Mark Ritson: Why Procter & Gamble has to cull so many brands
It’s been a warm and wet Summer, even by English standards and my roses are out of control. Enormous, perfume-filled blooms have dominated the back garden for the past three months. But with the floral show now over, the CEO of Ritson Household plc has been dropping heavy hints that it’s time to “sort the roses”.
So over the weekend I sharpened my secateurs and struck out for the garden with only the roses and a column about Procter & Gamble due by Sunday evening. As I clipped my way through the garden and thought about P&G’s announcement that it will soon offload some of its brands, the more I saw the parallels.
For starters, brand culling is a natural part of the growth cycle. Just as roses bloom each season and need to be cut back for future growth, companies must recognise that the fertile combination of international expansion, brand extension and market growth mean that killing brands is a necessary part of marketing. I meet many marketers keen to create new brands but very few who want to kill them. That’s a fundamental imbalance because growth leads to first the bloom of profits and then, eventually, the deadwood of inertia and decline. The reason P&G now has to reduce its brands is precisely because of its historical success and the fact that this success has dramatically slowed since 2010. Every company should regularly get out its secateurs.
Brand killing, like rose pruning, appears a brutal business at first sight. To ensure roses will grow back strongly with many new blooms, you must cut back all of the old grey stems and trim back many of the green shoots by up to half their original length. The secret to pruning is to identify the strong healthy stems and kill all the rest, not merely trim back a bit of old and diseased growth and do a half-arsed job. When you’re done, the results can appear drastic, with as much foliage on the floor as on the plant when you are done. With experience you learn that the more you cut, the better the growth next season.
It’s very much the same story at P&G where the company has committed to selling around half of the 180 brands in its portfolio. Rather than pick out a couple of weak brands and go through a superficial brand consolidation, P&G will select the healthy brands deemed essential for the future and will divest everything else. It looks like a severe move but it will guarantee P&G’s renaissance.
The art of pruning is knowing where to cut. It’s not always the tallest stems that bear the greatest flowers in future years. Similarly, when you kill brands you must ignore sales and look instead at profits and future potential. The best analysis for brand culling is simply to list all the brands in the portfolio along the X axis and on the Y axis the profit contribution. Invariably you discover that a small proportion of your brands, probably less than 20 per cent, are generating the vast majority of your profits. In P&G’s case that analysis was particularly fruitful. Around 80 of its 180 brands account for 95 per cent of its profits.
By killing the remaining 100 brands P&G can focus the organisation, improve growth prospects and lose very little profit as a result. And if you believe, like any gardener, that cutting back excess will lead to healthier growth, there is every chance that the remaining 80 brands that survive the cull will more than make up for the 5 per cent loss in profits in 2015.
Finally, when the rose pruning is complete, all the excised branches need to be raked and put on the compost. Leaving them near a rosebush will only encourage disease to flourish, but within a year on the compost, they will decompose and produce great fertiliser. In the same way P&G can now divest its unwanted brands to the private equity crowd and use the resulting cash flow to reinvest in P&G’s now re-invigorated portfolio.
On Sunday evening with job done, my wife brought me a big glass of red wine and we watched the sun go down over my now decimated rose garden. “Just your column left to write,” she smiled.
“Nope. Already sorted,” I smiled at her and dropped my secateurs into the wheelbarrow to head in.