BackP&G tires of beauty-business balancing act
Perhaps it's not a surprise that P&G CEO A.G. Lafley is thinking about spinning off a big chunk of P&G's beauty division
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What is beauty?
A.G. Lafley asked himself that question last year, on stage at the Consumer Analyst Group of New York’s annual conference.
“Beauty is the great industry of promises made and never kept," was the Procter and Gamble chief executive officer’s (CEO) answer.
So yeah, perhaps it’s not that big a surprise that Lafley is now seriously thinking about spinning off or selling a big chunk of P&G’s beauty division, as Bloomberg News reported this morning. On the other hand, beauty—which at P&G means brands such as CoverGirl, Olay and Herbal Essence—was one of the great successes of Lafley’s widely acclaimed first go-round as CEO, from 2000 to 2009.
In “Playing to Win," his 2013 book on corporate strategy co-authored with consultant-turned-academic Roger L. Martin, Lafley devotes most of the first chapter to the reinvention of Olay, the skin-care brand that by the late 1990s had come to be called “Oil of Old Lady" and was selling at just $3.99 a bottle in drugstores. The brand experts at P&G proceeded to drop the “Oil of," upgrade the product and the packaging, start advertising alongside much-more-expensive department-store brands and up the price to $18.99 for the cheapest Olay product.
“For the prestige shopper, it was great value, but not too cheap to be credible," Lafley and Martin wrote. “And for the mass shopper, it signified that the product must be considerably better than anything else on the shelf to justify such a premium." The result: double-digit sales and profit growth every year for a decade, beginning in 2000. So it went for lots of other P&G beauty brands as the company moved upscale but not too upscale ("masstige" was the buzzword), playing on its research and marketing strengths as it poached customers from more idiosyncratic, fashion-oriented competitors.
That decade ended five years ago, though, and P&G’s beauty business—which accounts for 23% of sales—hasn’t gone much of anywhere since. Lafley returned to the sputtering company in 2013. At the Consumer Analyst Group of New York event last year (there’s an Advertising Age article on his remarks, but I’m working straight from the transcript), he offered two different and somewhat conflicting assessments of what had gone wrong.
On the one hand, he said the problem was that P&G had put the beauty division in the hands of people who didn’t understand the beauty business:
We had maybe half a dozen different leaders in that business in four years. Many of them had never spent a minute in the industry. We were enamoured with the old GE and P&G development assumption that general management is fungible, and functional management gets developed by moving it around every two or three years.
On the other hand, Lafley said P&G’s beauty division risked becoming too much like other companies in the industry:
What are the risks for us in Beauty? We start thinking we’re a beauty company and we spend all our time at the Oscars or the Grammys or Fashion Week, which now runs for months, and we don’t stay focused on the consumer.
So what was the right approach for P&G?
We’ve just got to get back to the strategy that worked for us, which was fundamentally beauty capable where we needed to be beauty capable and playing to P&G strengths where P&G strengths make a difference for consumers and customers.
It needed to be a balancing act, then, and balancing acts are hard. Lafley isn’t giving up on it, but he is apparently looking to dramatically cut down on the number of beauty brands his company has to manage. One of the key questions in strategy, Lafley and Martin wrote in their book, is “Where will you play?" More often than not the right answer is, Not there. Bloomberg
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