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Follow the Leader

By Tom Branna, Editorial Director | January 22, 2013

Procter & Gamble may be 175 years old, but its new innovation program has company executives thinking like a startup.

After 175 years, Procter & Gamble was beginning to show its age. Sales were disappointing, growth strategies in emerging markets were failing and costs were out of whack. Things got so bad last year that institutional investors were calling for P&G CEO Bob MacDonald to step aside and let someone else steer a ship that had become so large, many feared it would be unable to maneuver around an increasingly complex household and personal products industry landscape. Some even suggested that it was time to break up this $84 billion behemoth into more manageable business units. Could the company that gave the world brands such as Tide, Febreze and Pampers stay nimble enough to innovate?

That’s probably not what William Procter, a candle maker, and James Gamble, a soap maker, envisioned when they arrived in Cincinnati, married sisters and founded Procter & Gamble in 1837. Ivory, the floating soap, hit the market in 1879. According to company historians, Ivory was developed after company executives uncovered the consumer insight that soap was hard to find at the bottom of the washtub. It was the first breakthrough brand for a company that would go on to invent the term “category building.”

The Ivory Towers of P&G’s headquarters in Cincinnati.
P&G’s global reach is legendary, but the company didn’t enter it’s first market outside the US until it pushed into Canada in 1915; the UK was added in 1930, and Latin America and Western Europe soon followed. In 1935, P&G entered Asia and in the 1950s, Africa was added. In 1964, Happi’s first year of existence, P&G set up shop in India. Today, P&G products can be found in more than 180 countries around the world and has more than 25 billion-dollar brands.
A 1965 print ad for Secret deodorant spray.
Aside from product development, P&G is credited with creating modern marketing, with innovations such as print advertisements in the 1890s to radio spots in the 1920s. More specifically, in 1924, P&G became the first company to conduct deliberate, data-based market research with consumers in an effort to understand their wants and anticipate their needs. In 1941, P&G became one of the first companies to establish a consumer relations department to handle consumer complaints. One of the world’s best pitchmen, Charmin’s Mr. Whipple (aka George the Grocer), debuted in 1964. Toll-free numbers were added in 1973 and email debuted in the 1980s.

Brand Building

Innovations the all are, but P&G’s long-term success has always depended on the new products that roll out of its R&D labs.Following the launch of Tide in 1946, P&G launched Crest, the first fluoride toothpaste, in 1955. The company made a major acquisition in 1957 when it purchased Clorox. Pampers, the first mass market disposable diaper, came along in 1961. In 1966, P&G introduced Scope mouthwash and Gain detergent. Biz detergent came along in 1967, and Olestra and Pringles came to be in 1968.

A replica storefront at P&G’s Beckett Ridge Innovation Center homage to the company’s soap-and-candle roots.
But Procter & Gamble lost one of its best-known brands in 1969 when it was forced to divest Clorox following an anti-trust ruling. At the time of the 1957 purchase, the Federal Trade Commission challenged the Clorox acquisition on the grounds that it might reduce competition or tend to create a monopoly in household liquid bleaches, a violation of the Clayton Act. Even though Procter & Gamble allowed Clorox to handle its own affairs, in 1967 the U.S. Supreme Court upheld the commission's order that Procter & Gamble divest itself of the Clorox operation. By 1969 Clorox had been spun off as a public company, with a listing on the New York Stock Exchange. In 1972, Bounce softener was introduced, and a year later, P&G acquired The Nippon Sunhome Company and began operations in Japan.

Corporate sales topped $10 billion in 1980, Pert Plus, the world’s first 2-in-1 shampoo and conditioner debuted in 1986 and P&G marked its 150th anniversary in 1987. In 1989, the company entered the cosmetics category with the acquisition of Noxell and its Cover Girl and Noxzema products. In 1991, P&G expanded its presence in that segment with the purchase of Max Factor and Betrix.
By 1993, company sales exceeded $30 billion and for the first time, more than 50% of sales came from outside the US. In 1998, P&G rolled out Swiffer, Mach 3, Febreze and Dryel. A year later, the company entered the pet nutrition field with the acquisition of Iams. In 2001, P&G introduced Crest WhiteStrips and acquired Clairol. Wella was added in 2003 and two years later, in 2005, the company acquired Gillette. Tide Pods hit stores just last year.

The company currently spends more than $2 billion on R&D and more than $350 million on consumer insights. To keep the innovations coming, in 2001, P&G launched Connect + Develop, a crowd-sourcing tool, led to the development of Mr. Clean Magic Eraser. Since Connect + Develop debuted, P&G has been in contact with more than two million researchers, entrepreneurs and companies to consider new ways of succeeding in the FMCG space.

P&G chairman and CEO Bob McDonald.
Yet, despite all those connections, in recent years, the number of novel new product introductions has declined, leaving analysts and investors questioning the P&G model.
“Our pace has slowed,” admitted Jorge Mesquita, group president of new business creation and innovation, in a presentation to analysts in November 2012. To pick up the pace and get growing again, P&G formed the LEAP team made up of R&D managers, technologists, marketers, industrial designers and “consumerists.”

A New Start
With its stock price sagging and its string of new product launches waning, P&G executives are determined to get the company up and growing again through a broad array of new product initiatives.

For example, the company’s new goal for open innovation calls on partnerships to deliver $3 billion toward P&G’s annual sales growth. Mesquita even went so far as to promise that 40% of the company’s upcoming launches are “disruptive solutions” that will create markets of their own. The other 60% of the new products will meet the needs of consumers in established markets (defined as those with $5 billion or more in sales).
“New business creation is the ultimate form of innovation,” maintained Mesquita. “To create new products and brands to fit consumer needs and build shareholder values.”

The goal of all of these initiatives is triple the pace of innovation, which will lead to more category growth and a bigger share of the market.

New products that are set to debut in the US include:
• Olay Fresh Effect BB cream, a tinted skin moisturizer with sunscreen;
• Fusion Mach 3 for Sensitive Skin;
• Vidal Sassoon Professional Series, a 20-SKU hair care collection and
• Cascade Platinum, an automatic dishwash detergent that cleans the machine as well as it cleans dishes.

Tide Pods represent a big shift in how consumers do their laundry.
“Innovation is at the heart of everything we do at P&G. It differentiates our brands, prevents commoditization of categories and brands and wins the consumer-value equation,” explained Bruce Brown, chief technology officer.
Brown noted that P&G regularly tops the SymphonyIRI New Product Pacesetters list, which acknowledges the top new products rolled out during the previous year. In fact, P&G has placed 140 products on the list during the past 17 years—more than its six biggest competitors combined.

“(Innovation) creates value for our retail partners and creates new businesses,” explained Brown. “It enabled us to deliver sustained growth for 175 years.”

Procter & Gamble has topped the household and personal products industry since Happi debuted in 1964, and leads the Top 50 Report today. With company executives determined to keep the innovation pipeline flowing, there’s a strong possibility that P&G will headline the list 50 years from now as well.
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