Thursday, August 6, 2009

P&G Wises Up; Returns to Basics

Because I've already dropped criticism on Procter and Gamble (PG) - on two separate occasions - via SeekingAlpha, it's time to give a hat tip to the Company where one is due.

The primary thrust of my previous two critically crafted critiques has been that P&G is not as recession-resistant as most investors would believe. The Company's products, although necessary for the basic functions of life, tend to be distributed across the upper to mid-level price points. This hasn't always been the case, but the recent aggressive push by supermarkets into private label (store brand) products has displaced P&G's lower priced products, and pushed them into mid-level territory. There is also considerable competition for shelf real estate, a battle typically won by the supermarkets and their private label product because, after all, the physical shelving is owned by the supermarket. As a consequence, the increasingly cost-conscious consumer has slowly but surely begun to opt for the lower priced private label product that - fairly or not - is perceived as possessing similar quality as the costlier alternatives. Finally, Procter and Gamble has counter-struck, with the covert release of Tide Basic to the marketplace. Tide Basic is essentially a stripped down, 20% cheaper version of Tide that's sold in the yellow box sold above. Basic won't compete directly with private label, but it will appeal to two kinds of consumers, informally described below:
  1. The proud longtime purchaser of Tide who has suddenly become more cost-conscious, and will more than anything revel in the idea of having saved 20% on detergent without sacrificing "the brand". This move, perceived as shrewd by the consumer, will likely be brought up at dinner parties or other venues where adults feel inclined to share stories of the "sacrifices" they have made during the recession.
  2. The proud trade-up consumer. This sort of person is most often spotted at the Cheesecake Factory, where a relatively affordable meal can be had while reveling in the fact that other, wealthier folks are feeding off the same trough. This event is characterized by a general feeling that one has "made it". Some of the more ambitious members of this group may even delude themselves into believing that they are part of Group #1, and are making a frugal, although not entirely necessary choice. Members of this group will leave their box of Tide Basic in a conspicuous location in the house; hoping that guests will notice their bourgeois purchase and will think more highly of them.
According to the WSJ, Tide Basic has only been introduced to a handful of regional markets; a sort of pilot episode approach. It would be wise for Procter and Gamble to proceed with the full season.

*no position in PG Sphere: Related Content

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