P&G's Battle at the Summit of Light

↗Click above to follow "Business World Magazine" Does P&G's crisis mean that the multi-brand strategy once revered by business schools is now outdated? Why has the once-mighty P&G, with its grand ambitions, found itself surrounded by enemies? P&G's Battle at the Summit of Light By Staff Reporter Tang Liang It was the best of times, it was the worst of times—for P&G, the global FMCG giant. Having relied on its "multi-brand strategy" to rank sixth in global market value in 2008, P&G subsequently fell into an awkward period of consecutive declines. In the first quarter of fiscal 2016, P&G's sales fell 12% year-on-year. In China, its most important emerging market, the beauty portfolio of Olay and SK-II came under siege from L'Oréal, Shanghai Jahwa, and Herborist; the laundry detergent line of Tide and Ariel was already defeated by local brands such as Liby, Nice, and Blue Moon; even the 8-billion-yuan disposable hygiene products fortress of Pampers and Whisper was struggling against fierce attacks from Kao, Unicharm, and Hengan. The situation could not get worse. On November 1, 2015, David Taylor succeeded veteran A.G. Lafley as P&G's new CEO; six years earlier, Bob McDonald had also taken over from Lafley and announced a blueprint to expand into emerging markets. Time flies, heroes age. Why has P&G, with its grand ambitions, encountered such adversity? "Pushing the Tower" of Olay P&G is no longer the P&G of yesteryear. When P&G first entered China, brands like Head & Shoulders and Olay were considered "affordable luxuries" based on China's per capita income. From 2000 to 2005, P&G's old rival Unilever suddenly launched a "price war" with Omo laundry powder and Hazeline shampoo as its vanguard. To maintain its market dominance, P&G under Lafley countered with even more aggressive low prices for Tide and Rejoice, gradually extending this to all its brands in China. After this battle, P&G stabilized its position but lost the "top of the pyramid," with most brands falling into the mass market except for a few like SK-II. In 2009, McDonald succeeded Lafley. Facing China's rising middle class, McDonald recognized the disadvantage of betting on mass-market products, especially Olay, which had become seen by younger Chinese as a "low-end brand that mothers like." So McDonald quickly approved the launch of several expensive high-end Olay lines, supplemented by SK-II, which was then plagued by the "chromium and neodymium scandal," in an attempt to re-enter the high-end market through the beauty sector and rebuild the "top of the pyramid." P&G's change was tantamount to declaring war on L'Oréal, which dominated high-end beauty. The French company responded quickly. L'Oréal's first move was a dense brand bombardment. In a short time, L'Oréal assembled five high-end brands—Helena Rubinstein, Lancôme, Biotherm, Shu Uemura, and Giorgio Armani—to besiege Olay and SK-II, dominating most of the department store space. The second move was a dense category bombardment. Within two years, L'Oréal flooded department store channels with hundreds of product categories, completely overwhelming Olay and SK-II's thin lineup. The third move was to preemptively promote a membership system, constantly updating preferential policies, putting the slow-reacting Olay in an awkward position. Clearly, L'Oréal used P&G's own specialty in the hair care field: the multi-brand strategy, but with faster R&D efficiency and more agile market response, P&G suffered a hidden loss. Although it was at a disadvantage in department store channels, P&G found another way: in 2010, Olay entered the specialty store channel, aggressively recruiting distributors. Moreover, to expand rapidly and catch L'Oréal off guard, P&G opened up its flagship hair care brands to the specialty store channel. But in hindsight, Olay's hasty push into specialty stores was a bad move. In June 2010, L'Oréal updated its specialty store product catalog, but it did not feature high-end brands like Lancôme that Olay had expected to compete against; instead, it was a lineup of mid-to-low-end brands: L'Oréal Paris, Maybelline, Garnier, Yuesai, and Mininurse. L'Oréal was telling everyone that Lancôme could only match high-end department stores, while Olay could only play with "Yuesai and others" in low-end stores. At that time, Chinese department stores were undergoing an "upgrade wave," and Lancôme, with its clear positioning and channels, stood out and became a "must-have on the first floor" of high-end malls. L'Oréal seized the most advantageous terrain, while Olay became the "rejected" one. Realizing the severity of the problem, in 2012 P&G launched the Olay Fresh Effects line in non-counter channels, targeting the fastest-growing mask category, which was also L'Oréal's weakness. What caught consumers' attention was that P&G abandoned spokesperson Lin Chi-ling and replaced her with a youthful girl-next-door, while investing heavily in online platforms favored by the post-90s generation. P&G's aim was to reverse Olay's aging image as much as possible. However, L'Oréal was not about to sit back and let P&G gain momentum—in August 2013, L'Oréal announced Garnier's withdrawal from China and simultaneously acquired MG, the leader in the mask market. L'Oréal's "upgrade" instantly blocked Olay's breakout route. According to Euromonitor data, in 2013, L'Oréal surpassed P&G in the skincare and beauty sector. What pained P&G even more was that to ensure Olay's victory in this battle, P&G abandoned introducing its makeup brand CoverGirl in China, allowing L'Oréal's L'Oréal Paris and Maybelline to easily capture 40% of China's makeup market. L'Oréal used P&G's own strategy to defeat P&G. What exactly went wrong with P&G? The Collapse of the "H-Shaped" Strategy What was once a source of pride is now a constraint. P&G is famous for its multi-brand strategy, which uses different brands for different market segments. For example, Safeguard for soap, Crest for toothpaste, and Head & Shoulders, Rejoice, and Pantene for shampoos. The aim is to cover as many markets as possible and achieve team advantages. However, the multi-brand strategy cannot remain effective forever; it eventually shows two symptoms. The first is "getting too fat," becoming increasingly bloated. Especially when P&G has more than 200 brands, each striving to cover the global market, it often loses sight of one thing while attending to another, and decision-making becomes painfully slow. From 2009 to 2011, while L'Oréal was aggressively launching new products, local brands like Herborist, Pechoin, and Shanghai Jahwa's Herborist (different from the former) were rapidly capturing market share with Chinese herbal concepts, but P&G launched almost no new products. It wasn't until early 2013 that P&G introduced in China a low-end skincare brand, Hai Ji Yuan, with the selling point of ocean hydration, and a high-end brand, Oriental Season, focusing on herbal concepts. But by then, the market situation was like pulling teeth from a tiger's mouth; Oriental Season's sales were always unsatisfactory, and Hai Ji Yuan was squeezed to the bottom by competitors within a year and was eliminated from the Watsons channel. The second symptom is "becoming a flat line," getting shorter. Previously, P&G dominated because its "H-shaped" brand layout was reasonable; L'Oréal's rise also came from its well-structured "pyramid-shaped" layout. At the same time, the vitality of the multi-brand strategy requires internal competition. For a single brand, the shortcut to curry favor with headquarters is to extend the brand infinitely, expanding its own categories to cover high, mid, and low ends, and even all segmented functions... Thus, as brand positioning became increasingly diluted, the "H-shape" and "pyramid" collapsed into a characterless "flat line," and most brands collectively became "mass-market." In the battle between P&G and L'Oréal, Olay fought one against ten, attempting to use its long product line covering high, mid, and low ends to counter L'Oréal's well-arranged ten brands. This was overestimating its own strength, and consumers found it hard to accept its attempts to upgrade to high-end. The fact that P&G's higher-positioned brand Max Factor could not be used may also be related to the exclusion by Olay's related factions; moreover, favoring Olay alone could relatively save marketing costs and reduce R&D expenses. In short, P&G went from "tall and strong" to "short and fat," and the multi-brand strategy was effectively dead. But it was the Chinese who paid the price: from 2012 to 2013, including Zhai Feng, president of the Greater China sales division, several Beijing-based mid-to-high-level executives resigned for "personal reasons." This personnel turmoil spread to the front-line market and became the last straw that broke P&G's laundry detergent line. In 2008, local brand Blue Moon launched a deep-cleansing care laundry detergent, which was a great success. At that time, P&G's Tide and Ariel were mainly promoting liquid detergents in Europe and the US, but considering that liquid detergents only accounted for 4% of China's laundry market (30% in 2015), P&G chose to ignore it. This undoubtedly provided Blue Moon with an excellent "peaceful development period." In 2010, it launched a brightening and color-enhancing liquid detergent, and in 2011, a hand-washing-specific liquid detergent, completing the blockade and surpassing of Tide and Ariel's marketing concepts for powder detergents. But P&G had no reaction. Moreover, to keep P&G in the dark longer, Blue Moon's founder Luo Qiuping deliberately chose to develop second-, third-, and fourth-tier cities first, then first-tier cities. As a result, when Blue Moon reached a 50% market share in liquid detergents, Luo Qiuping felt a bit embarrassed. Only then did P&G wake up and hastily introduce Tide liquid detergent; but by then, the enemy camp had expanded to Blue Moon + Liby, Quzhiba + Chaoneng, and Diao Pai (Nice), and each enemy hoped to take advantage of P&G's personnel turmoil to immediately engage in a decisive battle. In January 2013, Liby spent 100 million yuan to sponsor the first season of "I Am a Singer," and related sales increased by 66%; in September, Blue Moon placed product placement in "The Smurfs 2," further advancing into the "oil stain removal" and "color stain removal" segments; in October, Chaoneng hired five spokespersons at once, including Sun Li and Jiang Fangzhou, launched 90-second ads on various media platforms, and e-commerce sales immediately increased by 50%; Quzhiba hitched a ride on "Dad, Where Are We Going?"; at the end of the year, Liby spent 235 million yuan to secure the second season of "I Am a Singer"... Blue Moon, Liby, and Nice's strategy was to use intensive marketing of high-end liquid detergents to achieve an overall upgrade of the laundry market. But P&G, in the year of the decisive battle, was reflecting on the bloated drawbacks of its multi-brand strategy, cutting global costs by $10 billion, which more or less led to a total failure in the laundry market. Poor Tide and Ariel, once leaders, were crushed to less than 8% market share. The loss of key markets naturally led to even greater personnel turmoil. Lafley's "Weight Loss Pill" In May 2013, due to poor global financial results, McDonald left in disgrace, and Lafley returned to P&G. It's hard to imagine Lafley's feelings as a "firefighter," because "gaining weight" is easy but "losing weight" is hard, yet he had to prescribe a "weight loss formula" for P&G. To this end, P&G transformed marketing directors into brand directors, and the marketing department into a brand management department. After the adjustment, brand management work would be centralized from various regions to the global business units at headquarters. The purpose was clear: to improve decision-making efficiency by simplifying the department structure, and concentrating power at headquarters would reduce conflicts of interest between brands and regions. P&G really couldn't disappoint the Chinese market anymore. In June 2014, Ariel launched laundry detergent pods in China, a concentrated liquid detergent "capsule" wrapped in a film. According to incomplete statistics, in six years, P&G had only launched five new products in China. No wonder Blue Moon was momentarily stunned and only responded in September 2015 with "Machine Wash Supreme." P&G's bigger turnaround came in the sanitary napkin market. According to AC Nielsen data, starting from January 2013, Sofy (Unicharm) began to surpass Whisper with its "extra-long overnight" marketing concept. For a time, Sofy became Whisper's number one enemy. In fact, industry insiders knew that Whisper's decline was largely due to its adherence to mesh surfaces while ignoring the fact that cotton-based sanitary napkins accounted for 70% of the market. Fortunately, after Lafley took office, P&G accelerated, and the "Whisper Ultra Clean Cotton Series," which had been in development for three years without success, was finally launched in December 2013. It should be noted that Whisper had always introduced mature European and American products in China, but this new product was developed and launched in sync with the global market, thanks to strong intervention from headquarters. P&G woke up, and Unicharm got nervous. In February 2014, Sofy made a big move, launching a novel panty-style sanitary napkin, which was snapped up as soon as it hit the market. In December 2014, P&G also made a big move, with Whisper launching the world's first sanitary napkin made from liquid material, "Future Sense·Ultra Protection." The global simultaneous launch of this high-end new product meant that Whisper had finally won a product high ground in recent years—it is said that P&G's "ammunition depot" stored new products that could last for ten years, but they had not been released due to overly cumbersome processes. It is worth mentioning that P&G, which had always favored TV advertising, this time began to use self-media channels including "Logic Show" and "Unexpected" to promote the liquid sanitary napkin. A carefully crafted article, "A Guide to Time Travel for Menstruation," had an exposure of over 39 million people, with stunning results. P&G "cheated," and Unicharm had to open its "brain hole." In 2015, the Sofy Pocket Magic sanitary napkin ad, starring Angelababy, swept across China. What was different was that this product came with an app called "Love to Play Sofy Rabbit," allowing users to play. P&G took the most direct countermeasure: starting from the first quarter of 2015, Whisper's TV advertising spending increased by more than 100%, with quarterly spending exceeding 200 million yuan. But this was just the surface—starting from 2014, P&G increasingly adopted programmatic advertising—through digital platform integration, real-time aggregation of media ad quotes, specific audience needs, and relevant retail data, computer programs would calculate the optimal ad placement plan and execute it automatically, ensuring that consumers in each region saw the most suitable ads. This business war had evolved from human vs. human to human vs. computer, and the difference was clear. The "Cutting Flesh" Therapy However, to truly protect P&G's market share, "exercise" was not enough; it needed direct "cutting of flesh." In August 2014, Lafley announced the divestiture of about 100 brands through sales, discontinuation, and natural attrition. P&G would focus on supporting 70-80 consumer brands, including Tide and Pampers, which together accounted for 90% of sales and 95% of profits. A battle around "P&G's slimming" began in earnest. Buyers included Unilever, which in early 2015 acquired P&G's personal care brands Camay and Zest. Among them, Camay is sold in China and can serve as a "pawn" against P&G's personal care line. The biggest buyer was the American company Coty. In July 2015, Coty acquired 43 of P&G's beauty brands, including well-known Wella and Clairol. Perhaps P&G's generosity will spur Coty's rise, which may pose a huge threat to L'Oréal in the future. It should be noted that the energy accumulated from "P&G's slimming" would be fully invested in mid-to-high-end new products. The "flat-line" P&G was striving to restore its former all-powerful "H-shaped" or "pyramid-shaped" brand structure. Therefore—in China's diaper market, Merries (Kao) and MamyPoko (Unicharm) preemptively launched high-end and imported series before Pampers released its high-end new product at three times the price; just after Crest launched the expensive Pro-Health HD, Shanghai Jahwa also began to develop high-end toothpaste with Pian Zai Huang; and to prevent Olay and SK-II's unknown new products from potentially rising with programmatic ad purchases, L'Oréal had formed a digital marketing alliance with Tencent... Everyone was getting restless. On November 1, 2015, "firefighter" Lafley stepped down as CEO and became chairman, continuing to assist new CEO David Taylor for a while. As of November 2015, "P&G's slimming" was 90% complete. Although sales had declined, net profit in the first quarter of fiscal 2016 (July-September 2015) surged 30.7%. P&G's pain will continue, but it is necessary—presumably in the future, business schools around the world will add this annotation to P&G's multi-brand strategy: a strategy that was once effective may not be effective in the future; even if the strategy is always correct, you may have lost the power to own it. Editor: Tang Ting romarin94@163.com