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:

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