Procter and Gamble

Procter & Gamble (continued)

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History of Procter & Gamble

In the early years of the 19th century, William Procter and James Gamble were among the thousands of immigrants attracted by the promise of a better life in the new United States. An Englishman and an Irishman respectively, they were each separately on their way across the US to the frontier land of the West, but broke their journey in Cincinnati, then being transformed into one of the country's biggest meat-packing centres under the nickname "Porkopolis". By sheer chance, Procter and Gamble fell in love with and married sisters Olivia and Elizabeth Ann Norris. Their father-in-law persuaded them not just to settle in the fast-expanding city but also to combine their skills as a candlemaker and soapmaker and set up in business together. In 1837, in the midst of a bitter recession, the partnership of Procter & Gamble was formed. The fledgling company survived not just the recession but also the Civil War which followed. In fact, that war brought considerable benefits as lucrative government contracts for soap and candles pushed sales through the $1m barrier.

By the late 1870s the business was being managed by the founders' sons. In 1879, James Norris Gamble developed an inexpensive hard white soap of a similar quality to imported castile toilet soap, but made from vegetable oil rather than exorbitantly expensive olive oil. Better still, it was pure enough, and cheap enough, to be used for laundry and other general cleaning purposes as well as for personal washing. This was a significant issue at a time when most general purpose soap was made from animal fats. (Bluntly highlighting its benefits, an early ad for Procter & Gamble's soap asked "Are you certain that the plate you eat and the cup you drink from have not been washed with soap made from diseased cattle?"). Gamble's cousin Harley Procter, who supervised the marketing of the company's products, named the new soap Ivory. A national advertising campaign was launched during the following decade, highlighting not just the soap's purity ("99 44/100% pure"), but also the fact that it floated on water, thus avoiding the risk of being lost in the bath or laundry tub. The latter attribute, an entirely accidental by-product of the way the soap was made, turned out to be its most memorable feature as far as the public was concerned. Other soap manufacturers soon replicated the purity of Ivory, but no other competitor could compete with this additional gimmick. By the 1890s, Ivory was being advertised simply as: "Ivory Soap. It Floats."

The success of Ivory encouraged the partners to establish their own research laboratory in 1890, the first such dedicated facility in the United States. A stream of innovative new products followed. By experimenting with other chemical processes involving vegetable and cottonseed oil, the company developed a way of "hydrogenating" liquid oils to produce a solid cake. This led to the creation of Procter & Gamble's first food product, a shortening for baking made entirely from vegetable oil. Unlike lard this new product, launched in 1912 as Crisco, didn't go rancid, didn't taste of meat, and was far cheaper than butter for making cakes. However it was also a complete change of pace for a soap and candle company, so for the first time, Procter & Gamble looked beyond its inhouse resources, appointing the advertising agency J Walter Thompson to come up with ways of selling it to the public. Thompson's Stanley Resor and Helen Lansdowne came up with what was then the biggest advertising and sampling campaign ever attempted in the United States, as well as a series of ads which proclaimed Crisco as "An absolutely new product. A scientific discovery which will affect every kitchen in America." It was to be P&G's first and last involvement with JWT, which subsequently became one of the main agencies for arch-rival Lever (later Unilever).

The next milestone in Procter & Gamble's development was the creation of its first perfumed beauty soap, designed to compete with established brands Lux (from Lever Brothers) and Cashmere Bouquet (from Palmolive). At least partly emulating a similar move the year before by Lever Brothers, P&G mounted a huge research project to determine the correct approach for this new launch. The company sent out hundreds of researchers to conduct door-to-door interviews with literally thousands of housewives all over America. These women were asked to give their views on everything from the shape of the bar and its perfume to the design of the wrapper and even its name. First choice for the brand was Cameo, but when this was found to be already trademarked, the company selected instead Camay, launched in 1926. This new product also gave the company its first experience of brand management, since Camay had to be clearly differentiated from P&G's existing Ivory, still its flagship product.

In 1930, P&G took its first steps outside North America, with the purchase of British manufacturer Thomas Hedley & Sons, makers of Fairy Soap. Five years later, a factory was established in the Philippines. The company also continued to experiment with new chemical processes, refining its soap ingredients to produce first flakes and then granules, which dissolved much faster in water.

During the 1920s and 1930s, P&G was one of the United States' most adventurous marketers. That process had begun with the huge research effort put behind the launch of Camay, but it was quickly applied to other products as well. Many of the women interviewed for Camay had said they listened to the radio while doing the housework, but wanted to be entertained not instructed. This inspired the idea of creating a program that would run at a time when housewives were listening and would create a happy association between entertainment and P&G's products. The company tested the water in 1933 with "Ma Perkins", a radio serial about a widow forced to juggle financial and family problems, which also promoted the company's Oxydol laundry detergent. This proved so popular with listeners that P&G quickly commissioned a string of other radio shows for its products (though none came close to matching the popularity of "Oxydol's Own Ma Perkins", which ran for 27 years).

These programs quickly became known as "soap operas" because of their combination of high emotional drama with product endorsements for detergent. By 1939, P&G's radio department was producing no less than 21 separate radio shows every week. Also that year, just five months after the introduction of television, P&G aired its first TV commercial (for Ivory soap) during the first televised major league baseball game. (The company remained faithful to soap opera, sponsoring daytime US TV dramas, including the longest-running series of all, As The World Turns, right up to the beginning of the 21st century. ATWT finally ended in September 2010). Neil McElroy, the marketing manager responsible for P&G's innovations in the 1930s rose to president of the company, before becoming US Secretary of Defense from 1957 to 1960. He returned to P&G as executive chairman until his death in 1972.

By 1945, P&G's sales had reached almost $350m. The first year of peace after World War II marked an important watershed for the company. Although it had achieved some success with the launch of Dreft a decade earlier, that product had significant disadvantages as well. It lathered in hard water, but it wasn't especially effective at removing ground-in dirt from fabrics. However, P&G's scientists continued to refine the chemical processes involved until they finally came up with a new formulation that was capable of handling all kinds of dirt. In 1946, P&G launched Tide, the so-called "washing miracle". Cheaper than rival products, but also far more effective at removing dirt, Tide took the US by storm, stealing market-leadership from then-dominant Unilever within four years. This triumph for P&G marked a new phase in what now became a furious rivalry with the Anglo-Dutch combine.

In 1955 Crest was introduced. It was another breakthrough, the first toothpaste with fluoride clinically proven to fight cavities. In an unprecedented marketing coup, P&G eventually won an endorsement from the American Dental Association, and this seal of approval quickly gave the product leadership of the sector. In 1957, the company acquired bleach manufacturer The Clorox Company. However that purchase was subsequently over-ruled by regulators and Clorox was spun out again in 1969. Also in 1957, P&G bought toilet tissue maker Charmin Paper Mills, and this division was responsible for the invention of the first disposable mass-produced diaper, Pampers, in 1963.

The company also strengthened its existing businesses, expanding into new food and beverage categories, most notably with the acquisition of Folgers coffee in 1963, and building on its strong laundry reputation with Downy, its first fabric softener. There was also a growing focus on international businesses. Convinced that success in new geographic markets required on-the-ground operations, P&G began building start-up businesses, first in Mexico, then in Europe and Japan. By 1980, P&G was doing business in 23 countries around the world with sales of nearly $11 billion.

The 1980s and 1990s saw further diversification as P&G moved aggressively into healthcare and cosmetic products through the acquisition of Norwich Eaton Pharmaceuticals (Pepto-Bismol, Chloraseptic and Dantrium) in 1982; GD Searle (makers of Metamucil) and Richardson-Vicks (Vicks, Pantene shampoo and Olay) in 1985; Noxell (Cover Girl, Noxsema and Clarion), Max Factor, Shulton (Old Spice) and Ellen Betrix in the late 1980s and early 1990s. Richardson-Vicks and Max Factor, in particular, dramatically expanded P&G's international presence. The $1.8bn acquisition of Tambrands, makers of Tampax, in 1997 made P&G the world #1 in feminine protection.

One key to the group's success in the early 1990s was a constant process of rationalisation, stripping costs and unnecessary bureaucracy to improve efficiency, and selling off underperforming product lines. Between 1990 and 1995, P&G's president Ed Arzt presided over wide-ranging cost-cutting programmes which greatly enhanced the company's efficiency and profitability, but also resulted in poor staff morale, earning Arzt the nickname of "the Prince of Darkness". The title was also a reference to a long-standing but wholly fictitious allegation that P&G funded the Church of Satan, and that this "fact" was reflected in their moon-and-stars logo. This story first began circulating in 1980, and in 1996 P&G sued rival manufacturer Amway for propagating the absurd myth which continues to circulate even now (see Urban Legends for more). The two companies launched a series of suits and counter-suits. In 2003, a federal court finally begged the two sides to stop suing each other, and in 2007, four former employees of Amway were ordered to pay P&G $10m in damages.

Arzt's successor from 1995, John Pepper, presided over a period of consolidation and internal reconciliation mid-decade, but sales stayed flat. The appointment in 1999 of new president Durk Jager, a former Arzt protege, was widely interpreted to signal a shift back towards aggressive expansion. P&G issued a promise to double sales to $70bn by 2006, relying on growth within the core businesses, and expansion into Eastern Europe, China and South America. In order to achieve this, the company announced an ambitious global restructuring of its business to streamline the operation further. P&G moved from its previous structure of four regional divisions each handling all product lines, into seven worldwide divisions each specialising in one product segment. Shortly afterwards the company announced that it would shed 15,000 jobs - or almost 14% of workforce - in order to make savings of $900m annually.

Yet for the next four years, P&G was plagued by flat sales and a lack of dynamic growth. Acknowledging that it had not launched an important new brand since Always in 1984, P&G promised to streamline its product development operation as well to introduce brands worldwide more quickly. Yet none of the launches which followed caused much of a stir with consumers. Dryel was a home cleaning aid for dry-clean-only clothing; Swiffer, an innovative, dust-attracting cleaning cloth. Both were rolled out worldwide, but Dryel was later dropped in Europe after disappointing sales, and subsequently sold. P&G's best-selling US deodorant Secret launched into Europe the same year but was later pulled from the market in several territories when it failed to capture significant market share. Other underwhelming innovations included Impress plastic wrap, Fit Fruit & Vegetable Wash and ThermaCare disposable heat wraps.

Meanwhile the company continued to bolster its portfolio through acquisition. In 1999, P&G announced a move into the petfood market with the $2.3bn purchase of The Iams Company. In the same month, the group paid $265m for PUR drinking water filtration systems. The group also strengthened existing product lines, acquiring various regional businesses including Taiwanese manufacturer Long Chen Paper, maker of Delight and Tender facial and bathroom tissue. The company was also briefly drawn into discussions about a possible three-way merger with drug companies Warner-Lambert and American Home Products (now Wyeth).

In a bid to improve profitability, the group began a wholesale restructuring of its brand portfolio, offloading products with limited international potential. These included Hawaiian Punch fruit drink (to Cadbury Schweppes), Attends adult incontinence products, Oxydol laundry detergent, Chloraseptic throat spray, Prell shampoo, Comet kitchen cleaner, skin care brand Clearasil (to Boots), Spic'n'Span, Cinch, Frymax and Whirl oils, and European skincare brands Biactol and Topexan. In a further bid to boost efficiency, P&G waved its marketing clout and told its agencies it would no longer pay commission. Instead, the company moved towards a incentive system based on global sales for specific brands, instead of a percentage of spend. Yet by early 2000, it had become apparent that none of these policies was achieving the required goal of kickstarting growth. In March the group's shares crashed by 30% when the company issued a shock profits warning. A few months later P&G was forced to admit that it had seriously misjudged its strategy, issuing another profits warning, and announcing the resignation of Durk Jager after only 18 months. John Pepper came out of retirement to take back the role of chairman, while AG (Alan) Lafley, president of the beauty care division, was promoted to CEO.

It took Lafley some time to find his feet. In 2001, the group made the startling announcement that it was spinning off its Sunny Delight and Pringles brands into a new stand-alone joint venture with Coca-Cola. Yet the Coke deal was later abandoned in the face of opposition from Coca-Cola investors who felt they were getting poor value. Another embarrassment was the failure of a high-profile launch of a new range of cosmetics under the Olay brand. Despite these setbacks, P&G announced its biggest ever acquisition in May 2001. After several months of negotiation, the company agreed to buy the Clairol haircare business from Bristol Myers-Squibb, outbidding Japanese rival Kao Corporation with a whopping $4.95bn in cash. Clairol's weak subsequent performance led to accusations that P&G had overpaid. Mid-year the group was yet again embarrassed when it was forced to admit that executives in its haircare division had employed a corporate intelligence agency to spy on Unilever, even searching the rival company's litter bins looking for discarded documents. P&G reported its first loss for 12 years in the final quarter of fiscal 2001. Shortly afterwards the group announced another round of brand sales: Jif peanut butter and Crisco cooking oils, facial cleanser Sea Breeze, Ammens talcum powder, Vitapointe hair creme and Condition 3-in-1 styling aids. In addition, the company's Impress food wrap business was transferred into a new entity controlled by Clorox.

If P&G did little more than tread water in 2001, it finally began to rediscover its way forward the following year. In 2002 CEO Lafley pushed forward a series of initiatives designed to return focus to the company's established brands. The attention given to uninspired new launches during the late 1990s had caused performance of core products such as Pampers, Crest, Tampax and others to stall. Lafley gave new impetus to expanding and developing these staples of the business, cutting prices and boosting innovation in order to beat back competitors which had stolen P&G's market share over the previous few years. Performance began to improve even before the end of 2002, and has continued to bolster sales and profits ever since.

Meanwhile the acquisition drive continued. In 2003, after months of negotiation, P&G was able to finalise an agreement to acquire the controlling stake in German haircare giant Wella from its family shareholders. Another German brand, Nivea, slipped out of P&G's grasp. Having spent several years negotiating with Nivea's owners Beiersdorf regarding a takeover, a consortium led by Tchibo, already a minority shareholder in Beiersdorf, bought out controlling shareholder Allianz for €4.4bn. In 2004, P&G bought out its minority partner in China, Hutchison Whampoa, for $1.85bn. At the beginning of the following year, the group announced its biggest deal to-date, offering to buy The Gillette Company for around $53.4m in shares. The deal was approved by regulators with only a small number of adjustments, and was completed in October 2005.

Over the next few years the group gradually adopted a more streamlined structure with twin teams responsible for operations and brand building respectively, reporting to CEO Lafley. The brand building team was headed by Susan Arnold. Formerly vice chair & president, global beauty care, oral care, personal health and pharmaceuticals, she took up a new central role as president, global business units in July 2007. Operations were overseen by Bob McDonald, named as chief operating officer at around the same time. The two were widely seen as rivals for the top job. That competition finally came to an end in March 2009, when Arnold announced her resignation. A few months later, Bob McDonald was named as new group CEO. See first page for current activities

Last full revision 19th April 2017

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