Procter’s Gamble

When a major retail chain invited Procter & Gamble’s Jim Bechtold to visitits top execs, there were about 10 men in the room – and one woman. Theywanted to ask P&G’s director of customer marketing whether their chainshould invest millions in a database marketing program to recruit new momsfor a loyalty program. The execs figured if they gave diaper and formulacoupons to new moms, they could start a “lifetime value equation” with them.

Bechtold turned to the only woman in the room. “Do you have any kids?” heasked. Yes, she told him, a two-year-old. “Take off your marketing hat,” hetold her. “What do you think as a mom?”

She told him the coupons were meaningless. She’d rather have cleanbathrooms, an in-store nursery, an escort in the parking lot, a bagger toload her car.

“She said she’d pay more and be loyal to the store if it made her shoppingexperience pleasant,” Bechtold recounts. “It was an unarticulated thing.Most moms in focus groups will tell you ‘Give me a coupon for diapers,’ buttheir real needs go deeper than that.”

Finding and filling those real needs is P&G’s mission for the next fiveyears. Better marketing is one goal of Organization 2005, a restructuringbegun in January to double P&G’s sales to $75 billion by ’05. The newset-up kicks in officially this month, spawning more research, deeperretail partnerships, and more account-specific/local promotion. P&G islining up retail partners now, with the future of an estimated $1.6 billionin consumer promotion and as much as $3.3 billion in trade dollars up inthe air.

Organization 2005 made headlines in early June when P&G announced plans tocut 15,000 jobs worldwide over six years (13% of its work force) and closeabout 10 plants worldwide, mostly outside the U.S. (29% in North America).Two-thirds of the job cuts are expected by fiscal 2001, which ends June 30,2001. The revamp trims top management in order to make P&G’s sevendivisions more nimble with new-product introductions.

Wall Street credits chief executive officer Durk Jager, who took the helmin January, with executing the ambitious restructuring first announced inOctober. “Jager is a real hands-on manager,” says Burt Flickinger, managingdirector of Reach Marketing, Westport, CT. “Past P&G management wouldrarely visit major retail customers. They’d rather work with ad agencies,and almost saw retailers with disdain. Jager’s retail experience will be ahuge advantage.”

As P&G reaches to connect with consumers beyond the TV set, it’s likely toshift some of its $1.7 billion ad budget towards promotion, includingdirect marketing and events. It also may embrace promotion under a newdefinition: strategic interaction between a brand and targeted consumers.That would raise the bar for equity-conscious promotions among all packagedgoods marketers and retailers.

“If P&G starts kicking in with programs retailers are asking for, retailerswill start asking for similar things from other manufacturers,” saysCannondale Associates consultant Ken Harris. “That will be the first signthat [Organization 2005] is really working.”

Research, promotion, advertising, and p.r. “all have their place,” saysBechtold, who overseas P&G’s retail partnerships across North America.”What’s been absent is a disciplined examination of consumers and theirspecific needs, versus what you’re going to cram down their throats. Ourbasic philosophy is, the only way to differentiate in a meaningful way isto intimately understand consumers, shoppers, and retailers. The wholefuture will be about better understanding those constituencies.”

To do that, P&G formed market development organizations (MDOs), regionalteams that act as experts on local consumers and retailers for P&G’s sevenglobal business units. The units, which are organized by product clustersand headquartered throughout the world, consult with MDOs in eight globalregions to set marketing strategy, cement retailer bonds, and open newchannels of distribution. Tours of duty on an MDO “will eventually create abetter-equipped general manager because they have the opportunity to focuson individual consumers as well as brands,” explains P&G spokeswomanGretchen Briscoe. “Our goal is to help marketing people develop a holisticapproach to marketing.”

The Wal-Mart factorForming MDOs was motivated in part by P&G’s desire to ally early andtightly with power retailers who are buying up control of the marketplace.As supermarket chains like American Stores and Safeway establish nationalreach, and as mass merchandisers add grocery formats, they’re all lookingto own whole segments – healthcare, beauty, cleaning. P&G wants to bethere. The company has more No. 1 and No. 2 brands than any other U.S.manufacturer. That leadership makes it an apt advisor on categorymanagement throughout the store, with scads of consumer research at theready.

Consolidation is forcing retailers to tend their own brand equity in orderto differentiate beyond price. “In that environment, we find ourselvescreating marketing programs with different retailers that look verydifferent from each other, nothing cookie cutter about it,” Bechtold says.Promotion agency staffers tag along on sales calls to learn retailers’marketing strategies, then base P&G’s brand plans in part on eachretailer’s goals.

P&G’s long-time partnership with Wal-Mart continues to serve as the modelfor joint marketing programs. “Whatever they do with Wal-Mart is aposter-child example of where they’ll go with other retailers,” saysCannondale’s Harris, adding that P&G’s co-marketing program with Wal-Martis two years ahead of its relationships with the rest of the retail world.

Given that timetable, P&G could have extensive co-marketing programs with10 top chains by 2005, spending as much as $1 billion on account-specificmarketing via consumer and trade budgets. The company reportedly hasearmarked $100 million annually for retailer-specific and local marketing,about six percent of its $1.7 billion ad budget. Observers say P&G isstruggling with how – and how much – to shift from market development intoconsumer promotion.

For now, with its MDOs in place, P&G is selectively inviting retailers toroll up their sleeves on research and joint marketing.

“Retailers have to decide, quite frankly, who they want to work with,” saysBechtold, who sets retail strategy for P&G. “Strategy work is simpleconceptually, but it requires a lot of tough decisions. We won’t do thiswith every retailer. This requires retailers who aggressively think oftheir stores as a brand, who are willing to make systemic changes in theirbusiness focus, store design, employee training. They have to valueresearch and believe that equity builds over time.”

It’s unclear yet which retailers P&G will embrace, and how hard. As thatunfolds, plans for trade dollars will follow. “How we ultimately spend allour brandmoney and local marketing money is up for grabs,” Bechtold says,adding that Robinson-Patman guidelines will govern trade spending. P&G willask retailers to share their own current research, and may eventually askfor help funding joint studies.

Scrutinizing shoppersHeightened research will shift P&G’s promotion strategy to equity-consciousconsumer pull and away from price-driven push.

“Promotion only has its place once there’s been a strategic choice madearound the shopper,” Bechtold asserts. “We want to joint-market withcustomers, but there’s an in-depth consideration first. What targetaudiences do we have in common? What are the long-term rewards for both?Those questions are the most difficult part of co-marketing.”

“The future of promotion for P&G will be cause marketing that can bebundled as major corporate events with major retailers,” predictsFlickinger. “P&G clearly sees inefficiencies in the wasted header cards andtearpads of [single-brand] consumer promotions.”

Retailers still want umbrella promotions, like the annual Special Olympicspush that ties in 40-plus brands. Such corporate events will always be inP&G’s mix, Bechtold says. “But if that’s all we offered, that wouldn’tallow retailers to take our brands and uniquely apply them within theirspecific assets. It’s when retailers start applying our brands againsttheir specific consumers that they look very different from theircompetitors. That’s where the strongest marketers are going to rise up andultimately win.”

That may not be enough for smaller brands, says Flickinger. “If they’re notcareful, they’ll wake up in 2006 and see that brands have disappeared thatdidn’t need to.”

P&G already had one wake-up call in ’97, when net sales grew only 1.4percent to $35.8 billion, the slowest growth in at least three years.(Sales for ’98 rose 3.9 percent to $37.2 billion, in part on the strengthof new products like Febreze odor remover.)

Bechtold contends that smaller brands are getting healthy support. They maydo more direct marketing and less merchandising, making promos less visibleto outsiders, he suggests.

Smaller, nimbler brands may be the most fertile ground for innovation.P&G’s cosmetics division, Hunt Valley, MD, named Upshot of Chicago as”innovation agency of record” last fall to jump-start all marketing excepttraditional media ads. The unit already is getting away from itstraditional formula of print plus pre-pack display, seeking non-traditionalpartners that add value for consumers. Last fall, Max Factor tapped itsHollywood heritage for a joint promotion with Paramount Studio’s videorelease of Titanic. The 90-year-old brand named for a Hollywood makeupartist maintains endorsement deals with current makeup artists, so it was”a natural to venture out beyond the four walls of P&G,” says ToddMagazine, marketing director for Max Factor North America. “Our consumer issuch an entertainment seeker that she’s always looking for the latestthing. We want to do different [promos] frequently to give her the noveltyshe likes.”

Videos and cosmetics are both high-margin businesses for food, drug, andmass, so “it made sense to go to retailers together” with Titanic-themedproducts, Magazine says. Joint displays housed videos and Max Factor’sTitanic line. Shoppers who bought the video and $10 in cosmetics got a freeTitanic coffee-table book worth $20 to $25. The “robust offer” increasedMax Factor’s dollar sales 30 percent and its market share 20 percent,Magazine says.

The brand followed up this spring by hosting advance screenings of FoxSearchlight’s A Midsummer Night’s Dream and launching a product line namedfor the film. Makeup artists appeared at screenings in several majorcities, giving out samples and prizes. When the film opened, a sweeps withE! Television gave away a trip to Europe, and moviegoers got a Max Factorbrochure with their tickets. P-O-P in theaters drove consumers to stores,and P-O-P in stores brought the spirit of the film to retail. (If MichelePfeiffer and Calista Flockhart can’t bolster P-O-P compliance rates, whocan?)

In February, Cover Girl launched Cover Girl 2000 merchandising and displaysto hit shoppers at different points throughout the store. “As we looktoward the future, it will be vital to the business to better meet ourconsumer’s needs for her shopping experience,” says P&G Cosmetics publicaffairs manager Cheryl Hudgins. “We are following an Organization 2005approach of speed, stretch, and innovation to [improve] the shoppingexperience [and] complement the strong product innovation pipeline alreadyunderway.”

Such non-traditional reach could mean fewer agencies – ad and promo shops -handling more integrated work. Agencies that know shoppers’ mindsets willfare best. “It’s not about recommending TV to us, because we’ve been doingTV forever and a day,” Bechtold says. “The question is: What target are wetrying to win, and where are they listening to messages? Agencies whoreally get it [should] bring their own initiatives on how P&G, retailers,[and] other manufacturers can exceed consumer expectations.”

Then there’s the safety of status quo to overcome.

“It’s hard to get people to act on innovations,” says an agency sourceclose to P&G. “They think innovatively, but pulling the trigger is harder.”

People want someone else to stick his neck out first. Once there’s one heroin the hallway, though, others are bound to follow – in and outside ofCincinnati.

Procter & Gamble’s singular culture may be its weak spot in implementingOrganization 2005 and staffing market development organizations (MDOs). Cantop brass change a brand management culture so entrenched that it hasdefined not only the company, but packaged goods marketing in general?

P&G keeps brand managers on its global business units, but dozens of brandmanagers and marketing directors shift to duty at MDOs this month, workingwith sales staffers.

Putting its brightest marketing minds in the field helps retailers, but itmay be tough to recruit that young MBA who’s got his heart set on runninghis own fiefdom managing a brand. Marketing guys may balk at a tour of dutyin the field. The lure is that MDO experience will look great on a resumetwo years from now, when other packaged goods companies want it.

“The No. 1 question is, can they get the brain trust to agree to do this?”posits consultant Ken Harris of Cannondale Associates. “If you’re a28-year-old MBA, the enticement of resume fodder only goes so far.”

Still, packaged goods companies have spent the last five to seven yearssending marketing pros afield to infuse sales teams with marketing smarts.And ceo Durk Jager’s own retail savvy may bring field work more respect atP&G headquarters.