Grand Marketer of the Year ’05: Jim Stengel, Procter & Gamble

The annals of business are stocked with stories of mighty blue chip firms that somehow lost their way. Think Coca-Cola before Roberto Goizueta or IBM before Lou Gerstner, or Apple before the second coming of Steve Jobs.

The story’s always the same. Once-respected company loses focus and gets lost in a sea of sameness or cultural miasma. Be it an endless cola war over minor share fluctuations, letting niches erode to nimble upstarts like Dell and Compaq, or shunning the basic consumer-friendly hook that got you there. But from Goizueta’s “share of stomach,” to Gerstner’s recasting of IBM as a high-margin service provider, to the all-access iMac and iPod, the strategic shifts that rallied them back to relevance always start with relocating the pulse of their customers. “The consumers told us–loud and clear–that they are the real owners of this product,” Goizueta once said.

That insight has clearly resonated at Procter & Gamble, which has dramatically reversed its fortunes of late by adhering to a homegrown mantra: the keys to the marketplace do not reside within its Ivory towers, but deep in the minds–and hearts–of the consumers who put P&G’s vast portfolio of brands to the test every day.

P&G considers that interaction between brand and customer in store aisles and checkouts as the “First Moment of Truth.” CEO A.G. Lafley has wheeled the company back around on that nexus, with Jim Stengel, P&G’s top marketer, re-igniting the company’s myriad marketing efforts around an almost monomaniacal focus on the notion: “The customer is boss.” Stengel insists that his overseer is not Lafley, but rather some woman of indeterminate age and ethnicity even now pushing a shopping cart through a supermarket somewhere.

In talking to Brandweek, Stengel referred to the boss (as “she”) several times. “You begin with the understanding of where you fit into her life and everything goes from there,” he says when asked about P&G’s new marketing model. “It’s a total part of our culture that she is boss. It’s a sweeping concept and one that doesn’t get old.”

the customer is king–or queen–as it were, is hardly a new concept and too often a hollow catchphrase. But P&G’s numbers seem to indicate it is more steak than sizzle in Cincinnati. In its most recent fiscal year, P&G’s annual sales jumped 10% to $56.7 billion and earnings rose 12% to $7.6 billion in a market where raw materials costs climbed higher, private label continued to grow and Wal-Mart, among others, kept demanding lower prices. At the same time, P&G welcomed its 16th billion-dollar brand, Dawn, into the fold. Now that its $57 billion Gillette deal has closed, P&G boasts 22 billion-dollar brands.

By adding Gillette’s male-skewing brands to its portfolio, P&G has solidified its ranking as the world’s No. 1 maker of consumer packaged goods, further extending its global reach. That’s a far cry from five years ago, when P&G promoted Stengel to global CMO. The company had lost 10% market share in the ’90s and by early 2000, its reputation for innovation was highly suspect. Most new ideas were coming from hungrier rivals. Rumors of a merger with Warner-Lambert and American Home Products prompted a 15% drop in its stock price and then P&G revised its earnings forecast for the second half of 9000 from an increase of 7-9% to a 10-11% shortfall. Though P&G attributed the poor performance to a variety of factors, the real culprits were two major reorganizations in the ’90s, including one in 1993 in which P&G closed 30 plants and cut 13,000 positions across the globe, and another in 1998 that took P&G from four geographically based business units to seven global units based on product lines.

“The company lost control of cash flow and costs and suffered delays and frustrations in untangling ambiguous and overlapping responsibilities,” according to Rising Tide: Lessons from 165 Years of Brand Building at Procter a Gamble by Davis Dyer, Frederick Dalzell and Rowena Olegario. “To reach ambitious revenue targets, managers attempted to sustain high prices in the face of fierce competition and pushed new brands into the market before they were ready,” the authors concluded.

The turmoil prompted then-CEO Durk Jager to resign. Lafley, his replacement, came in with a manifesto of “10 Things I Believe.” No. 2, behind “Lead change,” was “The Consumer is Boss.” Stengel, whose job is to guide P&G’s marketing, seized mainly on that point and made it his personal crusade.

“I think we lost focus on a lot of important things and the first one was consumers are at the center of what we do and you’ve got to internalize that,” he said.

Some at the time thought P&G’s problems went deeper than the restructuring. P&G’s last hit product was Always feminine protection pads in 1983. Meanwhile, big brands like Tide and Crest were losing market share. “I think we got a little bit enamored of new business opportunities at the expense of our big brands,” Stengel said.

A good illustration of the problem was the rise, fall and rise of Crest. After its halcyon days as the leader in fluoridated toothpaste and its Norman Rockwell-drawn “Look ma, no cavities!” ads, Crest’s market share plunged from 42% to 98% between 1979 and 1985. P&G fought back and Crest gained a 40% share with a Tartar Control Crest formula, but that was a last hurrah as nimbler competitors and specialty brands battered it with a flurry of innovations for the category. In 1988, Church & Dwight rolled out Arm & Hammer baking soda toothpaste and quickly grabbed 10% of the market. P&G resisted launching its own baking soda toothpaste until eight years later and also balked at another trend: using peroxide as a whitening ingredient. One small company, Den-Mat, claimed success with Rembrandt, a toothpaste positioned as a whitener (since bought by Gillette). In 1993, Unilever rolled out Mentadent, a combo baking soda/peroxide toothpaste in a pump.

Even when it tried to stir the pot, P&G floundered, as with Crest Gum Care, which tasted bad, stained teeth and attracted few users. Colgate’s big splash with Total toothpaste–an antibacterial triple threat that fought gingivitis, plaque and cavities-backed by a $100 million media blitz, finally vaulted that company to category leader, with the newcomer grabbing Colgate a 29% share of the market versus 26% for Crest, the first time P&G lost its No. 1 status since the Kennedy Administration.

To save Crest, P&G had to start looking at the brand differently, as it began doing across its portfolio. Pampers would no longer stand simply for diapers, but baby care. Tide was not just a detergent but an expert in fabric care. Crest had to become more than cavity prevention, but in fact, make consumers feel good about their teeth. The new flexibility allowed P&G to release several new products under the brand’s umbrella. Crest Whitestrips, a home whitening kit that bowed in 2000 and was followed by SpinBrush, a $5 electric toothbrush. (As part of the Gillette deal, P&G agreed to sell Rembrandt, but will keep Oral-B; SpinBrush was sold to C&D last month.)

P&G would not stop there. Looking at the explosion of flavors and fragrances taking root in candy and gum aisles, it saw an opportunity to give Crest extra freshness. Crest Whitening Expressions toothpaste boasts eight SKUs in four flavors–Vanilla Mint, Cinnamon Rush, Extreme Herbal Mint and Fresh Citrus Breeze–in two formulations. The fast-growing line had sales of $71.9 million for the year ended Sept. 94, up 24.3%, per IRI. Crest also rolled out a mouthwash and dental floss this year. As a result, although Colgate continues to sell more toothpaste, Crest leads the oral care category, an example of changing the game when the old one hit an impasse. (Colgate’s new enamel-strengthening Luminous entry bowing this month is likely to solidify its 34.6% share lead in toothpaste vs. Crest’s 31.7% share.)

it was about stepping back and putting the consumer at the center,” said Matt Barresi, associate director of marketing for P&G Oral Care. “We probably thought about ourselves too narrowly. So we thought, what does it mean to the consumer and what do we mean?”

Stengel pushed for innovative solutions, greenlighting the extensions plus new ways to talk about them with the company’s first foray into product placement on NBC’s The Apprentice. Later, P&G brought consumers directly into its brand development process by staging a contest to help name one of its new Whitening Expressions’ SKUs; Lemon Ice was the ultimate winner in ads from Saatchi & Saatchi, New York, that spoofed election year punditry with man-on-the-street interviews and fake newscasts.

That push for smart innovation was writ large across all of P&G’s big brands. Febreze would reinvent the market for hard-to-stamp-out odors with a spray pump liquid that could be used directly on fabrics, rugs and furniture. Though P&G’s huge franchises long stood on their own, Stengel encouraged meaningful combinations like Tide with a Touch of Downy and Tide with Febreze last year, among other branded duos and line extensions (see related story, this page). Mining the humorous side of everyday household tasks, P&G recently advertised three of its Fcbreze-tinged products with a TV ad via Grey, New York, where a kid taken with the fresh scent can’t help but sniff everything from the couch to boxer shorts.

almost as important as raising the profile of its core brand franchises, Stengel saw a bigger challenge that needed mending: morale among P&G marketers had plummeted and layoff-weary managers were afraid to take risks. “Five years ago, our heads were not up,” Stengel said. “And you can’t just go to people and say ‘Feel better.’ There has to be a confidence in the company, a confidence in the leadership, winning–we have to see results–and they also have to feel like they’re working to their potential, that they’re being challenged.”

Stengel decided to tackle the morale problem like any good marketer would: with research. He e-mailed questionnaires to 3,500 P&Ger’s asking how they felt about their marketing jobs. Stengel also recruited two University of Cincinnati professors, Chris Mien and Andrea Dixon, to interview respondents and shadow 10 marketers each for a full day. Some employees vented about P&G’s training regimen: “There’s a lot about process and terminology that’s unique to P&G that nobody tells you upfront,” said a woman with an MBA from an elite institution, who was quoted in an article by Stengel, Allen and Dixon in the Harvard Business Review. “I turned to my [brand manager] for help and was told, ‘That stuff is mundane; you have to figure it out.'”

Stengel resolved to address those issues via Marketing University, a weeklong intensive program that goes over such gaps. All marketers are “strongly encouraged” to attend Marketing U., but it’s not mandatory. The program centers on such things as strategy development, consumer understanding and target definition. Barresi said one other benefit of Marketing U. is that you get to meet Proctoids from all over the world. “I can find out what we’re doing wrong in fabric care in Central Europe and apply it to oral care here,” he said.

More than minutiae, respondents also lamented that marketing was devalued as a profession and not considered as prestigious a job at P&G as general management. And because of a long-standing practice of promoting capable marketers within two years or so, they left half-finished projects in their wake to be cleaned up by someone else. Stengel extended that period to three or four years. And to underscore how crucial the marketing function was to P&G’s success, he resurrected the company’s Harley Procter program, in which hot-shots were dubbed “Harley Procter marketers” and given more responsibilities.

Stengel, by most accounts, actually has a harder job than most CMOs. At P&G, the global marketing officer has no control of the budgets of individual brands. “It’s a tough job because you don’t have a great deal of authority, so you have to convince based on the facts,” said Bob Wehling, Stengel’s predecessor, who is now retired. Meanwhile, the CMO is responsible for all of P&G’s marketing. “I don’t run a business,” said Stengel. “I’m not running Pampers or Tide or anything, but I am accountable to the company for the quality, health and strength of our marketing.”

The 50-year-old Stengel, per colleagues, takes the stress pretty well. Those who work with him say he’s rarely rattled and is energetic, often visiting stores and interviewing customers when he’s on the road. “No matter how difficult the situation, no matter how tense, I’ve never seen him get flustered or lose confidence,” said Wehling. According to friends, Stengel has been juggling several roles successfully throughout his life.

Growing up in Lancaster, Pa., Stengel was captain of the high school football team, served on the student council, took part in school plays and earned good grades–preparation, it seems, for the overscheduled lives he’d eventually try to ease with P&G products. Childhood friend Mark Diehl, now an executive at footwear company Dansko, notes that Stengel had a wild streak too. “I remember there was a Halloween skit that we did very spur-of-the-moment at a high school dance,” Diehl said. “We carried him in a coffin and he jumped out on stage with a guitar and devil ears.”

Perhaps more revealing, Diehl remembers working with Stengel one summer paving asphalt in the heat. When a woman offered them iced tea, Stengel paused to ask, “‘What kind is it?'” eager to discover its brand name.

Stengel joined P&G in 1983 on the Duncan Hines team and after working his way up the ladder at Jif and on Olestra, became a general manager for P&G Europe in the Czech Republic. By 2000, Stengel was vp-global baby care and was promoted to his current role the following year.

Under Stengel, P&G has loosened up. Industry watchers applaud the new sense of flexibility and say the company is more open to looking outside its walls for new ideas. By taking 30 P&Gers with him to the Cannes advertising festival in 2003, Stengel sent a message that the household products giant prized award-winning ad efforts and was not as insular as once thought. “We wanted to send a signal to the advertising and creative industry that we’re ready, we’re ready to change to be a better client,” Stengel said.

Niel Kreisberg, group evp and executive managing director at Grey, New York, has worked on P&G’s business for 37 years. Kreisberg said top P&G brass has always treated its agencies as partners, but “some were better than others.” Stengel, he said, is the best yet. “He came in last week to thank all the people who work for me for giving them such a great year with a handshake,” he said. “It’s that kind of stuff he does so well. Even when he has to be critical, he’s a gentleman.”

Traditionally, P&G’s huge marketing budget–it eclipsed $6 billion globally last year–has given it unusual power on Madison Avenue. P&G notoriously forced Eurocom to drop one of its biggest clients, Henkel, after the agency merged with RSCG in 1987. Likewise, when Ted Bates Worldwide became part of Saatchi & Saatchi, a longtime P&G agency, Bates lost the $100 million Colgate business. So, many were surprised that P&G kept Grey on its roster even after the agency was bought last year by holding company WPP, whose agencies do work for P&G archenemy Unilever. “It’s OK with us,” said Stengel. “We want the top talent.”

David Luhr, CO0 of Wieden + Kennedy, Portland, Ore., said he was initially intimidated by P&G’s reputation as a client. “We were polite, but a little nervous about discussions with P&G just because of their traditional reputation,” he said of this past spring’s talks that brought his agency the Eukenuba pet food brand and a Canadian project for Ivory soap. “We discovered a man and a company that were doing incredibly well and trying to do things differently.”

Stengel and P&G are open to having agencies be a big part of the marketing process, Luhr said. “He wants agencies to create a holistic view of the brand, to think and own that brand in a big way. He wants and expects them to come together on products, distribution points and packaging.”

Likewise, as P&G gears up to integrate Gillette into its system, it is likely to break another hide-bound habit. “In the old days, they would have gone into Gillette and fired all the ex-P&G people there,” said a longtime company observer. Now it is more open to matching up managers according to business needs.

When it comes to strategy, Stengel’s priorities are creativity and a strong ROI. To illustrate, Stengel points to a 2004 program from Israel aimed at increasing sales of P&G’s Biomat laundry detergent among Orthodox Jews. With charity a strong component of the sect’s belief system, P&G encouraged people to bring in their old clothes, which were washed by machine in a roving truck (using Biomat, of course) before they were donated to charity. The effort led to a 50% jump in sales among the desired demo.

But to keep up with changes in the market, Stengel doesn’t just look for creative advertising and promotion. Everything else–the media plan, the packaging, the retail distribution–must be creative, too.

A few years ago Stengel declared P&G’s marketing model was “broken.” “I think a model that says, ‘We assume she’s watching television, we assume she’s paying attention to our ads, we assume that if we do the same thing we’ve been doing for 20 years, it will work,” he said. That model is gone forever.

To that end, P&G took the broadcast community by surprise earlier this year by pulling back 25% of its cable TV spending and cutting broadcast media by 5%. “The shift’s very real,” said Ken Harris, founding partner of Cannondale Associates, Evanston, Ill. “P&G’s been very clear about its desire to spend media dollars where there’s demonstrable ROI.”

At retail, P&G has installed a new director of that “First Moment of Truth,” who is charged with producing more eye-catching store displays. In the U.K., some P&G retailers put their bathroom doors high up so parents can imagine the world from a child’s point of view. Other new areas include online and Tremor, a word-of-mouth program targeting gregarious “connectors” that has been expanded from teens to rooms.

all that activity–the new products, the expansion of marketing beyond the 30-second TV spot, the recharging of the marketing staff–have contributed to P&G’s comeback. But the underlying reason may be less a reflection of Lafley’s 10 commandments than with the source of the original 10, particularly this line from Proverbs: “When pride comes, then comes disgrace, but with humility comes wisdom.”

For his part, Stengel didn’t bristle at the “h” word.

“We’ve never been complacent, but we look outside a bit more,” he said. “We always have a lot to learn. We’re always restless, in a good way.”

A New Concept: Borrowing Success

Certs has Retsyn. Intel has Inside. Chevrolet has OnStar. They’re all examples of ingredient branding, a practice that has spread widely over the last few years–everywhere except for Procter & Gamble.

That is, until a year ago, when the company introduced Tide with a Touch of Downy. P&G archivist Ed Rider said it marked the first product that sported more than one P&G brand on the label, unless you count the ill-fated Pringles potato crisps with Olestra in the early ’90s. “It’s a very recent thing,” Rider said, adding that the company had previously run cross-promotions for related products like Duncan Hines and Crisco around the holidays and co-branded a Duncan Hines cake with Hershey’s chocolate bits. But ingredient branding with two P&G brands wasn’t encouraged under the go-it-alone policies of prior regimes, where the brand management process was more siloed.

No more. Under Jim Stengel, P&G is looking for growth in new and unlikely places. This year, the company took the co-branding concept further with three products–Tide with Febreze Freshness liquid laundry detergent, Downy with Febreze Fresh Scent liquid fabric softener and Bounce with Febreze Fresh Scent dryer sheets. A Tide rep said the com party was encouraged by the success of Tide with a Touch of Downy. (Information Resources Inc., did not break out soles for that product.) P&G also rolled out Crest Plus Scope, combining two brands in oral care.

While some branding gurus applauded the move, David Aaker, vice chairman of brand consultancy Prophet in San Francisco, was ambivalent. “There are a lot of tradeoffs,” he said. “When you put Febreze on a tot of things it becomes less dramatic for Tide, but on the other hand, it helps Febreze.”

Al Ries, chairman of Ries & Ries, Atlanta, suspected P&G had an ulterior motive for the move. “It’s going to force competitors off the shelf,” he said, adding that store managers will find that “products with teeny tiny market shares have devoted followings,” making it more difficult to remove slow-selling extensions.

Speaking of extensions, P&G has also grown brand share by stretching usage occasions for its products. That was the thinking in July behind Tide to Go, the brand’s first stain-removal pen that sells for $2.99, or 86.99 in a three-pack. The product was designed to clean up food and drink stains quickly, without water. For home use, there’s Tide StainBrush, a battery-powered device launched last year that loosens stains before washing. Then there’s Mr. Clean Auto Dry, a car-cleaning product that took the brand out of the kitchen and into the driveway.

The strategy could eventually backfire as consumers get confused by too many extensions and charges of “di-worsification” are leveled for playing in unfamiliar terrain. But for now, extra flexing seems to be working at P&G.

Photograph by Ross Vanpelt