Will P&G clean up with two new businesses?


Having worked in P&G brand management on some of their biggest brands (Tide, Cascade, Ivory Snow), I must admit to being an admirer of almost everything the firm does. Well almost everything.  I was not a big fan of the Tide Basic introduction.  And, lending their reputation and strong brands to some consumer service industries may turn out to be another misstep. 

Over the past three years, P&G has been refining plans to enter two new markets – dry cleaning and car washes – by leveraging two of their strongest brands. In effect, P&G is applying the considerable technology and brand equity of Tide and Mr. Clean to launch two new franchised consumer services.  In particular, a pilot program of Tide Dry Cleaners is about to be introduced in selected markets across the United States.  Secondly, P&G is continuing to roll out Mr. Clean car washes in partnership with franchisers ready to fork over a $5 million initial investment. 

I am skeptical as to whether these initiatives will succeed: 

One would assume that years of testing and refinement were behind the concept development and delivery model.  Was this effort of value?  Thorough thinking and ample investment can not make up for a weak consumer proposition or bad timing.  During my tenure in the late 1980s, P&G Canada launched a family of Enviro-Paks – cleaning, detergent and dishwashing liquids – packaged in large Tetra Pak containers – based on European learnings.  The roll out flopped, not necessarily because of poor execution but because the timing was about 15 years too early (environmental awareness was very low at the time) and there was no compelling consumer benefit in switching to the new format.

My concerns with P&G’s new franchising strategy centers on the following areas:

The attainable market may be too small

The dry cleaning and car wash markets are fragmented, often driven by price and location considerations.  On the other hand, P&G has traditionally focused on share leadership in large and defined market segments with premium-performing products.  I am not sure the dry cleaning and car wash sectors contain segments large enough to support P&G’s premium business model and generate sufficient financial returns.  Furthermore, at $5 million per store, a Mr. Clean franchise will not appeal to any but the deepest pocket franchisers.

Challenges with the customer experience

Financial returns will depend heavily on the quality of the customer experience delivered every day.  Service businesses rise and fall on front line staff interactions with customers and delivering consistent quality.  Ensuring a fruitful and consistent customer experience is a challenge in consumer services given the heterogeneous nature of employees who are often unskilled and transient.  While having a bullet-proof set of policies and procedures will help, P&G will lack the control and immediacy to ensure day-to-day execution excellence on a national scale.

Franchising cheapens P&G brands

Given the above challenges, P&G runs a significant risk that an unsuccessful franchise strategy could hurt Mr. Clean and Tide’s strong brand equity and subsequently damage their market shares.  Together, these brands represent over a billion dollars in profit in the US alone.

Without analyzing the business case, its hard to really know whether the above issues are problematic.  However, one must wonder why P&G chose to expand to new markets with completely new business models that are well beyond their core consumer and customer franchise.  Time will tell.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

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4 comments so far

  1. Baldo Minaudo on

    I was at P&G on the Downy brand during part of the time you were there. I too am a fan at some of the things the company has done over the years and a little bewildered at other initiatives it has undertaken.

    From a corporate strategy perspective, I understand where the executives are coming from and as a corporate strategist I would undertake a similar exercise. They are very successful and hold strong position in their business, but are faced with fierce international competition from cheaper brands, local competition from organic/sustainable brands and consumer spending being affected by economic hardships in their biggest markets. They have strong cash flow and good margins and in order to maintain their margins or increase their sales they need to look to other areas of business. The most logical areas are those where they can add value and has fragmented competition with limited resources.

    You are correct that implementation is crucial in these sectors. This implementation requires, among other abilities, excellent customer service and localized marketing (inclusive of pricing and customer relations flexibility). Since P&G has based its success on the ability to structure and standards its mass marketed products, it does not hold the operational abilities necessary to succeed in the car wash and dry cleaning businesses. Therefore, it will have to hire individuals that are familiar with this business and help it succeed. I know one man that knows the car wash business very well at the strategic and operational level and would be happy to introduce him the the executives that are championing that business initiative.

    There is no doubt,that their is a brand equity risk here. For example, do nurturing mothers (or whoever buys the Tide and does the laundry) want to buy the same detergent to wash their children’s clothes that is used to was cars? Seems like they may be leaving themselves open to some competitor marketing and advertising that may weeken their position. Then there is the potential customer dissatisfaction that could arise from the franchises themselves. But, let’s not ignore the existing players in the market. Some of the gas retailers have their own car washes in strategically located sites. Is P&G going to negotiate locations within their sites or are they planning to go head-to-head. If the latter is the case, I think they’re in for a surprise unless they focus on suburban locations.

    These risks, as with any risks can be mitigated through proper business model, marketing strategy, positioning and branding. The question in my mind is does P&G have the people that know what it takes to create and implement the business model that will address these risks and leverage the opportunities.

    Good work on the post Mitchel – keep it coming!

    Baldo Minaudo, M.B.A.
    http://www.baldominaudo.com
    http://www.thebankerwhosavedhissoul.com

  2. Baldo Minaudo on

    […] This post is a comment to Mitchel Osak’s article. […]

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