P&G conducted marketing research in Europe when it faced declining sales in Europe, more significantly in Germany. The research found that the threat to P&G was not from traditional rivals like Unilever, L'Oreal SA, etc., but from regional retailers, who were giving the company a tough fight. The research brought to light the fact that retail stores in Germany stocked unbranded diapers and detergents, that were sold at half the price of P&G's products i.e. Pampers and Ariel respectively. The marketing research showed that one-fifth of all retail sales in Western Europe were attributed to private labels. In fact, the share of private label sales of total sales of the retailers was predicted to go up to 30 percent. One of the leading retail stores in Germany, Aldi, provided customers with unbranded or private label products, where they directly competed with the renowned products of P&G. For instance, Aldi stocked a private label product Putzmeister, a cleaner, to beat P&G's Mr. Clean.
Alarmed by the number of retail brands gaining a firm foothold in the retail market segment, Paul Polman, President for P&G Western Europe, decided to cut the prices of its commodities. As a part of this decision, the company reduced the price of the Pampers basic model to make the price range more affordable. The company followed yet another strategy by introducing even cheaper versions of its products. In this way, P&G avoided cutting down the prices of its existing products. For instance, the company launched Mr. Clean, a cheaper detergent version, instead of reducing the prices of Ariel. Meanwhile, the company also introduced and promoted improved versions of its premier and costlier models. P&G introduced a costlier version of Charmin, a toilet paper, to enhance sales in that product category. The company complemented the launch with an ad campaign that asked the consumers "Don't you deserve a bit of luxury?" and tried to justify the high cost of the product. P&G also acquired Gillette Co, which made batteries and razors, to diversify and expand into more lucrative areas. The company took various steps to retain its brand image too. As a result of its efforts, the company's net profit increased by 122 percent when compared to its sales during the previous three fiscal years.
In India too, the company faced stiff competition from Hindustan Lever Limited (HLL), an FMCG company and a price war began. Until then, the Indian FMCG industry was in a sluggish state with the industry growth rate varying between 1 and 1.5 percent. However, the industry witnessed a revival, when the players in the sector resorted to price cuts. P&G resorted to price cuts to revive declining sales in its Indian operations. The company began its efforts by announcing price reductions on sachets of detergent products namely Ariel (from Rs 1.50 to Rs 1.00) and Tide (from Rs 3 to Rs 2). Soon afterward, the company announced a reduction of up to 50 percent on large packs (500 gm) of these products. While the price of Ariel went down from Rs 70 to Rs 50, the price of Tide was reduced from Rs 43 to Rs 23. HLL followed suit by reducing the price of its flagship detergent brand Surf Excel. P&G claimed that the sales of its detergent products doubled after the price cuts were implemented. P&G also had to deal with competition in the shampoo market, when HLL introduced buy-one-get-one-free offer. Instead of resorting to price reductions, the company concentrated on heavily promoting its brand Rejoice shampoo. Also, P&G introduced a line extension of its shampoo product Pantene. P&G's share in the detergent market increased from 6 percent to 10 percent in one year. Analysts, however, were of the opinion that P&G had shifted its priority from being a value-based company to a volume-based company, in a bid to take on its rivals.
1 - Is Procter & Gamble right in resorting to price cuts to revive its flagging sales? Discuss.
2 - Comment on Procter & Gamble's shift to a volume-based company from a value-based company.
