Procter & Gamble’s first year with a new sales and distribution strategy has been disappointing. What happened? Will things cheer up?
Text by -- Iqbal Singh
It sounds very good on paper but it has not worked very well for them (P&G) in India - Senior sales manager, Levers One of the reasons for Vicks’ decline in marketshare is definitely the limited distribution - Senior marketing executive, Boots Piramal P&G should have at least covered itself from the negative effects - Jagdeep Kapoor, Consultant Forget the initial hiccups; look at it from a longer time frame. It worked in the Philippines. It will work here too. - Former P&G employee
This is a sample of reactions to P&G India’s performance after the implementation of a new strategy driven by profits, not volumes .
Beginning late 1998, the Indian subsidiary of the $37-billion Procter & Gamble redid its sales and distribution system nationwide by massively cutting the number of stockists and retail outlets to curtail costs and increase efficiencies. This came close on the heels of the parent’s restructuring globally aimed at boosting product innovation and sales growth by sharing resources through global business units and regional market development units. Over a year later, its Indian baby is yet to realize the benefits. Instead, it is the pitfalls that have come out in the open. “P&G (India)’s restructuring, contrary to our expectations, has run into problems,” declared a paper prepared by SG Asia Securities, an equity research firm, in December 1999, marking the stock an “underperformer”. P&G Hygiene & Healthcare (PGHH), in which P&G, USA, holds a 65-per cent stake, is currently trading at below Rs 600, a dramatic fall from the peak of Rs 1,300 nine months back. “We had earlier forecast only 8 per cent sales growth for 2000, but the performance is worse than expected,” it notes. What happened? “There was to be a trade-off between volumes and costs ,” explains Gaurav Narain, associate, corporate research, SG Asia Securities, “but the way it has come out now, the fall in sales has been much steeper than the increase in margins.” For the quarter ended December 1999, PGHH showed a negative topline growth and margins went up by only 2-3 per cent. Both of P&G’s strongest brands, Vicks and Whisper, have lost considerable marketshare in 1999. Its presence has weakened in shampoos and it is a fringe player in soaps.
Why has a concept that appeared so strong, and has succeeded abroad, gone awry in practice? The reasons stem from the cultural and political issues in distribution, extending to a partial loss of market control in what was a bad year for the FMCG market, compounded further by heightened competition. We were unable to secure P&G’s participation in the story despite repeated requests. So our understanding of what went wrong is shaped entirely by former employees, competitors, trade, analysts, customers and, of course, all information available in the public domain. Let’s begin by understanding what P&G did and what it led to.
Trade resented...
Despite numerous attempts, P&G India has never been able to counter global arch-rival Unilever in India. In whatever it did, the technology-focused P&G would secure an initial victory, only to be clambered over by Hindustan Lever soon after. “Sustaining success was a big challenge,” recalls a former employee. “P&G has never been able to react on pricing and which is why it kept losing out.” Being a technology-intensive marketer, P&G could not afford to lower prices to compete in a truly mass way with the likes of, say, Lux or Chik shampoos. P&G’s research told it that just about 30-40 per cent of retail outlets were generating almost all its turnover in India . Reportedly, a typical P&G stockist’s turnover was about Rs 10 lakh, almost 1/25 of a Levers stockist . Plus, the stock levels were four weeks (for Levers it was two weeks). That meant lesser profits for a stockist and a longer reaction time for P&G. So P&G India, operating on the 80-20 principle, slashed the stockist network by 90 per cent to 20-30 from 3,400 stockists earlier. Retail reach was cut back by 70 per cent to between 50,000 to 1 lakh. Distribution for small yet mass-market brands like Old Spice, Clearasil was outsourced to Marico. But for a low unit price product like Vicks, which sells extensively through roadside stalls, it retained the wholesale channel. The new strategy was first tested in Coimbatore for over a year. It showed positive results .
But the moment it was implemented in other areas, it caused a stir among the trade. A lot of distributors who were shown the door resented the move. The number, obviously, was huge, In Mumbai, for instance, one big superstockist replaced about 15 distributors. Distributors in the state approached the Maharashtra Consumer Products Distributors’ Association to boycott P&G. This was only for a brief period, but it left a bitter after-taste. “This a sensitive issue in India where trade has a community culture,” reasons Kapoor, managing
director, Samsika Marketing Consultants. It affected stock levels. “There was very little or no stock of Pantene for as long as six months,” recalls a Levers manager. This wasn’t all. Since P&G had also shed a large portion of its 600strong salesforce, some former employees began to spread bad word-of-mouth in the marketplace. The biggest problem, however, was the loss of control in the marketplace. “India’s physical dispersion of retail is a big barrier to such a strategy,” explains a senior Levers sales manager. “For a Mumbai superstockist sitting in Fort (south Mumbai), servicing Kandivili (a northern suburb) becomes a problem,” he elaborates. “This can work abroad, as it has for P&G, where you deal with fewer retailers.” H K Press, president, Godrej Soaps, emphasizes the criticality of servicing: “If you lose control with the retailer, it can work against you.” The wholesaler, on the other hand, owes no allegiance to any company . He owed none to P&G’s Vicks either. For all its loss of distributors, P&G hoped to more than make up with a renewed focus on the core retail outlets. That did not happen as expected. A big reason was, as always, Levers. The FMCG juggernaut stepped up activity at big retail outlets with initiatives like Key Accounts Programme (for personal products). A Personal Products Prestige Club was inaugurated in January 2000 as a loyalty programme for top retailers across six metros. At the same time, in-store merchandising and frequency of servicing were stepped up. Distributor salesforce was reportedly given Palm Pilots , beginning with Mumbai, for speedier coordination. Beginning early 1999, Levers had begun to connect some 600 stockists in 15 cities through VSAT. Now it is also looking at connecting the big retailers with IT systems . While Levers
competed head-on with P&G in the core big outlets, P&G’s shrunken retail coverage left ample room for others to grow. It affected P&G the most, perhaps, on its strongest brand - Vicks. ...brands faltered...
Counterfeits of Vicks were the first sign. Then began the surge by Paras and Kopran. The slide of Vicks lozenges had begun soon after the price hike in late 1998, from 50p to 75p. It went slightly unnoticed that year because the market expanded to an all-time high of Rs 130 crore. Vicks’ share tumbled from 28 per cent in April 1997 to 23 per cent by October 1998. But as the overall market shrank to Rs 120 crore in 1999, Vicks’ share (value) fell further, to 21 per cent by Jan 2000. Kopran’s Smyle picked up 2.5 per cent; Soothers and Chlormint took similar shares, as Menthos joined them in 1999. Paras’ D’Cold hit Vicks balm and inhaler. It entered with a syrup though, around end 1997, on the platform of lamba aaram (elongated relief), explains an
adman. “Paras hit it right with kids. Soon, it extended the brand to a balm for die-hard fans, and did intensive advertising. Vicks was hardly visible then,” he recalls. Not that Vicks did not respond. “In early 1999, it launched bigger pack sizes. This was based on research which showed that consumers who bought smaller packs tend to stretch the usage for a longer duration, postponing purchase ,” explains a former P&G employee. “But this proved counter-productive, particularly in the smaller markets, as the prices went up and P&G stopped supplies of small tins to roadside stalls where D’Cold, for one, made large gains.” As per IMS Health figures, Vicks’ value share of the chest rubs and inhalants market has come down by more than half to 0.88 per cent for the inhaler, and by 61 per cent to 9.43 per cent for Vaporub in January 2000 over the previous year. P&G’s focus on premium segments cost it leadership of the sanpro market, one of its biggest success stories. In 1999, overall sanpro volumes declined by 5 per cent (to 538 million); the value decline was 6.6 per cent (to Rs 196 crore). What benefited in that time was the low-end. Whisper, the costliest brand in the market, lost share. A big gainer has been Johnson & Johnson’s economy option, Stayfree Secure. Secure was J&J’s idea of converting non-users (sanpro penetration is a minuscule 20 per cent, that too, in urban India) to sanitary pads. Launched in end 1997 at Rs 20 (for 10), compared to Whisper’s Rs 60 plus, “it is today the single largest brand in little more than two years,” claims Elkana Ezekiel, general manager, marketing, J&J. Whisper’s volumes fell drastically, down from 44.5 per cent to 30.7 per cent in the same period while J&J jumped from 47.3 per cent to 54.3 per cent. “Whisper continues to lose share,” attests Ezekiel. “The single biggest
determinant to purchase is price,” he reasons. “Whisper thought that while others develop the market, existing customers would keep upgrading,” says an analyst. “That did not happen.” As P&G cut down on reach in haircare (down from 3.1 lakh rural outlets and 5.4 lakh urban outlets in 1997 to 1.8 lakh and 4.6 lakh respectively by the fourth quarter of 1999), Levers made inroads. Its gains, obviously, came from sachets. Sachets account for 70 per cent of shampoo sales. Levers has a line of investments lined up in sachets, which began with the launch of a Re 1 sachet in late 1999. P&G’s premium strategy, which emphasizes bottles, leaves a question mark on growth, argues a Levers manager. Alongside, Levers bombarded the marketspace with relaunches and other product innovation. P&G’s overall share fell from 18 per cent (value) to 12 per cent when the market stagnated at Rs 750 crore while Levers grabbed a claimed 8 percentage points . Pantene suffered more. ...what next?
“What moves this market is innovation and advertising,” reasons the Levers manager. “You have to bring something new everytime. Pretty little was seen as novelty from P&G.” But that is just what P&G is now trying to address. “P&G has never been able to react fast or to counter every Levers move because of its consistent problems of ROI,” explains the ex-P&G employee. “Gain (relaunched Ariel Supersoaker) took a year to be launched,” she adds. Can P&G stem the slide? People are a core issue. “The employee turnover has been on the rise,” explains another former employee. “It was 15 per cent last year. This year, it is expected to go up further ,” he says. It will work only if, besides reining in costs, the strategy can increase P&G’s speed of response. And if P&G can get the right brand pull. Ariel is a good example. It was set on an uphill path by Chaitra Leo Burnett in the last year or so by some earthy communication that addressed core consumer issues. Cuing on to consumer issues and converting them into need-fulfilling products has long been Levers’ ace. P&G will have to match that. While the premium strategy can help it address all this, the real test will be the launch of new brands. Because, as the market sees it, “ this is a maintenance strategy, not one aiming for growth”
