Procter and Gamble’s Internet Strategy
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Procter & Gamble (P&G) is testing its ability to use the internet to sell its toothpaste, household cleaners and nappies directly to US households, in a potential long-term strategic challenge to its retail partners according to Financial Times article titled P&G web move is challenge to retailers dated October 19th 2008. The article notes that P&G is supporting a website, theEssentials.com, that is exclusively selling its brands, with items such as single tubes of Crest toothpaste and bottles of Mr Clean cleaning fluid, to boxes of its Pampers and Luvs brand nappies and Gillette razors.
As internet become ubiquitous and more and more consumers become comfortable ordering online, direct to consumer sales using Internet will become mainstream sales channel. In beauty products, P&G’s rivals L’Oréal and Estée Lauder have been selling on the web for some time. Other leading consumer brands, including Kellogg’s, have formed close partnerships with Amazon to drive bulk sales. This move brings P&G into direct brand competition with its retailers, underlining the extent to which e-commerce is contributing to changes in the way the two sides have traditionally worked with each other. This is an interesting development. How will P&G communicate to its retailers that this direct to consumer retailing is non- threatening to their relationship? The article also notes that P&G’s largest retail customer, Wal-Mart, is hiring a strategy executive whose tasks include assessing the potential effect of direct-to-consumer sales by its own suppliers. Retailers will also be pressured to evaluate their strategy of selling private label brands. For consumer packaged goods companies, industry analysts argue that direct online sales are also a way to respond to lower prices from retailers’ private label brands.
With the onset of global recession due to financial meltdown, the global consumers will be forced to evaluate the price premium they pay for the brand. Value for price becomes an important criterion for the consumers forcing them to migrate to private labels (in the US and Europe) and local labels (in the Emerging Market). Global Consumer Staples companies like P&G, Johnson and Johnson, Colgate etc. will be pressured to reduce price. Direct selling to consumers using Internet (especially in the US and Europe that have good Internet infrastructure) is a smart strategy to lower cost to the consumers and thus reducing competitive threat by the private label companies in this tough economy.
It will be interesting to follow if and how the retailers will retaliate.
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Sunday, October 26th, 2008 at 7:50 pm and is filed under Internet Strategy, Marketing Strategy, Globalization, Business Strategy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
