Mark Ritson: Does Procter & Gamble’s house of brands need major repairs?

A public message of support from your board when you are the chief executive of a big company is a bit like being told by your wife that she does not regret marrying you. It’s a reassuring message, until you start to consider why the statement was made in the first place.

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For P&G’s CEO Robert McDonald, the message from his board that they “unanimously” support him and his long-term strategy for P&G must have come as a relief. But the fact that P&G executives felt the need to release such a message reveals the pressure that the world’s biggest advertiser is under.

The FMCG giant is well known for growing sales and market share during recessions. Ever since the Great Depression, P&G executives have used downturns in the market as an opportunity to over-invest in their brands and realise significant advantages over their competitors. But the current recession, however, is proving to be very difficult. The maker of Tide, Pampers, and Crest is under pressure from investors over lacklustre results and a profits forecast that has already downgraded three times this year.

On top of this, P&G has committed to the fraught mission of altering its brand architecture. While P&G is perhaps the most famous brand name of them all for marketers, it had almost no brand salience for target consumers. Ever since the famous McElroy Memo in 1931 outlining why each P&G brand should have its own manager and separate strategic planning process, P&G has built its business around independent product brands. This completely negated the need to link those brands to the P&G corporate name.

Over the past 18 months, however, P&G has been changing from that house of brands architecture to one of ‘brand endorsement’ in which the P&G logo now exists alongside each product. The company’s Olympic sponsorship is important not only because it will cost P&G an estimated £150m over the next decade to execute but because it is the first to promote the P&G corporate brand directly to consumers as part of this new endorsement strategy.

Officially, the move is a result of the need to be more open with consumers. According to Irwin Lee, P&G’s UK managing director: “Leveraging the scale and collective reach of P&G’s brand portfolio takes our brand marketing to a new level. Today’s consumers expect transparency, authenticity and honesty from the products that they buy and the companies that make them, and unifying all of our brands into a holistic advertising campaign is the perfect way to meet this expectation and to grow our business.”

In reality, the shift to an endorsement architecture is a response to two significant changes in the current economic climate. First, the company is on a mission to shave more than £6bn from its operating budget by 2016.

One advantage of endorsement over the house of brands approach is it costs less to build brands using that architecture. While P&G will need to invest significant amounts into product branding, the corporate brand now presents the opportunity to pump equity into the P&G brand, which should in turn feed each of the products being endorsed by the corporate brand.

The other rationale for the architecture change is related to P&G’s competitors. In the 1950s and 1960s, P&G competed with smaller, independent brands. Its house of brand architecture allowed it the synergies of a giant corporation and the flexibility to compete in multiple segments and many categories with distinct product brands.

But the last 15 years have seen a dramatic change in the competitive environment for consumer goods. The biggest brand in almost every grocery category in the UK is now a private label. And aside from all the other manifest advantages enjoyed by private labels, these products also exhibit the most economic and focused approach to brand architecture – a branded house. Tesco, Sainsbury’s and Waitrose all offer multiple product lines within their private label offerings but they do so from the advantageous confines of a single masterbrand approach.

Using a house of brands here is the branding equivalent of taking a knife to a gunfight. Where once P&G’s house of brands approach provided the perfect strategic base to compete with rivals with similar approaches, it now finds itself with a more expensive and less optimal architecture to take on private labels. P&G, the inventor of brand management and the house of brands approach, must learn to adapt and change.

In theory, the shift to endorsement makes perfect sense. However, P&G’s corporate brand equity lags behind rivals Johnson & Johnson, L’Oréal and Colgate on the key metrics of trust and familiarity around the world. And perhaps more troubling, this is simply not how P&G has operated until now. It has no established core competence to build the P&G masterbrand.

The master of brand management now finds itself the novice.

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