P&G announced this week that it was dramatically shrinking its brand portfolio. According to an article in the Wall Street Journal, the company will drop almost 100 brands, focusing on just its top 70 to 80. This is a huge strategic move for the company and a significant change. It is also very risky.
On the surface, the strategy makes perfect sense. P&G is keeping brands that make up over 90% of its profit. After the pruning, it will still have dozens of brands. And P&G needs to try something different. In 2009 it had net income of $10.7 billion. Last year it net income of $11.3 billion. This is disappointing growth, so a change is in order.
The problem is that this strategy is more risky than it seems.
The first issue is that focusing on fewer brands assumes that you can hold onto customers as you trim the portfolio. In theory, when you drop a brand of detergent, customers will purchase one of your other brands. In reality, this just isn’t the case. A brand can’t be all things to all people. Some people like Old Spice. I don’t care for its fragrance positioning. If you drop Gillette, I won’t start buying Old Spice. I will buy something else.
The second problem is that having fewer brands opens up opportunities for competitors. Crest can appeal to certain customers but it won’t appeal to everyone. This gives other companies an opportunity to attack P&G by targeting specific customer segments and stealing share. For P&G’s competitors, the new strategy is great news.
Another issue is that getting rid of brands isn’t as simple as it sounds. If you stop using a trademark another company can start using it. P&G can’t get just rid of Era or Cheer. If they stopped using one of the brands a competitor could pick up the trademark at no cost and bring it back to life.
Finally, defending a business and innovating often require new brands. One way to address a competitive threat is to launch a similar brand. A big innovation often warrants a new name. With a narrow portfolio, P&G may not be able to react quickly as conditions change.
P&G CEO A.G. Lafley noted in the WSJ article, “I’m not interested in size at all. I’m interested in whether we are the preferred choice of shoppers.” This is a good thought. The problem is that focusing on fewer and bigger brands assumes that these will be the preferred choices for shoppers all around the world. I fear that won’t be the case.