Sales at P&G have slipped over the past year, prompting the company to reconsider its pricing strategy.
The recession caught P&G moving in the wrong direction. The company had been working hard to convince people to spend more on consumer goods in exchange for reliable brands and quality products.
U-turn in strategy
But in May, P&G broke from the strategy and announced a shift towards lower-priced products.
Departing CEO A.G. Lafley said every P&G business is working to reach more consumers by widening the price range of its products.
Opting for lower prices may be necessary to prevent sales from plummeting, but the strategy has its risks. Margins will be squeezed and when the economy returns to good health, will P&G be able to bump prices up and go upmarket again?
Wall Street Journal warned recently that P&G needs to make sure that its shift to cheaper brands does not affect its premium brands.
In a cautionary tale, the financial paper said Philip Morris’s 1993 cigarette price cut on ‘Marlboro Friday’ led to a price war that made it harder for tobacco companies to raise prices even when the economy was stronger.
When the economy picks up again P&G must be ready and able to take advantage of a surge in demand for more expensive products.
Taking the helm on July 1, Robert Macdonald will have to balance P&G’s long-term interests against the short-term need for value.
In the beauty segment, the recent acquisitions of premium male grooming companies Art of Shaving and Zirh show that P&G is thinking about long-term growth opportunities. It is certainly not in a recession that P&G will persuade more men to buy luxury shaving and skin care products.
Focus on emerging markets
Looking to the long-term, P&G also needs to focus on its international strategy. As the company begins to lose ground to rivals, Macdonald will have to fight off strong competition in emerging markets to stay on top of the consumer goods market.
Having spent 10 years working in Asia and even taken canoe rides in the Philippines to ask villagers about the detergent and soap they used, MacDonald has the experience to successfully pursue emerging market growth.
He also understands the importance and potential of emerging markets. Speaking at a conference call about his appointment, the 29-year P&G veteran declared his intention to “focus even more on winning with customers in emerging markets. We think we can reach another 1 billion customers in the decade ahead.”
Macdonald may be taking the top job at P&G at a crucial and difficult time but he has the pedigree to steer the business in the right direction.