P&G - Leveraging Web 2.0 to Sell Pre-Web Products
Note: this post was
carried today on Wallstrip
Overview
Beauty is in the eye of the beholder, and P&G’s stock price
performance has been something to behold. And this from a “boring”
consumer goods conglomerate that counts diapers, shampoo, and recently
acquired disposable batteries and men’s grooming products among the
assets in its portfolio. It’s not difficult to imagine why first year
Investment Banking analysts dread being placed in the consumer products
vertical. Who could possibly want to cover a company whose biggest
revenue generator is laundry soap? But hey, they make a ton of cash,
and are a virtual Harvard case study on the value of intangible assets.
IBM might have the largest patent portfolio, but who has the largest
intangible asset portfolio? Without running a number I would hazard a
guess that P&G is near the top of the pack. And not wanting to be
complacent, Management has been working overtime to extend its brands
and to deepen its products’ appeal to the massive and massively
profitable 15-34 demographic. How? By becoming a Web 2.0 company. And
it is this adaptive behavior which gives P&G a decidedly growth
stock luster.
Bringing Active Management to the Brand
P&G, throughout its long history, has changed the model of consumer decision- making. And Neil McElroy, former President of P&G, was the individual who changed the face of marketing forever.
The shift to brand management began on May 13, 1931,
with an internal memorandum from Neil McElroy (1904-1972), an athletic
young man who had come to P&G in 1925 right after his graduation
from Harvard College. While working on the advertising campaign for
Camay soap, McElroy became frustrated with having to compete not only
with soaps from Lever and Palmolive, but also with Ivory, P&G’s own
flagship product. In a now-famous memo, he argued that more
concentrated attention should be paid to Camay, and by extension to
other P&G brands as well. In addition to having a person in charge
of each brand, there should be a substantial team of people devoted to
thinking about every aspect of marketing it. This dedicated group
should attend to one brand and it alone. The new unit should include a
brand assistant, several “check-up people,” and others with very
specific tasks.The concern of these managers would be the brand, which would be
marketed as if it were a separate business. In this way the qualities
of every brand would be distinguished from those of every other. In ad
campaigns, Camay and Ivory would be targeted to different consumer
markets, and therefore would become less competitive with each other.
Over the years, “product differentiation,” as businesspeople came to
call it, would develop into a key element of marketing.
Brand Management.
That’s P&G’s entire business model. Create the perception of value
through brand management and a fundamental understanding of consumer
behavior. Flip through P&G’s 10-K, and it’s no surprise that the
number one risk factor is “material change in demand for products.”
Trivial, but important since the consumer pays a massive premium for
the label. P&G needs its consumers to associate brand names with
goods, and that means establishing the connection at the optimal time.
Bringing Web 2.0 Techniques to Brand Management
As you know, I am a big buyer of methods by which investors can
leverage the internet (Web 2.0 tools and content) to make better
investment decisions, but this article I came across was yet another reminder of how corporations can leverage social media to boost their profits.
Procter & Gamble’s Crest Whitestrips is giving
college students something to really smile about this year with Smile
State — its new sponsored group on Facebook.com. The group is giving
undergrads at 20 select campuses across the nation VIP access to
concerts, other exclusive events, promotions, contests,
behind-the-scenes web content and more, all for free. All they have to
do to join in on the fun and collect prizes is become a member of Smile
State.The benefits of joining are many, culminating with the chance for
four campuses to win a stop on the Smile State Tour. At the end of the
first semester, the four schools with the largest Smile State
membership will score an exclusive concert on their campus featuring
the latest acts from Island Def Jam all happening at the close of the
fall semester. In addition to the tour, each of the 20 chosen schools
is guaranteed to receive two free VIP pre-release movie screenings
right at their school and Smile State is also tapping into the latest
competitive craze and hosting rock, paper, scissors contests on select
campuses, all of which will be open only to Smile State members.
Facebook Groups are mini-communities within the social networks.
They allow users to post on discussion boards, send out mass emails,
and general promote their interests. Facebook recently allowed
corporations and organizations to build their own groups for a nominal
fee, with some Groups (like Apple) surpassing half a million users.
With such an addictive tool on every college student’s monitor, you can
be sure they’re getting the most bang out of their buck.
A study conducted at CalTech explains how brand loyalty has little to do with quality of the product and more with emotions.
Subjects of the experiment were shown images of
different brands while undergoing a brain scan. The images cause a
reaction in an area of the brain tied to social image and identity.Michelle Nelson, who is a University of Wisconsin assistant
professor of journalism and mass communication, said the use of brain
scans in the field of market research, or neuro-marketing, confirms how
important brand images are to consumer behavior.“This work actually shows the power of brand perceptions,” Nelson said.
It goes on to say that college-age kids (who are nearing the point
of financial independence) are a particularly important target.
Conclusion
I realize that this Facebook group of less then 10,000 users (even
if they ALL purchased massive amounts of Crest Whitestrips) will have
nothing more than an infinitesimal effect on the stock price. The point
is that with this relatively inexpensive advertising technique, P&G
has potentially created a portfolio of perpetuities, solidifying
revenue streams for years to come – that’s what their business is all
about. Multiply this a couple million times and your position in
P&G will pay enormous dividends for years to come. It is
Management’s willingness and ability to meet its rapidly changing
markets head-on that is most impressive. Bringing Web 2.0 techniques to
a pre-Web company - this is a good story that is only getting better.
Thanks to Rick Calmon for his assistance with this post.
The author does not have a position in the securities of Proctor & Gamble.
