Management Mistakes and Successes, Tenth Edition

Chapter 3. Procter & Gamble: An Old Strategy is Found Wanting

L.G. Lafley was about to turn 62. He had been CEO of P&G, a 172-year-old company, for nine years now. In his years at P&G he had helped develop modern consumer-product marketing, and in the process had trained scores of managers who were now top executives in firms the likes of GE and Microsoft. He was no stranger to MBA classrooms and his 2008 book, The Game Changer that emphasized innovation, enhanced his reputation. However, in this time of economic challenge, the gospel that he preached had become a major issue with supporters and critics.

Many firms in the 2008–2010 recession found customers spurning their luxury products and brands for those more modestly priced. P&G had carefully nurtured its key brands in many categories with heavy advertising, so much so that its daytime television serials became known as "soap operas." Now these were becoming negatively affected, with sales of such brands as Tide, Tampax, Crest, and Pampers dropping 5 percent in the last six months of 2009, while earnings fell 7 percent. Lafley could hardly deny that P&G's national brands were losing business to store brands as pinched consumers shifted their spending, and this was affecting markups, gross margins, and net profit. Even with lower sales, gross margin could still be maintained if prices could be raised without demand being drastically affected. But this was not happening.

In his reign as CEO, Lafley had revitalized P&G's business. ...