How Innovation is Helping Procter & Gamble Develop Premium Brands
In 2001, P&G established an innovation strategy program called “Connect and Develop.” The program has allowed the company to better understand consumer behaviour.
July 16 2015, Updated 12:05 p.m. ET
At P&G, innovation is key
The Procter & Gamble Company, or P&G (PG), is one of the leading manufacturers and sellers of household products. Olay, Crest, Pampers, and Tide are some of P&G’s products that compete globally and locally.
P&G continuously tries to innovate, and this helps the company win over consumers worldwide, across price tiers and preferences. Some of the peers P&G is battling for market share with include Unilever (UL), Estee Lauder (EL), Kimberly-Clark (KMB), and Colgate-Palmolive (CL).
Innovation programs
In 2001, P&G established an innovation strategy program called “Connect and Develop.” This program allows the company to partner with universities and institutes, sole inventors, emerging companies, small and medium enterprises, multinational corporations, and competitors from across ten countries. The program has allowed the company to better understand consumer behaviour. Here’s why:
- It facilitates innovation beyond the areas of P&G’s expertise.
- It offers innovative ideas that improve product quality in advance of commercial release.
- It reduces risks by transforming potential competitors into collaborators. For example, a collaboration between Clorox’s sales and marketing team and P&G’s research and development team maximized value creation.
- It expedites the monetization process.
Febreze—P&G’s latest billion dollar brand—can thank Connect and Develop for much of its success. Olay, Regenerist, Oral-B, Pulsonic Toothbrush, and Pringles—now divested—have all been through the P&G Connect and Develop program.
Pricing power
Recent innovations in laundry detergents have brought significant pricing advantages to P&G:
- Tide Pods is priced at a 20% premium to liquid Tide and have come to represent more than 7% of the laundry category.
- Gain Flings is priced at a 60% per use premium to Gain liquid detergent.
Combined, Tide Pods and Gain Flings now have more than a 10% value share of the US laundry category and over 80% of the unit dose segment.
P&G is currently introducing innovations to its feminine care products with Always Discreet. This is an attractive $7 billion category worldwide, and it’s growing at an annual rate of 7%.[1. Procter & Gamble Annual Report 2014]
In the Consumer Staples Select Sector SPDR ETF (XLP), P&G has a ~12.3% weight.[2. All ETF weights are as of June 27, 2015]