P&G sharpens R&D focus

31 October 2011

CINCINNATI: Procter & Gamble, the FMCG giant, is basing its innovation strategy on a highly precise segmentation of consumers, as it seeks to drive growth in a challenging climate.

Speaking on a conference call, Bob McDonald, P&G's chief executive, suggested innovation – subject of Warc's new global prize – was vital given the situation in nations like the US remains similar to that which took shape during 2008.

More specifically, he argued the current "bifurcation" means affluent shoppers continue to spend on premium lines as their cost-conscious peers "find ways to cope", often by shifting channel or brand.

"That's one of the reasons it's so important for us to have a vertical portfolio of brands," McDonald said. "We know that the consumer is very sensitive in these economic times to innovation."

In response, P&G has introduced offerings such as Tide Total Care, a top-end laundry product, and Era, in the same category but targeted at people with lower disposable incomes.

"The way we think about innovation is we innovate through each discrete consumer segment all along that price or value-tier portfolio," McDonald said.

"The company that figures out consumer segmentation and innovates to that segmentation generally wins, and the company that does that generally is the one with scale."

Alongside an annual research and development budget of $2bn, Procter & Gamble directs $400m a year to generating customer insights, which are crucial in a rapidly-evolving marketplace.

Other examples of successful launches cited by McDonald were Crest 3D White in the dental care category, Downy Unstoppables in-wash "scent boosters" and the Fusion ProGlide razor.

Elsewhere, the premium Tide PODS laundry tablets, containing several proprietary technologies, are hard for rivals to copy, and have been reported to deliver a better experience by 90% of shoppers.

"When we get it right, when we get the consumer segmentation right, when we get the innovation right, consumers are looking for these kinds of innovations to improve their lives," said McDonald.

"No competitor can match that segmentation. No competitor can design the technology to meet the consumer need in that segmentation. That is a competitive advantage that leads to share growth and profit growth over time."

Data sourced from Seeking Alpha; additional content by Warc staff