Procter & Gamble Plans to Shed 100 Brands…A Wise Decision?

Of considerable interest was the recent announcement by Procter & Gamble to divest as many as 100 of their brands.  In making the announcement, Chief Executive A.G. Lafley expressed the view, that “less will be much more”, as the sale of these brands account for roughly 10 and 5 percent of Procter & Gamble’s revenue and profit, respectively.

Consistent with the point made by Mr. Lafley, many large companies have ‘orphan brands’ with declining sales, many of which can be costly to manage.  The smaller volumes associated with these brands can create unneeded supply chain complexity whether it is through small order quantities and/or short production runs.  Additionally the consumer marketing dollars behind these orphan brands are often less efficient because they’re absorbed by brands with lower revenue, thus hiking the percentages spent.  Finally in many instances by selling the brand to another company with a different set of operating needs, the seller can enhance shareholder value.

So if this is the case, why do companies ranging from PepsiCo with their salted snacks, to Anheuser-Busch InBev with beer, to Dannon (Groupe Danone) with yogurt, to Campbell’s with soup, often keep within their brand portfolios smaller brands?  The answer likely has to do with the desire by these companies to remain the pre-eminent player in these respective product categories, and the realization that this can’t be done with a single brand.  Thus they have adopted what some would refer to as multiple segmentation strategy.  By definition, a multiple segmentation strategy entails selling similar products to separate clusters of consumers who have similar characteristics, using a different marketing mix for each of these segments

There are many other reasons why a company might wish to pursue a strategy of offering a variety of brands in a single product category—even if some of them are small—as part of a multiple segmentation strategy.  Reasons for this include the following:

  • Enables one to compete in smaller market segments, which in some cases offer higher gross margins that their larger counterparts
  • Blocks competition from making new inroads into one’s mainstream business
  • When there are few line changeovers associated with producing these brands, this might actually lead to lower costs, including the absorption of fixed factory overhead
  • Each brand likely has different geographic strengths, thus allowing companies to smooth out total market shares
  • Selling them off may lead to a purchase by an aggressive competitor whose stepped-up activity could contribute to a loss in category market share

 

PepsiCo’s Frito-Lay division is an excellent example of a firm who has successfully piloted a multiple segmentation strategy.  While having monster size brands such as Lay’s and Doritos, Frito-Lay likewise is the owner of smaller brands such as Miss Vickie’s, Munchos, and Stacy’s.  All of these latter brands are chip related products but by appealing to different sets of consumers, provides Frito-Lay with incremental revenue.  Likewise worth noting is by offering a wide array of salted snack brands and maintaining a strict discipline as to what each one stands for, this has helped Frito-Lay garner over a 50 percent market share of the U.S. salted snacks markets. 

Back to Procter & Gamble, it will be interesting to see what brands they shed, and whether their strategy will involve divesting brands in product categories where they currently have other entries.  Indeed if history repeats itself, Procter & Gamble is likely to sell smaller brands in categories where they have pre-eminent positions e.g. P&G previously divested such brands as Zest, Sure, and Pert Plus, despite having strong positions in the soap/body wash, deodorant and hair care categories, respectively.  Whether this is a wise approach to brand divestiture, or a failure to recognize the value of utilizing a multiple segmentation strategy as many other companies have pursued, only time will tell.  Needless to say, it will be fascinating to watch which brands Procter & Gamble divests, who buys these brands, and what the ultimate results are.

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