Protecting Brands from Private Label Impact: P&G Finance Chief Emphasizes Product 'Superiority'

P&G’s CFO, Andre Schulten, emphasized that the company's focus on "true superiority" has allowed it to disrupt traditional consumer buying patterns and drive growth for its brands, despite the increasing presence of private label products. Speaking at the Morgan Stanley Global Consumer and Retail Conference, Schulten highlighted the success of the European team in achieving growth amidst the expansion of private label products in Europe.

Schulten stated that the company is experiencing an increase in absolute volume sales in Europe, particularly in the private label sector, with a growth of 60 to 80 basis points. He added that the company is growing in every market and category where private label growth is observed.

What we decided to do in each of the categories was take another look at our superiority levels and sharpen the criteria for what we consider superior.

Andre Schulten, P&G

Schulten's belief is that consumers are willing to select and purchase a premium product if they are convinced it offers value. The consumer goods company aims to achieve growth by focusing on innovation and quality rather than relying on promotional strategies, according to Schulten.

In recent years, the company has made efforts to revamp its portfolio to focus more on "superior" products. In 2016 and 2017, these products accounted for less than a third of P&G's portfolio, but in the recent years, they have risen to 80%. The company was worried that having a high ratio of superior products might lead to "inertia" in certain brands, which is why it chose to reset its superiority portfolio.

One of the new criteria introduced by P&G is that superior products must be significantly better than others in their category. According to Schulten, when using them for the first time, it should be clear that it's the best solution available.

This superior level of quality will not only increase customer loyalty, but also generate social media "buzz" that can motivate others to make a purchase.

As a result, the new superior "reset" category makes up approximately 20-30% of P&G's portfolio, varying by market and product category.

The focus on superiority needs to be combined with productivity, Schulten said. Delivering on productivity to finance investment in product is a priority for the company.

‘Pushing boundaries’ on media spend

P&G has committed to investing most of its productivity savings into innovation, go-to-market capabilities, and media, according to Schulten.

He stated, "Our media investment is exceptionally strong, and it continues to grow as we strive to push the limits." He also emphasized that the company is steadily improving efficiency in this area of investment.

P&G has achieved this efficiency by effectively targeting and reaching consumers. The company is also exploring innovative methods to increase the efficiency of its marketing expenditure. One such approach, referred to as "dual track marketing" by Schulten, involves media delivering "two messages" simultaneously rather than focusing on a single message.

The company is also focused on "maximizing frequency," increasing both frequency and reach to higher levels to test the effectiveness of these efforts. All of these initiatives aim to provide the highest possible return on investment for the business. Earlier this year, Schulten informed investors that P&G determines its marketing spend based on the returns it generates, describing the approach as "100% driven by ROI."

P&G aims for its marketing budget to be maximized in order to achieve broader objectives, he stated.