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Walmarting The Category
By Jonathan Salem Baskin

Does P&G's Plan To Slash Prices And Grab Share Spells The End Of Its Brands

P&G is slashing prices and attacking new markets worldwide in a dash for improved sales and increased share. I don’t quite understand how this is a business strategy for any business other than Walmart. It just seems like brand suicide.

Perhaps the company's brands are already dead. P&G has seen sales plunge for its premium household products like Tide and Charmin as a healthy majority of American consumers have switched to at least one cheaper substitute. 2009 produced the company’s first sales decline since 2001, and it announced this month that it spent a lot more on advertising to sell its brands at heavily discounted prices...so profits are down 12% for the quarter ended June 30.

Its strategy, according to the Wall Street Journal last week, is to aggressively replicate these results around the world, primarily by entering new markets and categories and competing first on price. Where's the headline declaring that P&G is in serious trouble? What am I missing?

It's an utterly stupid marketing strategy, for three primary reasons:

  • Prices can't be raised as easily as they can be lowered, and this is true in just about every business. Discounts work only when the brand attributes stay sacrosanct; your customers stay stupid and trusting for only so long, so products or services have to do things truly better or more than the competition (not just differently). Is the exclusive cleaning power of Tide so obvious that people will pay more for it sometime later? Does Charmin leave behind skin that's objectively softer (yes, pun intended)? What if discounted premium brands simply means the market has repriced the value of their benefits?
     
  • Perceived value isn't the same thing as real value. P&G, like many sellers of branded products, bought the idea that it is, yet one of the less-talked about facts of our overly-conversant social web is that talk really is cheap, if not free. It doesn't matter what brands say or how creatively they say it, and convincing consumers of value where none exists isn't so much an accomplishment as it is a crime. Or simply a lie. This is why the latest Big Idea for branded marketers is to do cause campaigns and claim to sell "meaning." It's just a cover-story for the same 'ol lack of any real reason to pay more for something.
     
  • "Innovation" is usually a cover-story for exploitation. You couldn’t read a business story or annual report over the last decade without tripping over how many times companies claimed to innovate. Few really did, and P&G wasn't the exception. It turns out nobody needed extra surfactant molecules in their dishwashing liquid, or were willing to pay for it when budgets matter. P&G could have invented better toothpaste or shaving cream, but chose instead to rely on the miracle of branding to convince consumers that simply being differently branded was a benefit. It's not. Innovation was a code word for coming up with things to sell to customers, not selling to customers the things they really needed or wanted.

Today's consumers are price-conscious, value-aware, and real benefit-demanding, and they're not going to go back to sleep or get stupid anytime soon. Slashing prices and grabbing market share isn't a strategic response to this reality, it's a Hail Mary pass thrown after the clock has run out. There's no time left in which to raise prices and return to the way things were. That game is over.

Why aren't we talking about this now?

When experts write about P&G and the other big brand manufacturers sometime in the future, the problem will be obvious: it didn't respond to the changing market because it didn't know how. All of its vaunted marketing expertise and branding brilliance was a function of a particular time and place in history, when mass marketing could tell a believing mass market of consumers what to do. The medium really was the message, and the entire business model for premium brands depended on it. Perception really was reality...as long as the ad dollars kept getting spent to perpetuate the myths.

The problem is less obvious today because of one simple fact: P&G spends zillions on advertising, and ads are what support the media that cover it. We need to myths to support next quarter's blather behind the numbers, and to keep stockholders of media companies in line. There's no quid pro quo, certainly, but the very model that P&G and the media rely upon is broken and there's no good way to easily address it...and every vested interest to ignore it. So the company gets to present is inane plan to slash prices as if it amounted to a strategy. It can say whatever it wants. Nobody wants to know any better.

I fear P&G has embarked down a long road down from which there is no return. Only Walmart can get away with pursuing ever-lower prices (or the claims thereto).

Added: 26th August 2010

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