P&G under pressure for the next big thing

Some analysts fret that the Cincinnati-based consumer products giant relies too heavily on a new-and-improved lineup of proven favorites, instead of producing enough breakthrough blockbusters to help power sales and profits growth.

Procter & Gamble is selling a new Downy fabric softener with time-released scents that linger longer on clothes. A Secret deodorant that works for 48 hours. And those cute little orange-and-blue Tide Pods that eliminate the extra laundry step of first measuring detergent.

For its efforts, the company was rewarded with recognition from one of the industry’s most respected trade organizations: The Information Resources Inc. ranked these and four other P&G products among the 10 best-selling U.S. innovations of 2013.

Combined, the seven generated $870 million in sales last year, equal to 1 percent of the company’s total revenue.

Are these innovations of the kind that will propel P&G sales growth to the next level that shareholders demand?

“Consumers have come to expect the next best product innovation from our leading brands,” said Kathy Fish, P&G’s chief technology officer, who oversees the company’s $2 billion-a-year research and development efforts. “When P&G gets it right, innovation that delights consumers is an an important driver of growth.”

Some analysts, however, fret that the Cincinnati-based consumer products giant relies too heavily on a new-and-improved lineup of proven favorites, instead of producing enough breakthrough blockbusters to help power sales and profits growth.

Others say the company needs all kinds of innovations to move profits and satisfy customers: Breakthroughs like Crest Whitestrips and Swiffer dusters – products that people didn’t know they needed until they got them, and now can’t live without. Big improvements like Tide Pods, that upsell consumers to the latest version of an old favorite. And incremental changes that extend a brand’s product lines into new flavors, colors or sizes. Think mint chocolate-flavored Crest.

“A common misperception is the belief that innovation occurs only in those moments of serendipity,” Fish said. “What makes P&G innovation unique is that it’s not just one year, but consistent performance over time.”

A dose of innovation delivers, boosts sales

P&G considers innovation part of the company’s DNA – practically inventing the concept of “new and improved.” It’s such a critical value that P&G’s chief executive, A.G. Lafley, said “innovation” 22 times in 53 minutes – once more than “productivity” – during his last presentation to Wall Street analysts.

Analysts say continuous improvements and changes keep products from becoming boring commodities that consumers want to buy at the lowest price – a dynamic that drove P&G to exit the food business in the past decade.

P&G also needs some dazzling new products, though, to grow faster than the sluggish 1 to 2 percent sales growth projected for the year ending June 30, they say.

“Consumer companies deal in mature, slow-growing categories,” said Ali Dibadj, an analyst with Bernstein Research. “To stave off competition and create growth, innovative new products must be developed.”

Chicago-based industry tracker IRI, which compiled the Top 10 list, says new and improved products keep the sales coming in.

“New product innovation is more important than just dollars. It builds excitement, buzz and competitive advantage,” Larry Levin, an IRI executive, said. “Successful new products can establish and protect category leadership, as well as help companies break into entirely new categories. In short, they are game changers.”

Tide Pods was No. 1 on the list for top new products last year. The little ball of concentrated laundry detergent racked up $324.6 million in sales in its first 12 months on the North American market, IRI said.

A hit launch is the gift that keeps on giving: a strong new product introduced in North America can generate even more sales as P&G rolls it out to other countries. Innovations also can be adapted to improve other brands, spurring more sales growth. P&G has done just that with Pods.

Prompted by the robust Pods demand, P&G rolled out the “unit dose” detergent to its Ariel brand in Europe, Latin America and the Middle East. This spring P&G also included unit dose “flings” under its Gain brand.

Those detergent versions are now a $1 billion business across Tide, Gain and Ariel brands selling in 20 countries, P&G says. Pods also are transforming the laundry industry, with unit dose detergent representing 6 percent of all sales and P&G dominating the new segment, controlling more than two thirds of it.

Blockbusters, while rare, offer brief monopoly

P&G’s latest Tide triumph also illustrates how rare true blockbusters are. Crest whitening strips, Swiffer duster and Febreze fabric care invented whole new must-have products.

Those launches created new businesses where P&G enjoyed a brief monopoly, setting the pricing and selling the goods as fast as it could make them. Tide Pods, on the other hand, are used by consumers who once chose powder or liquid laundry detergent – often the Tide brand.

“Swiffer became a new item in the consumer’s closet – she didn’t give up buying Mr. Clean,” said Linda Bolten Weiser, an analyst with B. Riley & Co. “Tide Pods trades consumers up to a premium product – it’s the next best thing.”

Despite Pods’ runaway success and expansion, P&G acknowledges its overall fabric care business lost market share in the past 18 months.

Weiser said consumer products companies often rely on smaller tweaks.

“In their hearts they know what innovation is – but they have to keep saying they’re innovating,” she said.

Some analysts have harsher assessments.

“P&G’s track record of blockbuster product innovation has largely ground to a halt over the last 10 years,” said John Lame, chief executive of Lenox Wealth Management in Kenwood. “Relative to the past, there is an overwhelming larger reliance on incremental changes to move the business ahead.”

What’s wrong with line extensions?

P&G officials say they never introduce a product that isn’t backed by consumer research that tells them there’s an unmet need or desire. And some of those those lowly line extensions turn into huge businesses.

Pampers Swaddlers started out as a line extension just for newborns – now it’s worth $500 million in annual sales. It’s still growing as P&G has added some extra sizes.

Crest Whitestrips was a breakthrough introduced in the 1990s that showed P&G how obsessed some consumers were about whitening their teeth.

P&G extended its whitening business into The 3D White product lineup of Whitestrips, paste, brushes and rinses to form a complete regimen. That portfolio is now worth $1 billion in annual sales and a crown jewel in the whole Crest brand. ■

10 top new sellers

These are the best-selling product innovations in North America in 2013, according to industry tracker the Information Resources Inc. Procter & Gamble products are in bold; numbers are annual sales for the product’s first year.

1. Tide Pods: $324.6 million

2. L’Oreal Advanced Haircare: 141.8 million

3. ZzzQuil: $121.1 million

4. Vidal Sassoon Pro Series: $96 million

5. Clear Scalp & Hair Therapy: $92.7 million

6. Downy Infusions: $90.2 million

7. Ajax Triple Action: $84.2 million

8. Always/Tampax Radiant: $83 million

9. Secret Outlast: $82.4 million

10. Puffs Basic: $74.5 million


Source: Information Resources Inc.


Coming attractions

So what’s the next big thing from P&G?

IRI has names six recently launched products as Rising Stars that could wind up on next year’s Top 10 list.

 Febreze Sleep Serenity, an air freshener designed for the bedroom to guarantee a good night’s sleep.

 Bounty DuraTowel, a paper towel made to work as well as cloth.

• Duracell Quantum batteries,

a longer lasting version.

 Old Spice Wild Collection, hair care products with the same scents as the brand’s deodorants.

 Cascade Platinum, a detergent that leaves dishes – and dishwashers – spark­ling.

 Iams So Good, a lower-priced pet food. P&G announced last week that it’s selling that brand in a $2.9 billion deal expected to close this year.

• Not on any list, but tantalizing nonetheless: Gillette Body, a razor designed for “manscaping.” P&G introduced it early this year.

~ Curated by The Marketing Curator and TME Pass The Idea (www.pass-the-idea.com)

Source: http://www.cincinnati.com/story/money/2014/04/12/pg-pressure-next-big-thing/7634881/


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