopper is shopping around more, visiting more stores and giving the lead store a lower and lower proportion of their total weekly spend.
As Polman said to the IGD: “We’re investing vast amounts of money in an area that isn’t increasing our share, appeals to a minority of consumers, drives disloyalty and reduces market value.” And as sales director John Millen described P&G’s general thrust to another IGD audience a year ago: “We have complicated our business out of sight and we’re doing many things that do not add value.”
And how! Exactly how much marketing inefficiency and waste are consumers having to pay for? Ignoring wasted and ineffective media advertising for a moment, what do you get when you tot up all the time and money spent researching, developing, manufacturing, packaging, distributing and marketing extra SKUs nobody wants? And how much extra cost does dreaming up, planning, negotiating and implementing promotions really incur? Polman’s estimate is between 40m and 60m of avoidable cost – or about eight per cent of final selling price – for the laundry category alone. Put it another way: he estimates that simply tackling SKU proliferation could boost total system profits for laundry by 40 per cent.
Is laundry an exception? To an extent, yes. P&G’s analysis suggests that dynamics of promotions are very different for stable but high spend areas like detergents and pet foods compared with low spend, high impulse sectors such as chocolate and crisps. So not all of its recommendations apply universally. Also, not everybody has the same perspective. While P&G understandably hates multibuys, retailers love them because they attract store traffic, build a value-for-money image, and usually pay their way in terms of increased total store spend.
And, of course, P&G has its own agenda. As Polman commented: “Many prizes will be taken by the people who get into ECR first.”
But that’s not the point. P&G is no longer trying to manage brands or even categories. It is trying to manage a market. And it’s making its competitors an offer few of them dare refuse. On the one hand, it’s offering them an olive branch, effectively signalling, for example, that “we won’t continue with mutual throat-cutting multibuys if you don’t”.
At the same time it’s holding a gun to their heads. Having accused them of negligence in the court of consumer value it’s now asking consumers, as judge and jury, to pass sentence. If there is one, will the Defence of current marketing practices please speak up?