Recession-smacked Procter & Gamble
Fall 2009 saw the consumer-staples bellwether lower prices on roughly 10% of its products. Shortly thereafter, management was talking up fresh product strategies, dropping phrases such as "value messaging" and "value-tier offerings" -- possibly indicating a permanent push into lower-priced segments.
The latest development, however, sees P&G trying to squeeze more sales out of its most popular brands. That move could flop badly.
Let's take the example of the Olay skin-care brand, which brought in sales of roughly $2.8 billion in fiscal-year 2009. The Wall Street Journal reports that P&G is planning to roll out a wrinkle-fighting body wash next month under Olay's Total Effects line, which currently consists exclusively of facial products.
But given Olay's history as a facial treatment, why connect the head bone to the arm bone?
Well, in terms of marketing and development, it's both cheaper and faster to extend established brands into new categories than to build a fresh brand from scratch. And the current Olay strategy is nothing new: P&G has recently made similar moves with its Tide and Febreeze brands, and the Olay brand itself has been expanding across categories and price points for years, with body washes already offered under the Body Cleansing line.
The trouble, argue some marketing experts, is that offering too many products under the same brand runs the risk of confusing consumers. Said differently, at what point does an effort to expand brand sales give way to brand dilution?
The question applies equally to value-oriented versions of traditionally premium brands, a move that P&G has made with Pampers and Tide. In order for such a move to succeed, the consumer messaging leaves no room for error. Shoppers must believe that the premium product is still worth the extra cost while also viewing the value version as a step up from the store brand. That's a tricky task, which is why no matter how deeply the economy ever slumps, we'll likely never see Porsche competing with Ford
I've supported P&G's entrance into the value segment, and sales results indicate that consumers are responding positively. The Olay strategy, however, strikes me as potentially more challenging. It's not competition that I worry about: Wal-Mart's
P&G plans to introduce 30% more new products this year versus last, so in all seriousness, investors should keep an eye on the consumer reception. Depending on how things proceed, P&G may not be able to have its cake and eat it, too. Which means either investing the time and money in new brands, or expanding through acquisition.
Regarding the latter, I've often mused whether P&G might have its sights locked on the fast-growing Church & Dwight
We'll have to wait to see about that. In the meantime, I'll be studying up on the differences between Olay Definity, Regenerist, Professional, Total Effects, and, dare I say it, Complete.
Procter & Gamble and Unilever are Motley Fool Income Investor choices. Wal-Mart is an Inside Value recommendation. Ford Motor is a Stock Advisor selection. Unilever is also a Global Gains pick. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletter services free for 30 days.