Burst bubbles

Although it remains the market leader in haircare, Procter & Gamble has been put on the defensive after revelations about its intelligence-gathering operations and a recent stepping-up of activity by major rival Unilever, which is extending it

When Procter & Gamble (P&G) chairman John Pepper flew into London last August for talks with Unilever chairman Niall FitzGerald, the circumstances were very different from those of the previous visit by a P&G chairman to the Anglo-Dutch company’s Blackfriars headquarters.

In 1994, P&G chairman Ed Artzt unexpectedly dropped in on FitzGerald. He was there to deliver an unpalatable message – the new Persil Power laundry detergent, just launched by Lever Brothers, should be withdrawn. Its manganese accelerator rotted clothes, he insisted. Lever refused to axe the product, and P&G unleashed a furious PR offensive, plastering pictures of underwear, shredded through repeated washing with Persil Power, all over the media.

Unilever was duly forced to withdraw Persil Power, and the product went down as one of the greatest marketing disasters in history.

In those days, P&G ruled the roost across many household goods sectors. It was an aggressive US company with unstoppable new product development programmes.

P&G would establish a bridgehead in a market and, through sheer force of ad spend and distribution muscle, achieve domination of sector after sector through a relentless onslaught. Ariel had done just this in the UK, forcing Unilever’s Persil into second place.

No whitewash at Procter & Gamble

But by the time Pepper, a successor of Artzt’s, walked into Unilever’s riverside office at the end of last summer, the situation had drastically changed. This time, the P&G chairman had come, not to bully Unilever with an uncompromising message, but to grovel. He was there to beg forgiveness for an espionage scandal that was rocking the corporate world. It had emerged that, five months earlier, P&G had hired corporate intelligence agents who rifled through bins outside Unilever’s Chicago new product development headquarters in an attempt to spy on the company’s plans for the haircare market. Not quite Watergate, maybe, but the scandal seemed emblematic of how far P&G had been forced onto the back foot by a resurgent Unilever.

In the core laundry detergents business, Unilever had beaten P&G to the launch of the revolutionary tablet format and Persil had regained its lead over Ariel. Over the past five years, P&G has stumbled from profit warning to downsizing, admitting its own product development process was a mess. It has been unloved by Wall Street and is in the midst of a messy restructuring. But P&G maintains that the spying took place without the knowledge of senior executives, and none of the information gained has been used by the company for any purpose.

A deal was struck over the spy case on September 6 (MW September 13), though no details have been forthcoming. Reports suggest Unilever accepted up to $10m (&£7m) in damages, retrieved a number of sensitive documents and insisted that P&G reveal its own plans for the haircare market over the next three years. Among the secrets P&G is believed to have gleaned from Unilever were precise plans for a product which is due to launch in February, the price of the product, when it would be launched and how much was to be spent on advertising.

Then, last week, Lever Fabergé, Unilever’s personal care and laundry arm, announced that it was about to make a comprehensive assault on P&G’s dominance of the haircare market. The &£50m European revamp includes extending the Dove soap and skincare brand into shampoo, for launch in January or February, and a relaunch for Organics (MW last week). Could this be what P&G’s intelligence agents found out in their undercover operation in Chicago? A Unilever insider says this is unlikely, as Dove shampoo has already been launched in other markets, including Japan, so it was no great secret. The February launch date does point in the direction of Dove, however.

P&G has ample reason to worry about Dove’s move into shampoo and Lever Fabergé’s revamp of haircare. It will be concerned that this is the next battleground in the ongoing struggle between the two companies, and that P&G will once again be overtaken by its rival. As one analyst says: “Unilever has raised its game in developing new products. It had a half-hearted approach before, when it spread itself too thinly. The strategy has changed over the past three years, with chosen product development categories getting significant research and development money, and it has reshaped its global portfolio.”

Take two companies in the shower?

Last week, regulators gave the go-ahead for P&G’s $5bn (&£3.5bn) acquisition of Clairol, which should, in theory, consolidate P&G’s lead over its rivals. No wonder the company is so jumpy about finding information on rival marketing plans. Clairol’s haircare business is worth $1.6bn (&£1.1bn), and P&G is under enormous pressure to make sure its strategy succeeds – the tenure of chief executive Alan Lafley may depend on it. Lafley said of the acquisition: “This is an enormously important step for P&G, for consumers and customers of its brands, for employees, and for shareholders.

“Clairol brings P&G into the fast-growing business of hair colorants and positions it for accelerated growth across the entire haircare category. With the acquisition of Clairol, the company now has a presence in all major segments of the beauty market.”

Back in the Unilever camp, moving Dove into shampoo is in line with Lever Fabergé’s policy of extending the brand into different areas of personal care. It mirrors P&G’s strategy with Olay, which has gone from being a pink face lotion to encompassing handcream, wipes and eventually an unsuccessful foray into make-up.

Lever Fabergé faces an uphill struggle in the haircare market. P&G brands have about 31 per cent of the US shampoo market, against Unilever’s 20 per cent, though Unilever gained about five per cent of this between 1997 and 2001, and it has also made gains in conditioners.

Massage thoroughly into the store

Datamonitor analyst Piers Berezai points out that Wal-Mart, the most powerful grocery chain in the US, tends to stock the two top brands in each category. “So being one of these is essential,” he says – the top brand is given a hands-on role in managing the category in stores.

Berezai believes this situation will be repeated in Europe, as top retailers close their grip on brands: “Retailers have a high degree of power over suppliers, and that’s forcing supplier consolidation. The battle is to have global ‘power brands’ that ensure a place on the shelves.” Unilever’s decision to cut its product portfolio from 1,600 products to 400 – and to concentrate on building these power brands – is the latest stage in the consolidation game.

In the UK, P&G’s Pantene and Head & Shoulders top the list of shampoo brands (TNS), followed by Clairol’s Herbal Essences. After a relaunch at the beginning of the year, Pantene has been revitalised and, in truth, Unilever has had a questionable track record in European haircare. Its Organics brand is seen as confusing – its name suggests something natural but its ads focus on the scientific benefits – and Salon Selectives languishes at number ten among the leading shampoo brands in the UK.

But observers point out that Lever Fabergé’s Timotei has been doing well, with one saying it is one of the fastest growing haircare brands in the UK. An insider says: “Unilever is getting a hammering from P&G on haircare. The Organics advertising has never been quite right, and it has not been well-received. Timotei will always be an also-ran. Unilever does not have a history of good haircare launches in the UK.”

Meanwhile, L’Oréal Garnier’s Elvive brand, launched in 1997, has been vying for the top spot.

The UK haircare market has been tough in recent years, with the low pricing strategies pursued by Asda and Safeway hitting sales by value. Boots and Tesco are believed to be the market leaders, each with a share of about 20 per cent of the market.The value of the shampoo market has fallen by four per cent over the past year, to &£307m, and volume sales are in decline too. And haircare is a disloyal market, with consumers always keen to try out a new brand, particularly if it is supported by a big ad campaign.

It’s what’s on the bottle, not what’s in it

There is a new trend in the market, too. Lisa Conway, a haircare expert at McCann-Erickson, says: “The trend now is to ‘holistic beauty’, not the conventional idea of glamour. The trend is to look at inner beauty. It is not just what you put on your face – the value is not just buying a lipstick – its the value of the brand.” She says this explains some of the success of “natural” shampoo brands such as Herbal Essences, and believes it means the time is past for Pantene’s earlier focus on scientific benefits.

The big question remains: does Dove offer sufficient benefit in haircare to give it a strong position against P&G and its Clairol acquisition? Lever Fabergé promises a &£14m campaign for the launch in January and claims 90 per cent of UK women will see the ads in the first burst. It is part of a &£35m spend for the brand next year. The hook is Dove’s “unique” moisturising milk, which ensures “hair is cleansed, hydrated and moisturised, without being weighed down” according to Lever Fabergé. The company explains that hair contains 10 per cent water and is, as a consequence, easily dehydrated. The Dove range – comprising five 250ml shampoos and three 200 ml conditioners (all selling at &£2.59) – will claim to “moisturise the hair shaft from within, ensuring hair is unbeatably softer, shinier and more supple”.

The success of the Dove haircare launch will be an important test, for both Unilever and P&G. For the former it will be a measure of its strategy of building and extending global brands. And it will up the ante for P&G, fresh from its acquisition of Clairol. Whatever it was that the “dumpster divers” discovered in the bins of Unilever’s Chicago office – and it must be emphasised that P&G has undertaken not to use any information it gained from the raid – it may not be enough to keep the company ahead of its rival in the haircare market. Especially if it is forced to give Unilever prior warning of its own planned haircare launches. The struggle between the two companies has reached new levels of paranoia, which are likely to worsen next year during the battle of the shampoo bottles.

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