‘Product superiority’ allows P&G to pass on price increases

Procter & Gamble’s emphasis on product superiority and communication of the associated benefits have enabled it to pass on price increases without – so far – any reaction from consumers.

Why it matters

Speaking during a Q3 earnings call, chief financial officer Andre Schulten acknowledged the situation could change in the future but reported that price elasticities have been better than expected. “Demand for our best-performing, premium-priced offerings remains strong.”

At the same time, P&G is careful to offer different price levels within and across brands to encourage “continued trade-in and continuous trade up”. It is also ensuring distribution across all channels (including hard discounters in Europe and the dollar channel in the US) so that it is in the best possible position to deal with potential consumers who are budget constrained.

Takeaways 

• Organic sales grew 10% in Q3, driven by price increases which added 5 points of sales growth (ahead of 3 points from volume and 2 points from sales mix). 
• As input costs continue to rise, more price increases are in the pipeline, but those decisions will be “very specific to the category, the brand and sometimes to the individual SKU”. 
• At least some of those price increases will be linked to innovation that offers consumers more value and “fully-funded advertising programs” will seek to link product superiority and value superiority.

Key quote 

“There are a lot of mileage benefits in some of the higher-priced products that we need to proactively communicate … the assumption that just because something is higher priced, it costs me more per job is not a valid assumption, and we have to help people understand that” – Jon Moeller, CEO, Procter & Gamble.

[Image: Procter & Gamble]