Brandweek, June 21, 2008

Household: Will Private Label Clean Up Now?

The recession has already caused consumers to cut back on going out to eat and to buy more fuel-efficient cars, but how deeply rooted are those types of changes? Are they, for instance, dumping Palmolive dishwashing liquid for the store brand or trading down from Tide?

Not yet and, judging by their public statements, execs at the country's biggest purveyors of household products aren't ready to throw in the (paper) towel just yet. For instance, during Procter & Gamble's third-quarter conference call with analysts in April, CFO Clayton Daley noted that the company's marketing spend was up 9%, despite a recent price hike in cable and network TV ad rates. P&G sees the strategy as crucial to its survival in a weakening economy, with hopes that the expense will contribute to a long-term "organic sales growth" of 4-6%.

Is P&G's response an unusual one? Not in the least, said Gary Stibel, founder of The New England Consulting Group, Westport, Conn. Stibel, who served as marketing manager at P&G in the '70s, when inflation was rampant, said P&G has traditionally upped its ad and marketing spend in trying times.

"The typical reaction is to spend less in a recession and use the money instead to make up for sales volume that is lost," he said. "The smart marketers, however, will spend more money promoting their core brands so consumers will be more willing to pay up and will be more likely to do so. It's like a self-fulfilling prophecy: The weak get weaker and the strong get stronger."

In this case the strong have several things working in their favor: One, they're selling brands that consumers know and trust. "When all goes to hell in the handbasket, consumers know they can still rely on Tide," said Mike Moriarty, a partner with consulting firm A.T. Kearney in Washington. Secondly, the large CPGs buy in bigger quantities than their private label rivals, so prices for the latter items tend to increase more. And three, compared to what drivers have to fork over for a tank full of gas, paying a buck or two more for their favorite fabric softener or moisturizing conditioner isn't that big of a deal, Stibel said.

As Britt Peterson, business development director at ad agency Cole & Weber United, Seattle, put it, "The price points we're talking about are not huge-ticket items. And they're often necessities versus luxuries. Starbucks has to do a lot more to defend the $3 for a cup of coffee every day than P&G does [for their] $3 paper product, or health and beauty product, which is needed."

If that's the case, then why all the fuss? Can P&G and Clorox rest easy even if the economy doesn't go south?

Not really. Generally speaking, if a recession lasts more than six months, retailers can expect to see more of a switch to private label brands, Moriarty said. Such brands aren't sitting still, either. Big-box stores across the nation have responded to the economic slump by aggressively marketing private label brands. Stibel said: "People are looking for ways to save. Not on price, but on quality of offering . . . and today's store brands are better than yesterday's packaged goods."

While private label brands may be holding their own, they are hardly sweeping any household categories yet. In fact, full-price brands like Tide are outperforming lower-priced branded entries like Gain. Al Ries, chairman of Ries & Ries, Roswell, Ga., said private labels, in his experience, typically never occupy more than 20% of the market.

No one knows how long this recession will be and, if Moriarty's six-month rule will kick in. And while big-bucks campaigns may have done it in the past, it's marketing that strikes an emotional—as opposed to intellectual—chord that really makes a difference, said Harry Woods, partner at Woods Witt Dealy & Sons in New York.

Positioning Battle: How Green Is My Cleanser?
In 2001, Toyota was way ahead of the market with its Prius, the first hybrid car in the U.S. Now, everyone wants a Prius, and high gas prices and more public awareness of global warming have made green cars hot. Is there a parallel in household goods? According to Len Sauers, vp-global sustainability at Procter & Gamble, consumer research shows that only 5-10% of consumers are willing to accept some sort of trade-off—like higher cost or lesser performance—to buy a product that claims environmental benefits.

"The vast majority of consumers (50-75%) feel environmental issues are important, but are not willing to accept such trade-offs," he said. "The rest of consumers seem indifferent to these issues at this time." No one has embraced the green trend like Clorox, which seized upon the sustainability fervor with its introduction of Green Works—the first full line of eco-friendly cleaning products—in January. The launch has received positive feedback, with Green Works topping Seventh Generation in all but the tub-and- tile category, according to IRI data ending the week of March 23. The bleach manufacturer spent $9 million from January to March promoting the line, and recent IRI figures show Green Works yielding $5.8 million in sales to date. Church & Dwight followed suit with its Arm & Hammer nature-derived fabric softener sheets and liquid laundry detergent.

P&G's strategy, meanwhile, is to focus on what Sauers called "sustainable innovation products" like Tide Cold Water that save energy by eliminating the need for hot water (and a heating agent like oil or gas). P&G also has environmental-friendly campaigns such as the Dash Cool Clean and Ariel Cool Clean energy conservation programs in Italy and the U.K., respectively. "I can tell you that P&G embraces sustainable development as a business, [as well as a] corporate responsibility," said Robyn Schroeder of the company's corporate external relations team. "Over the next five years, we will bring to market $20 billion in sustainable products."

Category Innovation: Smaller Bottles
One way to reduce your carbon footprint is to reduce the size of your product. That's the approach Procter has taken with liquid detergent compaction. For various reasons, including sustainability, technical feasibility and the lure of more shelf space at retail, P&G switched its entire line so that a bottle half the size of the old one will do just as many loads. Though some predicted consumers would feel they were getting ripped off, by April, Procter was claiming success.

Church & Dwight, on the other hand, came out with its 100% naturally derived Arm & Hammer Essentials Liquid Laundry Detergent. Both boast a concentrated formula and less packaging. Stibel said the industry can expect to see more compacted goods, especially during the recession. On the one hand, the manufacturer saves on transportation and storage costs while passing on inherent eco-friendly benefits to the consumer. Besides, "It takes up less shelf space and you don't get a hernia from bending over to pick it up," Stibel said.

Hot New Media: Shopper Marketing
P&G got the word out about its compaction program largely through the retail channel. Retail is the oldest form of marketing media, but now it's hot once again as the reach of traditional media like TV and print continue to wane and the Internet splinters audiences into niches. Moreover, Nielsen (owner of Brandweek) and POPAI are working on metrics for in-store media like pole-top displays that will no doubt funnel more money into shopper marketing efforts as CMOs finally have a way of proving ROI.

Hot New Demo: Gen Y Moms
Generation Y moms have different buying habits than their predecessors, as companies like Johnson & Johnson have been quick to realize. In April, J&J held a three-day "Camp Baby" conference for 56 prominent mothers/bloggers. Not to be outdone, P&G, to date, has recruited more than half a million moms to its Web site, www.vocalpoint.com, which contains the latest product, marketing and sampling information.

Ken Harris, founding partner with Cannondale Associates in Evanston, Ill., says the Internet will become even more prominent when reaching out to Generation Y moms. "Generation Y moms are the real Web-enabled mothers," he said. "They can reference things on the Web and are therefore much more informed on their own recognizance versus showing deference to their wiser parents and acting accordingly."

Potential Game Changer: Coupons
If the recession continues, ad spend may give way to more coupon books, better known as freestanding inserts, Ries said.

P&G, for instance, unveiled its spring coupon book in April. "The logic goes, if the economy is good, people say, 'I won't bother with coupons.' But if the economy is bad, they say, 'Oh, boy. Things are a little tough. I'd better flip through the coupons,'" Ries said.

Not that coupons are by any means cheaper to make, either. According to Ries, advertising and production costs typically amount to about $1 per coupon, plus the redemption value itself. On the flip side, however, coupons generate instant sales momentum, whereas traditional and alternative media require a longer period before seeing any ROI.