In a speech at the IGD Convention in London today (8 October), Lee said that product categories such as “household and toiletries” have focused too much on boosting sales via promotions, rather than highlighting innovation.
Five years ago, he claimed that brands excluding P&G sold around two-thirds of their volume at an average deal of 33 per cent off. This has now risen so that 80 per cent of the volume sold is now at a promotional price, with the average deal size rising to more than 40 per cent.
This is a business model that Lee believes is not sustainable because while it might help boost sales in the short term, in the long term the key to success is in innovation and using business intelligence to drive sustainable growth.
Lee said: “As we went though the last five years, I’ll tell you the one stat that keeps me awake at night. It’s the amount of value given away via ever deepening promotional offers.
“Our focus is on value creation to complement, if not offset, the over-reliance on unsustainable value give away. There is nothing proprietary in price promotions. We believe promotions win quarters, but true innovation wins decades.”
P&G has previously been criticised for its marketing approach, which focused too heavily on premium products in western markets and rapid expansion into too many emerging markets without a clear strategy. However, since AG Lafley returned to the CEO job earlier this year, the firm has announced plans to improve the efficiency of its marketing activity, including reviewing its ROI measurement and focusing on “value creation”.
Lee said this involves not just giving consumers better value through price, but also through “benefit performance”. For example, he claimed the firm has made a successful entry into the “air freshener” market, driving a five per cent year on year growth in the category due to its product Febreze, which claims to eliminate bad odours rather than mask them.
“We believe the consumer should get better value, but by a combination of benefit performance and price, not price alone. When we choose new businesses to enter, we make sure we can add meaningful value. Consumers get better value despite Febreze’s premium price,” said Lee.
P&G is also focusing its marketing strategy around combining in-store and online commerce, working with retailers on campaigns for products such as Oral B toothbrushes. Using ecommerce formats tailored to retailer websites, social media platforms and ads on Amazon’s Kindle Fire tablet, Lee claimed total category value grew double digits between February and June at a time when the category typically sees little increase.
So successful has “digital back” marketing, where P&G starts campaigns in the digital world and then builds back to the rest of the marketing mix, been that the firm’s global brand building officer, Marc Pritchard, recently called the end of the digital marketing era.
Pritchard’s comments echo those expressed in a Forrester report earlier this year, which predicted digital marketing would become just marketing in 2013.