For many years, multinational consumer goods company Procter & Gamble (PG -0.69%) lagged behind its direct competitors Colgate-Palmolive (CL 1.92%) and Unilever (UN) in emerging markets.
Both Colgate and Unilever gain more than half of their revenue from emerging economies. P&G, on the other hand, only generates 40% of its revenue abroad, despite being the world's largest household product maker. Are emerging markets a threat to P&G's business, or an opportunity? How does P&G plan to conquer these markets?
Source: Procter & Gamble
Changing its approach towards emerging economies
P&G is famous for having a rich portfolio of well-recognized brands in the personal-care, beauty, grooming, health and fabric segments. As Morningstar notes, some of its brands are essential for retailers to bring more traffic to their stores and therefore enjoy privileged product positioning.
More than 20 of P&G's brands generate $1 billion or more in revenues per year and they are extremely popular. You can find Ariel laundry detergent or Duracell batteries practically everywhere. These brands are famous for their high quality.
However, despite the strength of its portfolio and its presence in more than 180 countries, P&G's performance in global markets is far from amazing. Global growth has roughly been 3% on a dollar basis for the past few years. Considering that there's an emerging middle-class in emerging economies, P&G could not only find a growth catalyst but also find high-profit situations abroad.
Colgate-Palmolive's performance in emerging markets has been outstanding. The company now owns 46% of the global oral care market. It's normal for the company to see organic sales rise in the double digits in Asia, Africa and South America. Wide distribution, coverage of rural areas, portfolio expansion and innovation, and strong marketing could be behind Colgate-Palmolive's success story in these economies.
Unilever has also taken advantage of emerging economies to boost its revenue. The company not only focuses on creating an efficient global supply chain and distribution network, but also on product localization and non-traditional marketing to achieve its global objectives.
For example, its Axe male grooming product line has conquered the world thanks to its innovative and sometimes controversial marketing campaigns. Axe's management used social media in 2010 to promote its products. Its marketing team is engaged in constant sociological study in order to keep its video ads updated for the latest trends among young men. More importantly, Axe's presentation, bottle size, and pricing change enormously according to geographic location.
P&G's marketing efforts have been labeled by Dean Crutchfield, a branding consultant, as "old school" and "too traditional."
In terms of global expansion, P&G's old strategy involved an "all-in" focus on rapid expansion.
The good news is that at the beginning of 2013, P&G decided to narrow its global scope. It now focuses on 10 emerging economies that included Brazil, China, South Africa, Mexico, Nigeria, and Poland. By narrowing its scope, P&G became better at localizing its marketing strategies. Some examples include building a diaper plant in China to meet the growing demand for baby-care products, promoting single-blade razors in India -- where men worry more about getting cut -- and the launch of ecologically friendly Ariel 3-in-1 pods in Europe.
Final Foolish thoughts
P&G's new approach toward emerging markets has started to pay off. In the latest quarter, P&G's organic sales grew 8% in developing markets. This was well above the 2% figure in the US market. Furthermore, the fact that Unilever reported weak top-line performance in the same quarter suggests that a meaningful proportion of consumers in emerging economies could be shifting from Unilever's products to P&G. Overall, the company's level of understanding of the global consumer seems to be rising.
Considering that global revenue only represents 40% of P&G's total revenues, a successful emerging market strategy could become a massive growth catalyst.
