Procter & Gamble’s strategy of raising prices to restore its margins (which have slipped from nearly 20 per cent to about 16.5 per cent) seems to have backfired as one shareholder after another demands that it cuts costs (chiefly its ‘fat’ middle management) so it can restore growth through lower costs.
Another cost that looks certain to come under pressure is its $9.3bn global ad budget, on which numerous agencies depend including Publicis Groupe’s Publicis, Saatchi & Saatchi and Leo Burnett, WPP’s Grey, Wieden+Kennedy and global media shop Starcom MediaVest, also owned by Publicis Groupe.
Most worrying of all for under-fire CEO Bob McDonald (left) is loss of market share by some of its leading brands.
“They tried to manage through the short term with price increases but finally realized they couldn’t do it, because competitors didn’t follow,” says Peter Golder, a professor at the Tuck School of Business at Dartmouth College in Hanover, New Hampshire. “What they need to be most concerned about is losing market share. Only ten per cent of leading brands that lose market share ever get it back.”
P&G says most of its price increases have stuck but it has had to roll them back in six categories, including dental care and laundry in the US.
Rebel shareholders are seeking a number of measures including the acceleration of its cost-cutting programme, the departure of CEO McDonald and even the break-up of the company.
In many ways its problems are those that Unilever faced a decade or more ago. Unilever’s then CEO Niall Fitzgerald responded by ditching hundreds of ‘non core’ brands. P&G’s current empire isn’t quite so sprawling but it’s possible that P&G might sell Duracell (worth about $4bn) and Iams petfood ($3bn) to concentrate its marketing expenditure behind its biggest brands.