On the surface, the move makes complete sense. After all, the remaining brands have accounted for 90% of sales and 95% of profit over the past three years.
So if I read that correctly (and the math is rather simple), we’re talking about 90-100 brands responsible for 10% of sales and only 5% of profit.
If that’s the case, one might ask what on earth the company was doing in the first place carrying so much dead weight relative to the remaining rock stars.
Or perhaps you were astounded by the tremendous lopsided contribution of sales and margin within the family of brands. You shouldn’t be, as your own customer base is probably not that radically different from this kind of 80/20 split. Certainly this is true within the B2B world -- and although less so in the B2C space, I wonder what Zappos, Starbucks, Amazon.com or Coca-Cola would say when it comes to their power products.
But I digress.
So back to P&G and the announcement, which came from Chairman and CEO A.G. Lafley, who himself had returned to the company 14 months prior to steady a rather behemothic ship. Lafley had indicated disappointment with the company’s financial situation, and this move was a decisive step to get things back on track.
And yet, I didn’t interpret any strength in this move at all. To me, it was all about consolidating the status quo; the known versus unknown; the “safe bets” or sure things versus the wildcards or anomalies.
I would contend that there are no sure things or safe bets nowadays. Just look at the threat Dollar Shave Club presents to the incumbent, P&G’s Gillette brand.
My gut feeling is that P&G’s brand-cutting move will be followed by a tried and tested approach, including mass/paid media and reach-heavy digital or social plays like Facebook, and doubling down on massive global sponsorships like the Olympics, as opposed to riskier and less proven approaches on the innovation front.
In my previous startup boutique, I did some work with Panasonic. I recall how excited execs were about an SD card that could be interchanged and used in all their devices, from camcorders to cameras to HD TV’s to their Toughbook P.C. They believed that this interoperability (or compatibility) would be key to developing an unequivocal reason for consumers to choose every product within Panasonic’s portfolio.
I remember telling them to “earn the bundle,” not “command the bundle.” Instead of creating a walled garden or closed system, let people decide for themselves what to use, and based on your great functionality, service and experience, they would give you more of their hard-earned money and loyalty.
If you think about it, the walled garden didn’t even work for Apple. And thankfully so, when you look at how many iPods the company subsequently sold to PC users.
Nike “earned the bundle” with me. I started with the obvious pair of shoes and hodge-podged the rest of my outfit from every other brand. Today, my shoes, socks, , GPS watch, shirt, shorts, windbreaker, gloves and hat are all part of the earned “Just Do It” bundle.
Instead of cutting brands, why wouldn’t P&G have looked to invest in its existing suite, creating creative, lateral and bold pairings or partnerships, bundled around “reasons to behave” versus “reasons to believe.” Like P&G did with Potty Palooza during frigid Times Square days, with Duracell (charge your phones and cameras) and Charmin (go to the loo). Or what Charmin did with its Sit or Squat acquisition. Although truth be told, we still haven’t seen this live up to its potential -- for example, a tour de force combination of Always, Pampers and Charmin owning the public restroom for entire families!
As the old saying goes: "If you're digging yourself into a hole, the smart thing is to stop digging.” Personally, I would choose to earn the bundle from a much larger portfolio of everyday products, as opposed to commanding the bundle from a smaller set – which no doubt will be under even more financial scrutiny, competitive pressure and startup disintermediation in the future.
But that’s just me.
On Lafley (and I quote/steal here directly from Wikipedia):
"With Lafley leading the company for most of the 2000s, P&G more than doubled sales since the beginning of the decade. During that time, the company’s portfolio of billion-dollar brands grew from 10 to 24 (including former brands Folgers and Actonel) and the number of brands with sales between $500 million and $1 billion increased five-fold with Lafley at P&G’s helm.". So basically he is culling much of what he put together earlier. Great personal wealth business building model: build, bloat, leave, return, cull, repeat. :-)
The more you get, the more you get is another way to look at it. Success attracts success. Plus, not all brands can be successful all the time. There is always some kind of churn and a loss in a major brand (not doing so well that year due to a myriad of reasons), unbalances the entire group than taking a hit on a smaller company with less profit. A little padded fat the older you get softens the landing among the sane reasons you state and Mr. Albarda. Who pays for these actions ?