Click to read the original text for details Source: Chaos University (ID: hundun-university) Author: Michael Liu For a 180-year-old company, short-term performance fluctuations are not enough to judge it. Looking back at history, stepping away from the current perspective, and seeing how it got to where it is today may offer insight into where it is headed. In recent years, P&G has become a controversial topic in China. Since entering China in 1988, P&G has experienced nearly 30 years of rapid growth. During this period, it encountered two growth difficulties (stall points): one in 1997 when it was ambushed by the national brand Diao Pai, but after a brief adjustment, it resumed high-speed growth after 2000. The second is now. Starting around 2014, China's consumer market showed obvious consumption segmentation, which brought many challenges to P&G. As a P&G insider put it: "We did not keep up with changes in consumers." Many signs indicate that the difficulties P&G is facing this time are indeed more severe than the last time it was ambushed by Diao Pai. According to the company's annual report, starting in 2014, the company's revenue and net profit continued to decline. The media has also been singing a song of decline. However, in 2018, P&G showed some positive signs, with its stock price rising nearly 50%, significantly outperforming the S&P 500 index over the same period. Figure: (2018.05-2019.05) Comparison of P&G stock price and S&P 500 index trends. Source: Choice data Although net profit in fiscal year 2018 saw a significant decline, P&G's operating revenue achieved positive year-on-year growth for the first time in five years. Thirty Years of Prominence Any company will encounter difficulties, but not every company has been as prominent as P&G. At least in the past 30 years, P&G's operations in the Chinese market have been very successful. Statistics show that in China's daily chemical products field, P&G's market share once reached 50%. Take a trip to the supermarket, and P&G products are everywhere. Why is P&G successful? Essentially, it is the success of applying HBG theory. What is HBG theory? HBG is the abbreviation for How Brands Grow. This theory comes from a book by Professor Byron Sharp and is known as the bible of marketing because it reveals the patterns of user purchase and sales growth. This pattern can be expressed as a formula: Brand growth = Penetration X Salience X Availability That is, to achieve brand growth, you must first increase product penetration, then make consumers think of you when they have a need, and then they must be able to buy your product. Based on this insight, P&G's marketing approach is clear at a glance.
- Build a big brand
Only big brands can have more and broader users; only with a large user base can you talk about loyalty and penetration.
- Use big media
Big media can reach the mass audience. Through continuous advertising, consumers remember the brand and think of it when they have a purchase desire.
- Use big channels
This is also easy to understand: big channels allow consumers to buy your products. In summary, P&G's marketing strategy in the Chinese market is: big brands, big media, big channels. In reality, P&G does exactly this. P&G is the undisputed "advertising king." According to statistics from the data website (www.statista.com), from 2011 to 2018, P&G's advertising spending remained above $7 billion. Figure: P&G advertising spending (2011-2018, in millions of USD) From 2002 to 2012, P&G's compound annual growth rate in the Chinese market was 17%, higher than its global rate of 14%. After 30 years of development, 92% of Chinese households have used at least one P&G brand, and more than 85% of Chinese households use two or more P&G brands. However, behind the seemingly impressive data lies P&G's hidden worry. After P&G's revenue peaked at $84.1 billion in 2014, what followed was a decline after reaching its peak. Success and Failure Both Due to HBG Why does this problem occur? Especially in the Chinese market, this effective marketing theory has been tested for decades, and P&G's products have always adhered to high-quality standards. So what has changed? The answer is: Consumers have changed. In the words of He Yabin, President of Braun, Innovation Investment, and Consumer Insights at P&G Greater China: "The crisis of all brands is the crisis of not following consumers." Chinese consumers have undergone some major but subtle changes in the past 10 years. These are mainly reflected in the following three points:
For consumers, product quality is no longer scarce; what is scarce is personalization.
Consumption segmentation: more and more consumers dare and are willing to buy more expensive products.
The same product can no longer meet the needs of the majority; the era of one product for all has ended. Reflected in HBG theory, all three key points of the theory have failed. 1. The big brand strategy fails Previously, P&G's strategy was that big brands could have more users; the more users, the higher the loyalty and penetration. Now, P&G's internal data has refuted this. Figure: Market share of top 5 brands in a specific subcategory This pie chart shows that over the past 10 years, more small and beautiful brands (other brands) have occupied the market, while the so-called big brands have been losing market share, which contradicts HBG theory. 2. The big media strategy fails Previously, P&G used big media to reach more potential consumers. In that era, consumers were not as diverse as today; an ad during prime time could reach a family of three. Today, people spend less time on TV and more time on mobile phones, especially social software. Big media methods no longer work. In P&G's own words, it's like "using a cannon to kill a mosquito"—too inefficient. 3. The big channel strategy fails P&G did not keep up with the e-commerce wave in time, and its online channel deployment was very slow. P&G was too successful in offline big channels before, and now it needs to set aside previous channels to do online, which is very difficult for such a large company. Facing new changes, many young people's perception of P&G has shifted from "high-end" to "too ordinary," "too cheap," and "too mainstream." Can P&G overcome its difficulties and return to the track of "following consumers"? There is no ready answer. But clues can be found in P&G's history. Today's P&G China vs. P&G North America 20 Years Ago P&G was founded in 1837 in Cincinnati, USA, initially in the candle business, and later expanded into beauty, health care, home care, and other fields. After more than 180 years of development, it now has 65 brands, 10 major categories, global revenue of about 500 billion RMB, and business in more than 80 countries. Due to different economic levels, consumer preferences, and maturity in different countries and regions, many business problems show similarities: problems experienced in developed markets years ago will also be encountered in emerging markets years later. Today, the problems P&G faces in the Chinese market are quite similar to those it faced in the North American market from 2000 to 2009. Let's look at what P&G experienced in the North American market 20 years ago, what it did, and how it renewed itself. From 2000 to 2009, the series of difficulties P&G faced in the North American market can be summarized as: brand aging and failure to capture consumers in time due to diversified consumer needs. P&G's legendary CEO A.G. Lafley was in charge during this period. During his tenure, he successfully "rejuvenated" P&G, doubling sales, increasing net profit by more than four times, and growing the number of brands with annual sales exceeding $1 billion from 10 to 24. The book "P&G's Winning Strategy" was written by him, detailing P&G's self-renewal during that period. In it, the author mentions two very representative cases. Case 1: Olay Problem faced: brand aging, consumer segmentation Olay was seen as an old brand, and consumers even jokingly called it "Oil of Old Lady." Many consumers directly ignored Olay when buying skincare products. At the time, it was priced at $3.99, a cheap product. In addition, different consumers had different spending power and different concerns about skincare. Solution: Rebrand P&G repositioned Olay to target female consumers around 35 years old. Then, it improved product efficacy, conducted pricing tests, and repriced the cheap Olay at $18.99. Subsequently, Olay launched a series of products to meet the needs of consumers with different spending power and skincare needs, such as "Regenerist," "White Radiance," and the high-end Pro-X line, positioned in the high-end market with prices raised to $50. After a series of combined moves, in the 1990s, P&G's skincare business grew only 2%-4%, but after 2000, Olay's growth remained in double digits. As a result, Olay grew into a brand worth $2.5 billion and gained high loyalty. Case 2: Bounty Kitchen Paper Problem faced: diversified consumer needs, the end of the era of one product for all P&G had been using one product to meet consumer needs in a subcategory, but as consumer needs became more segmented, this became impossible. Bounty products captured one type of consumer but could not continue to expand product sales scale. Solution: Return to the consumer's starting point and deeply understand needs P&G's research found that consumers buying kitchen paper fall into three types. The first type cares about paper strength and absorbency; the second type values softness and does not care much about strength and absorbency; the third type cares about price and not quality, and they will use more cheap kitchen paper to compensate for insufficient absorbency. P&G later launched three Bounty products to meet the different needs of different consumers. As a result, the Bounty business escaped its difficulties and achieved growth above the industry average. Through the two cases described by former P&G CEO A.G. Lafley, we can see some changes in American consumers at that time and compare them with the changes in Chinese consumers in recent years mentioned earlier. 1. Consumers showed a trend of daring and willingness to buy high-priced products. From Olay's continuous pricing at $3.99, it can be seen that this was a new trend, and P&G did not adjust in time. 2. Consumer needs became diversified. From P&G launching three different Olay products and three different Bounty kitchen papers, it can be seen that this was true even for the same product. Considering that the internet and social software were not as widespread as they are today, this diversification of needs can be seen as a precursor to "personalized" needs, and "personalization" has already appeared in the Chinese market. 3. The era of one product for all ended. Even P&G's big brands had to consider segmenting consumers. No matter how high the brand awareness or quality, it still cannot please everyone. With similar scenarios and similar changes, how is P&G China currently responding to this difficulty? He Yabin, in his course at Chaos University, detailed how P&G has refreshed itself over the past five years. Still using Olay as an example, but the time is from 2014 to the present, and the location is the Chinese market. Problem faced: brand aging He Yabin said in the course that Olay is one of the earliest brands P&G launched in China. It has a long history, and Chinese consumers feel that Olay is too old and is a product for mothers. The brand faces a serious brand rejuvenation crisis. Solution: Rebrand from brand positioning, tone, channels, and media P&G adopted this approach to reposition the brand: conveying a new value to consumers—the number that belongs to women is not age, but stories. Condensed into four characters: Fearless Age. In addition, in media communication, it prioritized social media over big media and made advertising content-oriented. Olay Women's Day commercial After a series of adjustments, the Olay brand has shown renewed vitality in the past two years. According to He Yabin, Olay ranked first in all beauty categories in P&G's "Double 11" event. Olay's self-renewal is similar to the brand innovation in the North American market 20 years ago. This shows that P&G has experience in dealing with similar operational difficulties caused by changes in consumer demand and consumption upgrades. Of course, simply copying North American experience to China is not enough. P&G has tried reform measures that fit local characteristics in China: 1. Expand online sales channels According to the website "Xiaolu Growth Officer," P&G embraced digital channels in China. By 2019, P&G's performance on the Tmall platform had grown 1000 times in 10 years. 2. Launch more small and beautiful brands Figure: P&G's new brand matrix According to He Yabin, P&G has launched more than a dozen new brands, such as SK-II, Oral-B, and Meta MUCIL. Many consumers do not know they are P&G products, but these small and beautiful brands contribute 80% of P&G's growth. 3. Use social media more flexibly to convey brand values to consumers In an era where the big media strategy has failed, P&G focuses on the use of social media, leveraging word-of-mouth to influence consumers. A typical case is a video from P&G's SK-II, which generated tens of millions of views across the internet. Jiang Sida talks with Chun Xia Summary The charm of business is that it is always full of uncertainty, and seeking certainty in uncertainty is the ultimate goal of every manager. P&G has been established for more than 180 years, experiencing the American Civil War, World War I, World War II, and globalization. It is a specimen for studying business cases. For such a company, it cannot be simply summarized as "P&G is old, P&G is failing." Such a judgment is inevitably arbitrary and is not a rigorous attitude for studying business. As for where P&G will go in the future and whether it can create another business miracle, it is difficult to judge at present. But the chart below may give us some food for thought. Figure: P&G FY2018 Annual Report - Revenue share by region Dividing P&G's FY2018 revenue by region, Greater China accounts for 9%, and North America accounts for 44%. For a 2C FMCG company, the population of the target market and per capita consumption capacity are important factors determining sales. However, the North American market has only 30% of the population of Greater China, but contributes 5 times more sales. No matter how you look at it, the revenue share of Greater China is indeed too low. Current P&G Greater China President Matthew Price said: To win back the Chinese market, we must start by understanding consumers. In such a globally most economically dynamic emerging market with a population of no less than 1.3 billion, what story will P&G tell? We will wait and see. This article is sourced from the public account @ Chaos University. Chaos University is an online business school for business innovation groups. 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