It turns out that Robert McDonald, CEO and President of Procter & Gamble, is a former military man with two missions: win back ground his company has lost as thrifty shoppers opt for cheaper products, and to invade foreign markets currently dominated by CPG rivals Colgate and Unilever.
Supported by massive ad budgets and ubiquitous distribution, P&G has in the past managed to persuade consumers to pay more for household basics. But a combination of the recession, consumers’ ability to engage with brands in the absence of traditional advertising, and increased brand commoditization has severely undermined that strategy.
More than two-thirds of consumers say they switched to a cheaper brand for at least one basic household product this year alone. And while consumers’ day-to-day spending more-and-more reflects persistent penny-pinching and a search for added-value that only a truly resonant brand can deliver, P&G’s response was to slash prices. Among the premium brands P&G has discounted were Tide, Charmin TP, and Bounty paper towels.
Is this surprising? Well, maybe. But the problem is more than just the recession. Or the habituation of frugality. Certainly the current economy gives people a reason to look for savings where they see no discernible differences, but the development of brand meaning, engagement, and loyalty to a brand shouldn’t be discounted either. Yes, yes, there are always those who will buy purely on price, but a loyal customer is six times more likely to rebuff competitive offers, especially price-based offers.
We track two of the price-promoted categories in our Customer Loyalty Engagement Index and here’s how brands currently rank when it comes to the value of the brand itself:
1. 7th Generation / Bounty
3. Basic / Brawny
5. Mardi Gras
For Laundry Detergent, there’s a bit more differentiation:
7. Era / Bold
8. Arm & Hammer
So is a price war the way to go? Getting consumers used to paying less for more makes it very difficult to compete and make a solid profit, unless you can really provide differentiation and value. But ultimately investing in what drives loyalty is where a brand can clean up.