---
title: "Behind P&G's Fall from Grace: The Failure of Traditional Competitive Advantages in the FMCG Industry"
description: "P&G's difficult situation is evident from its declining sales and profits over the past decade. The company's struggles stem from the breakdown of its traditional strengths in brand marketing and distribution channels, which have been disrupted by the rise of e-commerce and changing consumer behaviors."
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published: "2018-05-04"
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# Behind P&G's Fall from Grace: The Failure of Traditional Competitive Advantages in the FMCG Industry

> P&G's difficult situation is evident from its declining sales and profits over the past decade. The company's struggles stem from the breakdown of its traditional strengths in brand marketing and distribution channels, which have been disrupted by the rise of e-commerce and changing consumer behaviors.

P&G's Difficult Situation
In the past few years, P&G has not had an easy time.
For example, in terms of sales, P&G's sales were $77 billion in 2008, and even reached $84 billion in 2013. However, by 2016, this figure had dropped to just $65 billion, a 23% decline from 2013.
In terms of profits, P&G had profits of $13.4 billion in 2009, but after that, they fluctuated, even falling to $7 billion in 2015, nearly half of what it was, until 2016-2017 when they began to recover to above $10 billion.
Large companies in painful transition and turbulent periods often make various adjustments in products, marketing, and personnel. In the 21st century, P&G has already changed CEOs four times, and senior management turnover has been very frequent. All these data and phenomena indicate that this once-glorious consumer goods giant has arrived at another critical moment in its 180-year history.
P&G's Recipe for Success
So what exactly has changed in the world that has caused P&G to struggle so much? Today, let's first look at what made P&G so successful.
The two most important competitive models in the FMCG business:
**Brand Marketing.**
Because for FMCG products, consumer decisions are light, loyalty is low, and purchases are relatively emotional, merchants use various advertising and marketing tactics to bombard consumers, creating brand impressions, generating a certain degree of brand loyalty, and then continuously influencing subsequent repeat purchases. Only by successfully implanting your products and brands into consumers' minds can you achieve sustained success.
**Sales Channels.**
Because FMCG products have low unit prices, purchases are generally for convenience, and most people need them, establishing a broad sales network is crucial. Especially in a vast country like China, from first-tier and second-tier cities down to fourth-tier and fifth-tier cities, supermarkets, department stores, convenience stores, and even street-side kiosks are the most important partners for FMCG giants. No matter how good the brand and marketing are, they need to be converted into actual sales and revenue.
In simpler terms, the essence of the above is: **First, among so many choices, you need to make consumers think of your product; second, when they think of it, you need to make it available for them to buy.** The essence of the FMCG industry is that simple.
Of course, we know that the simpler the principle, the harder it is to execute well. And the brand marketing and sales channels we mentioned above are also what P&G, this giant company, used to do best.
P&G's Brand Marketing
P&G's marketing and that of FMCG giants has become a vast field of study. If you want to research it, you will find a wealth of details and cases. But from a high-level summary, P&G excels in two aspects:
**First, finding the most suitable concept and positioning for its brands and products.**
For example, to sell a bar of soap, P&G named it "Ivory Soap," first applied for a patent, then hired famous chemists from prestigious universities to analyze the chemical composition of "Ivory Soap," and then selected the most persuasive and attractive data to convince consumers that "Ivory Soap" was the best—this marketing method is not P&G's latest product advertisement, but rather the approach P&G devised when it launched "Ivory Soap" in 1879. This product and marketing philosophy has been in P&G's DNA since its earliest days.
Additionally, P&G is very adept at creating product concepts. For example, "Rejoice" for smoothness, "Head & Shoulders" for dandruff control, "Pantene" for nutrition, "VS Sassoon" for professional hair care... and then using advertising to continuously reinforce these concepts: such as "Wash and condition in one step, leaving hair silky and smooth," "Dandruff gone, hair more outstanding," and so on. These positionings highlight the efficacy and characteristics of different brands. And ultimately, no matter which brand you buy, they are all under P&G. This is also the benefit of a multi-brand strategy.
After finding the most suitable concept and positioning for its brands and products, **another thing P&G excels at is using overwhelming, year-round advertising strategies to continuously reach consumers' minds and hearts.**
Around the 1940s, television and TV advertising began to enter households. The birth of this new medium greatly helped large enterprises build national brands. Because with television, advertisements could reach millions of households across the country, allowing companies like P&G to build national mega-brands. National brands are well-suited for large supermarket sales because large supermarkets cover a wide geographic area, have complex consumer backgrounds, and demand is difficult to predict. Unlike street-side small shops, which can be very localized and customized, national brands can better meet the general needs of the public. And TV marketing is precisely one of the things P&G has been best at for decades.
Moreover, P&G's advertising is often continuous throughout the year. Typically, brands advertise during product market introduction or before peak sales seasons, but almost every day we can see P&G products being promoted on TV. This further fosters consumer identification with P&G's products, turning them into loyal customers who continuously contribute revenue to P&G.
This is P&G's strength in brand marketing, and another important capability that has kept P&G standing for many years is the sales channel network it has built over the years. These channel networks, like capillaries, penetrate every place where consumers appear.
P&G's Distribution Channels
Similarly, P&G's distribution channel system is a grand topic that has been repeatedly studied by many. Let's do a simple but key review:
**First, P&G's distribution system has both great width and depth.** Internally, it is divided into distributors, wholesalers, major retailers, and large chain stores, and distributors also have first-tier, second-tier, third-tier, and even more levels. It can be said that whether it's large supermarkets like Carrefour, Walmart, or RT-Mart, or street-side shops in third-, fourth-, and fifth-tier cities, you can find P&G products, which is the capability of P&G's entire sales channel network.
Additionally, P&G has very close ties with its retailers. Earlier, we mentioned that Walmart has deep cooperation with its suppliers. In fact, P&G is a most typical example. In its cooperation with Walmart, P&G developed many advanced systems, such as continuous replenishment systems, information management systems, customer relationship systems, and supply chain forecasting systems. If you take a bottle of shampoo from Walmart, the POS cash register system will transmit the recorded transaction data directly to P&G's backend system. This allows P&G to grasp various data in real-time, thereby arranging production, promotions, logistics, and other aspects.
Ultimately, this channel network, which is broad, deep, and tightly linked, allows P&G's various brands to reach consumers in every corner. This has also enabled P&G to achieve great success both globally and in China. As we said, when you can make consumers think of you every time they need to buy something and find you easily, it's hard not to succeed.
However, as we mentioned at the beginning, over the past decade or so, P&G has fallen into some trouble. So why have the methods that made P&G successful suddenly failed? **In the internet era, how have changes in the retail and consumer industries dismantled P&G's former advantages?**
In fact, the most important reason P&G has been in turmoil in recent years is precisely because its previous biggest advantages have begun to fail—that is, **brand marketing and sales channels have started to fail**. In other words, the struggles of P&G and similar large FMCG companies can ultimately be attributed to three reasons:
> Their previous marketing strategies, i.e., the way they reached consumers, have begun to collapse;
>
> Their previous brand advantages have gradually disappeared;
>
> This ultimately led to the collapse of the sales channel network on which companies like P&G relied.
Next, let's look at how these three things happened.
Changes in How Consumers Are Reached
Many people don't realize that before the advent of the internet and e-commerce era, large supermarkets like Walmart and Carrefour, as well as specialty stores like Watsons, besides being retailers, also played a role in "broadening your horizons."
Many consumers went to these places not only to buy things but also to see "what new good products have come out." Some people would try new things and switch between different products, just as we mentioned earlier, FMCG purchase decisions are generally casual and emotional. At this time, factors like product placement on shelves, packaging colors, and promotional offers were important determinants. This is what companies like P&G excelled at.
However, in the e-commerce era, the ways consumers reach products have suddenly multiplied. The shelf space of an e-commerce website is theoretically infinite, so the old playbook of large FMCG companies suddenly stopped working.
Additionally, television, as the main channel for brand marketing, has gradually declined in influence. **Various e-commerce platforms, niche shopping apps, WeChat micro-businesses, and major video sites with entertainment programs—the places where brands can advertise have become increasingly fragmented.** As a large company, previously it was enough to focus on the main channel of TV, supplemented by some magazines and print; but now, consumers face countless screens and countless entry points. So the high-profile marketing approach of large companies no longer works; they can no longer reach consumers nationwide or globally just by controlling the big entry point of TV.
There was an article by Liu Qiangdong called "The Fourth Retail Revolution Is Coming" that analyzed:
"**One trend in future consumption changes is the diversification of scenarios.** This means consumption scenarios will become increasingly fragmented, and the contact points between enterprises and consumers will no longer be limited to shopping malls or websites, but will be everywhere. For example, in the future, smart refrigerators at home can automatically identify how many eggs and milk are left, and then automatically place orders; people can take photos of clothing styles they like in TV dramas, automatically identify the source and make purchases; and they can chat with virtual assistants to help them buy birthday gifts for friends. In the future, we will move to an era of '1 to positive infinity,' meaning one person will face countless screens, countless scenarios, and countless entry points. Today's traffic centers will become unimportant; what truly matters is being customer-centric. For retail, the future is definitely borderless—ubiquitous and anytime. When shopping entry points become extremely fragmented and changeable, retailers that stick to a single platform will be very vulnerable."
This passage precisely describes the first problem that large companies like P&G face in the new era: changes in how consumers are reached.
The Disintegration of Brand Advantages
You may not know that in 1988, P&G first used Head & Shoulders shampoo as its entry point into the Chinese market. At that time, a 300ml bottle of Head & Shoulders was priced at 19 yuan, while the average monthly salary of a worker was around 100 yuan.
In the 1990s, P&G's brands such as Rejoice, Olay, Pantene, Safeguard, Ariel, and Tide began to enter China. At that time, you could often see P&G's various product advertisements airing in rotation on TV. Chinese consumers had very few product brands to choose from, and just the label "foreign" was already prestigious.
But in the era of the internet and smartphones, the dramatic trend of consumption upgrading has made people worldwide, especially Chinese, increasingly indifferent to P&G's various mass-market brands.
Now, you can find recommendations and purchase channels for various niche brands on various e-commerce platforms and apps. You can easily buy cheap and high-quality foreign goods when traveling abroad or on business trips. Even without going abroad, various cross-border shopping websites and friends who buy on your behalf can provide you with more interesting product choices. Even a young mother in a remote county town can learn about various maternal and infant brands through Weibo, WeChat, and various mother communities, and place orders through various channels. For these people, the premium, decent, and trendy image that Rejoice, Pantene, and Safeguard once represented has long ceased to exist.
But for P&G, transformation is indeed difficult.
**The main reason is that for a company with annual revenue of $60-70 billion, making brands too niche or vertical is not very meaningful. P&G's focus has always been the mass market, and it can only be the mass market. For example, $100 million in revenue might be a dream for a small brand, but for a giant like P&G, it's basically a failing grade and a brand to be cut.**
In fact, starting in 2014, A.G. Lafley, who returned as P&G's CEO, announced that within two years, P&G would reduce its portfolio from 200 brands to about 100. The brands eliminated were mainly non-core brands with sales growth below 3% over the past three years and annual sales below $100 million. Even pet food brand Iams, with annual sales in the $1 billion range, was cut. This way, P&G could concentrate its efforts on building and marketing the core brands that contribute most of its profits.
This is the dilemma P&G faces in terms of brands.
The Collapse of the Sales Channel Network
Finally, under the dual transformation of marketing and brands, P&G's sales channel network, which it relied on and was most proud of, also began to have problems.
As we mentioned earlier, for large companies like P&G, the sales network that spreads like capillaries across the globe is their lifeline. At its peak, P&G had over 300 distributors, with first-, second-, and third-tier, gold, silver, and bronze levels, covering everything from large supermarkets in first-tier cities to street-side kiosks in fourth- and fifth-tier cities. They were also P&G's most important tool for reaching everyone.
But when the marketing advantages of these large companies were weakened and brand advantages were also weakened, some phenomena began to emerge:
For example, people increasingly shopped online, and offline physical retail became increasingly desolate. Large companies like P&G had to start paying attention to e-commerce. Moreover, because e-commerce became increasingly powerful, large companies no longer positioned it as just an additional sales channel, but as a major platform for innovation and brand marketing.
For example, in the past, the approach of large companies was that from R&D to distribution, it might take two to three years to enter China. Now, FMCG giants work with e-commerce platforms on new product launch strategies, market promotion, and execution plans, and a new product can reach consumers within one or two weeks. For example, in April 2017, P&G launched 17 new products at once on the Juhuasuan platform, not to mention mobilizing key resources to participate in e-commerce festivals like "Double 11" and "6.18."
**But it's obvious that the e-commerce business and traditional channel business of large companies are bound to be in opposition.** Online sales eat into a lot of offline business, which makes many distributors very dissatisfied. We also mentioned when discussing Nike that in recent years, Nike has been promoting a business called DTC, which stands for "Direct-To-Consumer." This includes Nike's offline direct stores and its own e-commerce. But Nike hesitated for a long time and made a big decision to start this because DTC actually infringes on the interests of Nike's distributors, large and small.
Additionally, as the halo of P&G's various brands gradually faded, many local brands also began to emerge, constantly challenging P&G's position.
For example, over the past decade or so, whether it's larger domestic brands like Liby, Nice, and Blue Moon, or up-and-comers like Hanshu and Inoherb, they have all brought significant impact to foreign giants like P&G in the national market, especially in third- and fourth-tier cities. For local brands, they can go deeper locally and have better relationships with distributors.
More importantly, P&G, as a strong foreign brand, had requirements for distributors to be exclusive agents, meaning once you represented Tide detergent, you couldn't represent competing products like Liby. This was achievable when P&G was strong, but as local brands grew stronger and foreign big brands' product margins became thinner, more "unruly" local distributors began to challenge these rules and started representing different brands. P&G and Unilever had to turn a blind eye.
Ultimately, all these factors combined to bring P&G's overall performance to a low point. **In this story of decline from prosperity, we see a series of changes in the retail industry over the past decade: consumers are increasingly fragmented, traditional sales channels are failing, e-commerce and cross-border shopping are rising, and consumer tastes and concepts are gradually upgrading.** Throughout this process, there are naturally new winners and losers, and for companies like P&G, how to respond and how to get out of the困境, whether successful or not, will become a classic case in business history.


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