P&G's Strategic Shift: Focusing Marketing Efforts on Growth-Driven Categories

P&G

Procter & Gamble is utilising its marketing investment to grow categories as it pursues volume growth this year.

The consumer goods giant, known for brands like Febreze, Head & Shoulders, and Pampers, increased its marketing spend by around 14% compared to the previous year in the third quarter, which ended on March 31, 2024. This increase in investment is part of P&G's efforts to achieve volume growth this year.

In the third quarter, the volume and product mix across the business remained unchanged. Product mix refers to the different types of sales made by P&G, with more profitable sales contributing to a higher product mix. The company experienced decreases in volume sales in the baby, feminine, and home care category, which it attributes to consumers responding to higher prices.

P&G's leadership has been focusing on increasing volume growth this year as inflation normalizes and the impact of pricing decreases. During the quarter three results call last week, chief financial officer Andre Schulten discussed the role of marketing investment in driving volumes.

Schulten highlighted that one of the areas of investment focus for the business is "expandable categories." He used the example of the company investing in its Swiffer PowerMop, which has attracted new users to its Febreze plug-ins.

“Those marketing investments grow the market, and they grow our share within the market,” he said.

With many of its brands being market leaders, P&G’s goal is to drive category growth.

"Our main focus is to continue growing ahead of the competition by increasing market growth. This will help us gain a larger share of the market," Schulten explained.

He also mentioned that advertising spend is important in achieving this goal, but it is most effective when combined with other strategies.

"According to him, a combination of valuable consumer insights, an excellent product, attractive packaging, and effective communication all contribute to achieving significant growth.

Even though the company is investing more in marketing to drive sales, Schulten emphasized the importance of prioritizing return on investment for these expenses."

“We will not spend if there’s no ROI,” he stated, echoing his sentiment from last July when he claimed the business would be “100% ROI driven”.

Pairing pricing with innovation

In July 2022, Procter & Gamble announced plans to raise prices in response to the rapid growth of inflation. The company aims to balance these price increases with innovative strategies to prevent consumers from switching to cheaper brands.

Procter & Gamble has emphasized the importance of maintaining product superiority as a way to protect its market position. Despite experiencing some decline in sales volume due to pricing adjustments in the third quarter, the company believes that prioritizing product quality is key to sustaining success in its industry.

"We haven't been able to fully implement our innovative ideas and maintain a competitive advantage in pricing. But when we do, customers respond positively," he mentioned, acknowledging that the company is aware of what needs to be improved.

In Europe, the company experienced a 7% growth in its key markets, with a notable four-point increase in volume. Schulten pointed out that this region excelled in strategic pricing and successfully implementing price adjustments.

The business has remained strong due to the team's consistent execution, continuous innovation, and strategic pricing decisions. The team's hard work has resulted in strong productivity across all areas of the business, minimizing the need for excessive pricing adjustments. They have executed pricing changes effectively, while also considering key price points, retailer preferences, and consumer constraints. This approach has been successful and is yielding positive results.

Editor's P/S:

Procter & Gamble's increased marketing investment is a strategic move to drive volume growth amidst inflationary pressures. The company recognizes the importance of category expansion, utilizing its leadership brands to attract new users and grow market share. By focusing on expandable categories, P&G aims to increase the overall size of the market, benefiting both the company and consumers.

P&G's emphasis on product quality and innovation is crucial for maintaining its competitive advantage. Despite the impact of pricing adjustments on sales volume in the third quarter, the company believes that prioritizing product superiority will ultimately lead to customer loyalty. The success of its European markets, where strategic pricing and innovation have driven volume growth, demonstrates the effectiveness of this approach. P&G's commitment to ROI-driven marketing and its focus on productivity and strategic pricing decisions position the company well for continued growth in the face of economic challenges.