P&G's Success Creating 'Trade-Up' Products Helps Bottom Line

For years, packaged goods companies have been trying to get consumers to pay more for everyday items like toothbrushes, razors, bleach and dental floss, and that trading-up phenomenon has helped Procter & Gamble sales in several key areas.

The Cincinnati giant, which started new and high-margin categories like disposable floor dusters with Swiffer, and home tooth whitening with Crest Whitestrips, yesterday said "organic" sales (not due to acquisition) were up 6 percent in the last quarter--and in some key categories, that has a lot to do with higher price points.

"We've just launched an awful lot of innovation in the marketplace," CEO A.G. Lafley told analysts. "Our market share is up on 17 of our top 20 brands."

P&G announced that for its fiscal first quarter ended Sept. 30, net sales grew 27 percent to $18.7 billion and income rose 33 percent to $2.7 billion, on lower commodity costs and higher sales of core products and the Gillette acquisition.

P&G's most recent--and one of the most promising--examples of innovation is its newest Olay offering: Olay Definity, a three-SKU skin care line with a whopping retail price of $27.99 per item. Launched in August, that high price point makes Definity the most expensive skin care item at mass, but also tops some department store items, including moisturizers from Philosophy and Clinique--a brand Olay seems to be specifically attacking.

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While Olay isn't found in the same venues as Clinique, one attribute P&G is trying to emulate from prestige is the beauty consultant. It is using the Web as a kind of defacto beauty counter. Consumers have the option of a "live consultation" with a rep via www.olay.com.

When tested with questions about Olay vs. Estee Lauder, the "consultation" prompted online comments from a rep identifying herself with a female name to say, "I use Definity products myself," and "I have used Clinique in the past, but I'm not going to pay those prices."

Olay's Regenerist sells for about $10 to $12 less per SKU than Definity. While that still is considered a high price at mass, the three-year-old line had sales of $97 million--up 36 percent for the year ended August 13, per IRI. Food, drug and mass sales data for Definity was not available at press time.

In addition, overall corporate marketing improvements are having a direct impact on the bottom line. "We're getting real traction from our marketing ROI and media-mix modeling," Lafley said, suggesting that what P&G is learning is enabling it to shift its dollars to be even more effective.

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