Procter & Gamble messes up in China

Procter & Gamble (P&G) is known as a well-managed corporation. In marketing circles, it is recognized as an organization that manages it product portfolio in a most effective manner.

The darling of marketing business cases has dropped the ball in a major way in China. It has totally misread the market and the buying behaviour of consumers. It has made a series of mistakes that will take decades to correct.

From a start in the early 1990’s, P&G positioned itself well in China. It introduced products ahead of competitors and created a strong brand image. This served P&G well as China became the largest market by revenues outside the United States.

P&G has a strong presence in China with its Pampers disposable diapers, Ariel liquid detergents, Tide washing powder/liquid and various brands of toothpaste.

diapersA shopper inspects baby diapers at a supermarket in Fujian province. Source: SCMP Pictures

Unfortunately for P&G, it assumed that Chinese consumers would look for value-buying in purchasing disposable diapers. This approach was not validated by customers who elected to splurge on a little luxury for their children and chose higher quality diapers. As the P&G CEO stated last month “We’re stuck in the middle of the market. We went down, the consumer went up.” For P&G to make such a mistake is surprising. To address this situation, P&G introduced high-end diapers, which are imported from Japan.

The source of the challenge for P&G is that the market has moved towards premium products in spite of the economic expansion slowing down. That is a surprise for many western consumer goods companies that expected Chinese consumers to move down-market with the slowing economy. One more lesson for western companies that often assume that Chinese behaviour will mirror how westerners react.

The other challenge that P&G is facing in on-line shopping. Chinese shoppers have taken on-line shopping with a fury. It all started a few years ago when Alibaba created a site for consumers (www.taobao.com) that is similar to what it offers for businesses. Now, you only need to talk to people to realize the changes that have happened within the last 3 years. China has gone way past the Amazon.com business model. Their shopping habits have changed so drastically that multistory shopping malls had to transfer their top floors into restaurants, so high was the vacancies created by retailers that had to close.

on-line-shoppingOn-line shopping experience with http://www.360buy.com. Source: 360.com

Now you can purchase any product on-line at a cost that generally beats the price offered at retailers by 15 to 20%. P&G was late at recognizing this change, and only now has begun restructuring its distribution network to adjust to this new reality.

Again, many western companies were slow to understand the changing behaviour pattern of the Chinese buyer who is always pressed for time, and is surrounded with probably the most developed computer network in the world supporting advanced on-line services.

Pierre

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