Procter & Gamble took a risk with its everyday low pricing policy and
the impact is already being felt, writes Claire Murphy
Nine months ago, Marketing revealed that Procter & Gamble was
introducing its everyday low pricing policy in the UK.
Spending on promotions and vouchers would be cut and savings passed on
as price reductions to shoppers.
It was a brave strategy which had already worked in the US and brands
such as Fairy Liquid, Flash and Pampers in the UK have since had their
The strategy is also being introduced in the German market.
The impact of these moves is still being felt. Last week it was reported
that a team of marketers is being sent into Germany to help counter
resistance from the country’s large retailers.
This year’s annual ACNielsen figures for the Top 100 Grocery Brands have
shown sales for some key P&G brands have fallen.
Fairy Liquid has fallen by almost 7% to pounds 64.6m compared with last
year, with Pampers down 2% to pounds 163.1m.
On the face of it, it would seem that P&G might have some problems. But
the company’s tone is confident. Dick Johnson, P&G’s UK director of
corporate affairs, maintains that rival multi-pack (buy one, get one
free) promotions are partly to blame for the drop in sales. ‘P&G
measures its business on a long-term basis,’ says Johnson. ‘Look at our
long-term track record and you won’t find a better one.’
There is little doubt that P&G expected some teething troubles as part
of its policy of reducing investment in promotions. But it is playing
the waiting game, sticking to EDLP as one plank of its Efficient
Consumer Response (ECR) policy.
P&G has used ECR to put under the microscope every aspect of how it does
business, from new product development through to the number of stock-
keeping units in stores, the size of boxes and the way stock is ordered
and supplied to retailers.
It has led the way in recent months in calling for greater
standardisation of soap-powder boxes and co-operation, even with its
arch-enemy Unilever, to simplify the soap-powder market.
That policy has meant reviewing not just how it does business with its
customers but its relationship with retailers. Not only did P&G
previously offer a myriad of promotions to consumers but it also laid on
special offers to the retailers.
Bulk discounts were offered, in which retailers would buy tonnes of one
product line to qualify for the discount, but then might not reorder for
With ECR, P&G is trying to iron out the inconsistencies in ordering,
reducing excess stocks for it and the retailer.
P&G knows that it will take time for these new ways of thinking to bed
in and retailers may initially be reluctant to accept change. That
reluctance won’t have been helped by a report by UK stockbroker
Kleinwort Benson earlier this year which predicted EDLP could wipe as
much as pounds 60m off the bottom line of food retailers.
John Pepper, P&G’s chairman and chief executive, told shareholders at
the annual meeting in October that ‘volume and sales results for the
July-September period will be below what we have traditionally
‘There are a number of factors contributing to this. One is the further
roll-out of Efficient Consumer Response in parts of Europe, Japan and
other markets in Asia, causing one-time trade inventory reductions,’ he
‘ECR offers huge savings, but it does result in short-term reductions
in trade inventories. We experienced this impact in our US business when
we first began this initiative here a few years ago.’
But once they come round to the fact that consistently lower prices
means that they can plan their businesses better, the belief - and
evidence from the US - is that orders will return to at least original
levels and margins increase.
Analysts too are unworried by what they regard as minor hiccups which
will accompany such changes.
Salamon Bros New York analyst Carol Warner says: ‘Despite the problems
in Germany, where they encountered isolated resistance, UK retailers
have seen the benefits of the EDLP in the US and are happy with it.’
P&G warned analysts before its first quarter results that the change in
European pricing strategy would hit worldwide volumes. As it turned out,
sales in Europe, Middle East and Africa grew by 6% to dollars 11.7bn
(pounds 7.8bn), with earnings (profit) up by 14% to dollars 767m (pounds
Short-term problems aside, P&G’s Efficient Consumer Response has won the
backing of the City as a brave marketing move to address some of the
problems in the industry - and knock the market into better shape for
the new millennium.