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Retailing: Revolution or Regression? -- Part OneLooking at the new average consumer -- the consumer it had understood so well for so long -- Procter & Gamble has re-assessed its whole merchandising strategy. Last year, 440 promotions had been offered. Across a spectrum of more than 300 brands (worldwide), 55 price changes a day were being made. And the company was distinguished for its constant introduction of packaging modifications. These were the tools with which P&G had long maintained its industry supremac/y.
In matching past strategy with this new average consumer, Durk I. Jager, President and Chief Operating Officer of P&G has noted bluntly, "We were confusing them." Not only was P&G no longer meeting the needs and expectations of a growing number of consumers and retailers, it was running the risk of puzzling and annoying them. While a corporation with worldwide sales exceeding $35.3 billion annually cannot be turned around in a week, P&G has met this challenge with remarkable agility.
Although it may be brushed off as simple semantics, a pivotal first step was changing the name of the Sales Department to Customer Business Development. This was a major shift from the company’s notorious practice of force-feeding retailers through aggressive promotions with more product than they could move to permitting consumers to drive supply and sales. The implementation of this seemingly straight-forward strategic re-direction has required structural realignments throughout the corporation. It has resulted in fundamental changes in how product is being sold and in how the company works with retailers.
However, for the owner/ manager of the smaller business and the entrepreneur, the complexities of corporate strategy and re-organization are not as important as the question: "What does P&G’s new rule book mean to me?"
P&G’s new rule book seems to imply that retailing may be moving away from proliferating varieties of product and frenetic product promotions. Retailers are finding that more and more customers are seeking product and pricing simplicity, stability, and predictability. Customers are seeking convenience and assured value. Intelligent consumers are increasingly aware there are no real "freebies." In truth, exposure to relentless "sales" and "specials" simply breeds a skeptical and distrustful customer -- retailers as well as consumers. Yo-yo pricing engendered by the absurd "cereal war" of 1996-1997 arouses consumer cynicism.
P&G is streamlining each of its product categories. Several relatively minor products have already been shed, and approximately 20 percent of its products are scheduled to be divested within the next four years. Product categories are being consolidated dramatically; e.g., Head & Shoulders shampoo has been reduced from 30 to 15 varieties. Mr. Jager has observed, "Consumers are drowning in far too many products. We all recognize the problem. We know that variety is good," although "too much meaningless variety" must be eschewed.
Similarly, P&G is streamlining its merchandising tactics. It is eliminating refund certificates and cents-off packs. Incredibly, it has even discontinued coupons in selected test markets, and has reduced spending on coupons by 50 percent. Again, Mr. Jager acknowledged, "Who can argue for a practice that fails 98 percent of the time. It’s ludicrous." Significantly, the Kimberly Clark Corporation, the Kraft Foods Division of the Philip Morris Companies and Rubbermaid Inc. -- all noteworthy consumer goods producers -- have curtailed their use of coupons substantially. In 1996, the total number of coupons issued nationwide fell 8 percent below 1995, the lowest volume of coupons since 1989.Such a fundamental change in strategy encompasses many complicated and far-reaching dimensions. And retailing will always be a complex and widely variegated field; there are no one-size-fits-all marketing solutions. However, Procter & Gamble continues to be the consumer goods schoolmaster, and the students should be attentive. Today’s average consumer differs markedly from the average consumer only one or two decades ago. Most large consumer goods manufacturers and major retailers are not moving as quickly or as effectively as P&G.
This opens up numerous new opportunities for the nimble owner/manager of a smaller business and entrepreneur to exploit many newly-defined niche markets. You can serve the needs and expectations of more and more of these new customers seeking product and pricing simplicity, stability, and predictability. You can meet the needs and expectations of these new customers seeking convenience and assured value. You can buffer your enterprise against the agitated proliferation of product variation and frenetic product promotions. This is the world P&G sees in its future; it could be the world in your future, too. While retailing is unavoidably a tough business, it may now even be a little more gentle, kindlier world.
Your comments and suggestions for these pages are most welcome!
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URL: http://www.businessforum.com/retail02.html
Revised: July 23, 1999 TAF
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