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Building Billion Dollar Brands

From Ace to Wella, marketing and product innovation drive P&G's global success
  • October 22 2012

What does innovative brand building look like today?

Procter & Gamble had just used the 2012 Academy Awards to launch its most anticipated product of the year—Tide Pods, the premeasured packets of detergent that the company was betting would disrupt the laundry market. But the next night, NASCAR’s Daytona 500 was halted by a fiery crash between a racer and a truck carrying jet fuel, and boxes of Tide powder were used to clean up the track and get the race resumed. Social media was abuzz with mentions of the detergent. Within 72 hours, P&G had 15-second ads on the air featuring Tide’s role in cleaning up the spill.

Here we have the two sides of today’s P&G. On the one side, there’s the kind of breakthrough product introduction people have come to expect from P&G, one that took an estimated eight years to create, had thousands of consumer tests and was launched with a $150 million marketing program. On the other, there’s a real-time response to a viral news event, with P&G immediately leveraging social media to come away with a clever and timely—though untested—way to reinforce Tide’s “you keep inventing stains” brand position.

Describing this dichotomy in his speech at the ANA Conference in Orlando earlier this month, Marc Pritchard, P&G’s global brand building officer, noted that while the marketplace is changing, the foundation still remains the same: keeping the focus on the consumer.

“Tide, one of our oldest brands, has forged an entirely new relationship with consumers with an ‘always-on’ newsroom that responds instantly to opportunities to become a relevant part of online conversations and trending topics,” he said, noting that Tide now continually amplifies its message online, in blogs and through PR. The result? Over the past three months, Tide has picked up 2.5 share points in the U.S.

Innovation has long been at the center of P&G’s success. It was 175 years ago in Cincinnati that candle maker William Procter and soap maker James Gamble were convinced by their father-in-law to become business partners. With an investment of about $7,200, the two signed a partnership agreement on October 31, 1837, and the world’s largest consumer packaged goods company was born.

But few would still be talking about the company had it not been for its long-term commitment to changing the way consumers use and talk about the kinds of products they might otherwise just take for granted. Things like soap, laundry detergent, toothpaste and shampoo.

“Innovation is definitely built into P&G’s DNA,” says Peter Golder, professor of marketing at Dartmouth’s Tuck School of Business. “It’s a great history of not just creating brands but entire product categories.”
P&G’s track record of success has been based on a model that integrates product innovation with branding to combine high value, high performance products and compelling advertising for consumers. This combination in turn has enabled P&G to consistently charge premium prices, creating an engine for growth, profit and future investment in innovation.

Today, that brand and category building has created a line-up that includes 25 brands with more than $1 billion in annual sales. These include some of the best-known names in consumer products: Pampers (which became the company’s first $10 billion brand this year), Tide, Crest, Head & Shoulders, Downy, Bounty, Charmin and Gillette.

Overall, P&G’s top 50 brands represent 90 percent of its $87 billion in annual sales and more than 90 percent of its profits. The company estimates there is at least one P&G product in 98 percent of American households.

P&G’s product legacy is less about scientific breakthrough and more about how to turn these breakthroughs into brands with enormous consumer equity.

“It’s not only about how to find and commercialize great technology,” says Booz & Co. partner Chris Vollmer, head of the consultancy’s Global Media and Entertainment Practice. “P&G recognizes that there are other key ingredients to supporting market-leading innovation: People who are open, can work across disciplines and can make connections across disparate things—and it recruits for them—and deep consumer insights that shine a light on where opportunities exist to meet consumer needs in new and compelling ways that will also ignite significant purchase interest.”

“For P&G, innovation starts and ends with the consumer,” says Bruce Brown, P&G’s chief technology officer. “We listen to our consumers to gain insights on how we can innovate for the way everyday life is lived.”

P&G’s research and development group has some 8,000 employees—including more than 1,000 Ph.D.s—at 26 innovation facilities around the world. R&D spending was a little more than $2 billion in 2012, according to the company’s annual report. Advertising spending, meanwhile, was $9.3 billion.

P&G’s ability to continuously upgrade its products—and, at the same time, create relevant extensions—further pushes its brand growth. Pampers, for instance, has reinvented the diaper category since the 1960s, adding features that have changed how consumers use the product. At the same time, Pampers is a global brand, available in more than 100 countries. As P&G’s $10 billion mega-brand, Pampers, if it were a separate company, would rank at #266 on the Fortune 500 list of largest companies.

 

The core values

P&G’s business model is deceptively simple: Discover meaningful consumer insights. Translate those insights into products with superior benefits and value. Support those products with strong marketing and broad distribution.

Consumer insights are the foundation of all innovation and P&G employs teams of behavioral scientists, researchers, psychologists and anthropologists to uncover what is important in people’s lives today. For example, in developing Swiffer—whose 1999 introduction defined the “fast clean” category—researchers discovered how frustrated consumers were with basic mops and how hard it was for them to get a simple job done.

Product development then answers what the consumer insights reveal. When Pampers found that parents were more interested in a good night’s sleep—i.e., that diapers didn’t leak overnight and wake a baby—R&D came up with a new technology that keeps wetness away from a baby for 12 hours.

Finally, advertising needs to show an understanding of what consumers find important.  “P&G has always recognized the importance of advertising and media innovation in terms of driving and increasing consumer engagement with its brands,” notes Booz’s Vollmer. “From contributing to the birth of soap operas on TV in the 1950s to the innovative YouTube online video campaign that reinvigorated the Old Spice brand, P&G and its agency and media partners have long viewed marketing and advertising as critical elements of their brand strategies and how P&G brands build superior equity and loyalty with consumers.”

 

Seeking the next breakthrough

For P&G, the challenge is to manage its product pipeline and maintain a mix of category-definers and brand extensions. Certainly Tide Pods has changed the laundry category; according to P&G, the unit-dose segment now accounts for about 6 percent of the total laundry share, and Tide Pods represents more than two-thirds of this segment. But many of the new brands considered category definers—Febreze, Swiffer, Crest Whitestrips—are more than a decade old.

Instead many of the latest new products are tweaks to existing brands, incremental improvements such as adding Downy softener to Tide liquid detergent. Still, the company did have three of the top 10 non-food brand products on SymphonyIRI’s New Product Pacesetters list for 2011.

But at the company’s annual meeting on October 9, CEO Bob McDonald reiterated the company’s commitment to improving its brand pipeline. “We are renewing our commitment to discontinuous innovation,” he said, “that is, to innovation that obsoletes current products and creates new categories and new brands.”

It may take time for these innovations to launch, but through commitment to the company’s values of meaningful consumer insights, superior products and benefit-focused advertising, P&G could have its next billion dollar brand.