Leveraging scale with the retail trade

Everyone recognizes that retailers are becoming more and more powerful, demanding more price concessions from manufacturers while themselves marketing private brands of higher and higher value to consumers.

Most manufacturers respond by dumping cash into the retailer’s wallet. P&G responds by leveraging its scale. P&G is investing tens of millions of dollars in Supply Chain efficiencies to become the low-cost distributor, developing innovative distribution concepts and then “marketing” their advantages to retailers with sophisticated Activity Based Costing software tools.

In addition, high volume from multiple categories permits P&G account handlers at all levels to offer retail customers benefits such as:

Account-specific consumer research

Major theme events with genuine substance which make the retailer look good to their consumers (e.g., the Women’s Health Initiative at Wal*Mart)

Multi-category consumer studies (e.g. Mothering)

Software analytics

These are programs that have a high perceived value to the retailer and reinforce P&G’s competitive advantages. Of course, these programs are most aggressively sold to the more enlightened retailers who are gaining share in the marketplace. In fact, gaining share with growing retailers is another major P&G strategy.

Use Corporate-funded Projects to leverage scale

Leveraging scale also means committing to ambitious corporate projects paid for from the top rather than requiring budget-constrained brands or divisions to commit their funds to projects too costly for them to consider. Massive IT projects are the classic example.

P&G is willing to mandate corporate top-down programs where rivals like Unilever and Nestle require countries, brands or sectors to bear the financial burden for costly projects of long-term value to the entire corporation. As a result, at P&G such projects get done relatively quickly while competitors take months (sometimes years) of internal negotiation.

The advantage P&G realizes by the top down leverage of scale is similar to that described by Lou Gerstner in his recent book (“Who Says Elephants Can’t Dance? Inside IBM’s, Historic Turnaround”) Gerstner underscored the necessity of top down pressure to change IBM”s highly compartmentalized structure which paralyzed that company.

Gerstner made the point that the corporate center forced the regions and divisions to organize around the external customer’s needs, and that this pressure broke down IBM’s self-destructive internal silos.

P&G would certainly agree that organizing around its customers, as with the famed Wal*Mart team, has helped it break its internal silos. But more generally, P&G uses corporate leadership -from small, agile corporate groups and not armies of bureaucrats -to create paradigm breaking initiatives that local countries and individual divisions can’t contemplate and can’t afford.

Leverage scale with specific Consumer Cohorts

Another example of P&G’s leverage of scale is the focus on high-value consumer cohorts with intense needs. So far, the company has highlighted primarily young mothers, teenagers (especially girls) and seniors. These consumer cohorts have two things in common. First, they cross multiple P&G global business units and represent important profit potential for all of them. Second, they are prime long-range strategic targets for powerful but costly internet-enabled consumer relationship marketing. P&G is amassing names and developing programs to capture these critical marketing entry points. The little publicized internal “Tremor” group is one manifestation of using corporate scale to market to the level of the individual. Only a company with scale and the willingness to leverage it can generate the multi-category profit potential to justify marketing at the level of the single pocketbook.

Systemic strategies that use scale to overcome inertia

Scale brings its problems, and one of these is typically bureaucratic inertia. In fact, it has often been the case for large corporations that “Scale = Inertia”. P&G has five sub-strategies to use scale to overcome bureaucratic inertia. Use inertia-busting IT enablers, especially in marketing

Embed marketing processes in software

Learn locally but act globally and do it fast

Organize around multi-functional teams

Leverage suppliers through partnerships

Taken together, these five sub-strategies are transforming the pace at which P&G is moving ahead.

Use systems in marketing. No other global company, with the possible exception of IBM, is leveraging scale to build systems to accelerate marketing and sales. This use of systems extends to the critical area of marketing process.
Embed marketing processes in software. P&G is embedding its “best practice” marketing process in software and is years ahead of its competitors. Diageo has done a remarkable job of codifying its processes, but they exist on paper, not in digital, collaborative, at-the-speed-of-electrons form.
Embedding processes in software – and organizing around that software -brings enormous advantages across the organization by elevating everyone up to a proven way of building brands. It even works to leverage local knowledge so important in many categories.

By mandating a process, P&G can insure that local managers address what’s globally common as well as what’s locally important. In other words, process directs what gets considered; the individual marketer creates the plan relevant to the local market. P&G even has a sophisticated process for launching brands globally but leveraging local market variations.

Learn locally but act globally.

P&G is a latecomer globally. The company does not have the experience, marketplace position, or international heritage of a Unilever or Nestle. But the company is totally committed to thinking and acting globally. P&G no longer sees itself as a U.S. company with “overseas” operations. Oddly, its top-down, Cincinnati-driven culture helps in this regard because the company does not have to overcome the ego and prerogatives of an entrenched country-based culture.

This new global ethos is enabled by common global processes deployed through a common IT infrastructure. Of equal importance are two relatively new aspects of the P&G organization--its remarkable international and multi-cultural staff and its use of multi-functional teams. Every global business unit is international in character. The global head of Hair Care is an Austrian. The head of Hair Care U.S. is an Indian. And so it goes. Many people are surprised to learn that forty percent of P&G’s R&D occurs outside the U.S., executed by a lower-cost (but often U.S. educated) work force.

Organize around multi-functional teams. Equally striking is the company’s development of multi-functional teams that run businesses on a regional basis and interact with their counterparts in other regions to identify problems and successes so that they may be swiftly addressed or expanded.

These multi-functional regional teams collaborate using common processes that are increasingly software-enabled. One common objective of these strategies is to decrease cost in price-sensitive categories like diapers, coffee and detergent.

Leverage suppliers through partnerships. Everyone understands that P&G leverages its scale in buying media and raw materials. Less well understood is the company’s new strategy of leveraging supplier’s capabilities through unique partnerships like the one with BASF.