Thursday, May 6, 2010

Procter & Gamble Co.

Procter & Gamble Co.

Fact File:

Founder: William Procter and James Gamble.

Distinction: Made its name in soaps; invented soap operas to

promote them.

Primary Products: Cleaning, paper, beauty, food, health-care


Annual Sales: $38.125 billion.

Number of Employees: 110,000.

Major Competitors: Johnson & Johnson, Kimberly-Clark,


Chairman: John E. Pepper; President and CEO: Alan G. Lafley.

Headquarters: Cincinnati, Ohio.

Year founded: 1837.


Since Andrew Jackson was president, Procter & Gamble has been

ubiquitous. Today, the world's dominant consumer-products company

peddles a dizzying array of household goods under 300 brand names in

140 countries—and an astounding number are truly household names:

Tide, Camay, Crest, Scope, Secret, Clearasil, Folgers, Crisco, Pringles,

Pepto-Bismol, Vicks VapoRub, Old Spice, Oil of Olay, Head & Shoulders,

Spic and Span, Pampers, Tampax, Charmin….The list goes on. And on.

Founded on the production of soap and candles by two immigrants

from the British Isles who landed in Cincinnati, P&G long ago abandoned

the latter in favor of paper, beauty, healthcare, food and beverage

products. It continues focusing, though, on the laundry and cleaning items

that evolved from its first widespread success: Ivory soap. And always the

innovator—the company was first to offer synthetic detergent, fluoride

toothpaste, and disposable diapers—it forged into the 21st century with an

abundance of new-and-improved variations on its now familiar themes.

Products such as an at-home dry cleaning kit, low-fat snack foods, and a

cleanser for fruits and vegetables regularly spring from its laboratories.

P&G became number-one in such items in the United States, and

expanded globally so that half of all sales are now derived abroad. They

prevail by designing products (and a corporation itself) that are distinctive.

Nearly as important, it utilized omnipresent and often original marketing

programs to consistently spread their word. P&G, after all, has spent

lavishly on print ads for more than a century, and it began airing television

commercials only five months after that medium's debut. It also used

radio to push products as early as 1923. And 10 years later produced the

first "soap opera" to exclusively hawk Oxydol—creating a programming

staple it later transferred successfully to TV, where its Guiding Light and

As the World Turns serials remain popular.

But the company has not initially found its third century as inviting

as its first two. Like many other Old Economy pioneers, it has been slow to

embrace the Internet. And when revenues were not as strong as expected,

its market value plummeted &36 billion in one horrendous day. Rightly or

wrongly, observers feared that P&G's streak of innovation and growth may

finally have hit a wall.

Much like a surprising number of their contemporaries, candlemaker

William Procter and soapmaker James Gamble came to create a lasting

business by serendipitous accident. Procter, from England, and Gamble,

from Ireland, were each on their way out West when they stopped in the

busy commercial and industrial center of Cincinnati to tend to personal

matters. The two eventually married sisters, and their mutual father-inlaw

suggested that the young men start a business. In 1937, they signed a

formal partnership agreement, kicked in $3,596.47 apiece, and opened the

Procter & Gamble soap and candle company.

Despite shaky economic times and more than a dozen competitors in

Cincinnati alone, the business boomed. By 1859 it employed 80 and

recorded its first million in sales. To meet demand it built a new plant even

as the Civil War approached, which paid off handsomely when it helped

fulfill a contract to supply Union armies with its two main products. It paid

off yet again when soldiers took positive memories of P&G home with the

company's signature product and first big hit. Harley Procter the other

founder's son, dubbed it "Ivory" when a Biblical passage he came across

seemed to sum up its qualities. He then convinced the partners to shell out

$11,000—a preposterous sum at the time—to advertise its purity and

buoyant properties across the country, P&G's business again skyrocketed,

and additional facilities were again needed.

Unlike all but a few businesses of the day, this company additionally

recognized that its welfare was directly linked to that of its workforce.

Accordingly, in 1885 it began giving employees Saturday afternoons off—

with pay. In 1886, it opened its new Ivorydale factory with the latest

technological advances designed to improve the working environment. In

1887 it instituted a profit-sharing plan. Ultimately, it also became one of

the first firms to provide its personnel with comprehensive insurance


By the end of the 19th century, P&G was selling 30 varieties of soap.

The partners incorporated to finance even more expansion. Although the

imminent arrival of the light bulb would soon spell doom for the candle

trade, additional manufacturing facilities were constructed in Kansas City

and Ontario, Canada. A newly opened research lab developed items such

as Dreft, the first synthetic detergent, and Crisco, the first all-vegetable

shortening. Color print ads were used to market the soaps, and a

nationwide cooking show on radio was used to market the shortening. To

maintain momentum, P&G formed one of the business world's first

market-research departments.

Between the two World Wars, Procter & Gamble prospered as much

as any American firm. It regularly unveiled a new products that constantly

struck a chord with the buying public, established on overseas subsidiary

in England and expanded into Asia. It sponsored its first radio serial (Ma

Perkins), entered the hair-care business with its first shampoo, and aired a

TV commercial during the very first televised major league baseball game.

Around the time of its 100th anniversary, it also reached $230 million in

annual sales.

The following period was marked by even more impressive growth.

Much of it was funded by the success of Tide laundry detergent, which was

introduced in 1946. Within four years, it became the runaway best-seller

in its burgeoning category. Prell shampoo, Crest toothpaste, Duncan Hines

cake mixes, and Charmin toilet tissue, towels, and napkins were also

added to the corporate roster around that time. In 1961, P&G really shook

up the consumer world with Pampers, the first-ever disposable diaper.

During the next few years existing categories were strengthened with the

acquisition of Folgers coffee, the invention of Bounce fabric-softening

sheets, and the development of successful pharmaceutical products. P&G

also began building new manufacturing facilities in Mexico, Europe, and


By 1980, as it approached its 150th anniversary, the company was

doing business in 23 countries and recording nearly $11 billion in annual

sales. Cosmetics and fragrances entered the picture in a big way through

the acquisitions of Max Factor and Noxell's Cover Girl, Noxzema, and

Clarion lines. The healthcare division expanded with the purchase of

Norwich Eaton Pharmaceuticals and Richardson-Vicks. Overseas business

was bolstered in Eastern Europe and China. By the time sales hit $30

billion in 1993, more than 50 percent of sales were generated outside the

United States.

Procter & Gamble also continued its long-time people- and

community-friendly ways, regularly racking up awards for its socially

conscious behavior even as it grew to its huge multinational status. Its

many accolades include a Johns Hopkins-School of Public Health

acknowledgment for using alternatives to animal research; recognition by

various specialized magazines as a top employment environment for

Hispanics, executive women, and working mothers; a World Environment

Center Gold Medal for international corporate environmental achievement;

and the U.S. Labor Department's Opportunity 2000 Award for its

commitment to equal employment and a diverse workforce.

But despite even more strategic acquisitions (such as Tambrands

and its category-leading Tampax tampon) and innovative introductions

(such as salty snacks fried in fat-free, calorie-free Olean cooking oil),

nearly 17 decades of consistent success came to a crashing halt on March

7, 2000, when P&G stock dropped 31 percent in a single day.

The news stunned Wall Street: within minutes of the New York Stock

Exchange opening bell, Procter & Gamble fell $27.0625 to $60.375—and

that came on top of its ongoing collapse from a high of $117 just six

months earlier. The bluest of blue chips, the oldest of the biggest in the

Fortune 500, P&G had announced a 10-percent drop in profits after

earnings forecasters predicted a 7- to 9 -percent increase. Management

blamed rising prices for raw materials, such as petroleum and wood pulp,

belated results from reorganization the year before, and higher costs

related to federal approvals in its pharmaceuticals division. Wondering why

none of this was anticipated earlier, investors worried that another shoe

could yet drop.

Not since Phillip Morris' stock slid 23 percent in 1993 had a major

company collapsed so dramatically and so decisively. Many blamed P&G's

newly appointed top executive, Durk Jager, who had perhaps bitten off

more than he could chew by trying simultaneously to change the

company's notoriously insular culture, introduce a slew of new products,

and initiate even more acquisitions.

P&G was also scored for moving slow to the Internet, and for its

tardiness in hooking up with major retailers to develop popular privatelabel

brands of detergent and other products. Some analysts and investors

expressed continuing fears about the company's future, and when weak

earnings were again projected for the fourth quarter of 2000, Jager

suddenly and unexpectedly announced his retirement effective July 1. He

was replaced as president and chief executive by Alan Lafley, president of

P&Gs divisions for global beauty care in North America. John Pepper, who

ran the company before Jager, was named chairman.

Citing P&G's considerable strengths—the fact that it virtually

invented the now-hot concepts of branding and brand marketing, for

instance, and its unparalleled stable of worldwide household names—many

observer say it's far too early to count this bellwether corporation out of

the game. Recovery will take work, they note, but nearly 180 years of

experience should count for something.

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