It's a safe bet that you have a product made by Procter & Gamble Co. in your home right now. And you probably have several.
If you brushed your teeth with Crest, washed with Ivory soap or drank Folgers coffee this morning, you used a Procter & Gamble product. Ditto if you use Bounty paper towels, Tide detergent or Duncan Hines cake mixes. Not to mention Comet cleanser, Citrus Hill orange juice, Crisco shortening, Pampers diapers, Head & Shoulders shampoo, Scope mouthwash and Vicks cough drops.
Procter & Gamble is America's pantry, a purveyor of all kinds of household products, a marketing giant that sometimes seems as if it could sell anything to anyone. It is an advertising powerhouse that plugged Ivory soap on the first-ever commercial television broadcast, invented the soap opera as a vehicle to sell its products, and today holds many of the nation's ad agencies in thrall. Procter & Gamble spends more on advertising each year than any other American company: $1.6 billion.
And oh, what advertising. P&G's slogans and characters are part of American vernacular: "Look, mom -- no cavities." "Please don't squeeze the Charmin." "Ninety-nine and 44/100ths percent pure." Mr. Clean. Mrs. Olsen. Mr. Whipple. Josephine the plumber. Rosie the waitress. P&G's advertising muscle has made those phrases and characters familiar to all Americans -- and sold billions of dollars worth of the products they represent.
One hundred and fifty years after candle maker William Procter and his brother-in-law, soap maker James Gamble, joined forces in Cincinnati, Procter & Gamble is one of the nation's largest companies, with $15.4 billion in annual sales, $709 million in annual profit, and nearly 75,000 employes around the world.
But even as Procter & Gamble marks its sesquicentennial next month, the company is showing signs of age. Competitors who have copied P&G's marketing tricks have put severe pressure on many of the company's key brands. P&G's profits dropped two years ago for the first time in three decades and, after a rebound last year, the latest annual figures, to be announced in a couple of weeks, also are expected to show a decline. The company recently announced a restructuring plan that includes an $800 million writeoff, the phaseout of some aging plants and a series of other adjustments to changes in the marketplace.
Procter & Gamble is facing changing times with new strategies. Through acquisitions and internal development, it is shifting its focus from soap and food to health care and nutrition products, and over the past couple of years it quietly has become the nation's biggest maker of over-the-counter drugs.
In addition, the company is taking steps to make its management style -- notorious for bureaucratic sluggishness -- more nimble. It is shortening its painstaking test-marketing process to get products to market quicker. It's even updating its advertising, replacing its classic slice-of-life commercials with more faddish, faster-moving ads designed to appeal to modern audiences.
And P&G is counting heavily on one of its lesser-known corporate attributes to pull it out of the doldrums: its research and development know-how. For all of its famed emphasis on marketing and advertising, P&G long has spent a huge amount of money on R&D, which is the reason the words "new and improved" often appear on the company's packaging.
"I think the thing that distinguishes this company from other consumer-goods companies, in the broad sense, is not marketing, but product development," P&G Chairman John G. Smale said in a rare interview. "If you look at the strength of this company from the standpoint of its consumer brands, in instance after instance, those are products whose success ... is based on real product innovation, and innovation that is significant enough so that you move customers to buy it."
Procter & Gamble is using that R&D strength to update and to expand the market possibilities for its existing products and to come up with new offerings that will put the company back on a solid growth track in coming years.
Without question, the most exciting thing in the latter category is something called Olestra, nothing less than a no-calorie replacement for fat. Now awaiting approval by the Food and Drug Administration (which analysts believe will come within a couple of years), Olestra is a once-in-a-lifetime miracle, a potential gold mine, a product that potentially could change American dietary habits and bring in billions of dollars annually for P&G.
The company needs a winner like Olestra; some of its more recent new ventures have been less than unqualified hits. What seemed to be a bold move into soft drinks with the acquisition of Orange Crush a few years ago and the assumption that P&G would take on Coca-Cola and Pepsi-Cola has stalled in the face of immense competition from those two industry giants. A venture into the cookie business with so-called "soft" cookies under the Duncan Hines brand also has run into competitive pressure (P&G has claimed in court that its rivals stole its recipe) and a market that turned out to be less than what it first seemed. And the company still is trying to establish its Citrus Hill brand as a major player in the orange juice market.
Still, Olestra almost perfectly symbolizes the direction that Smale and the rest of Procter & Gamble's leaders have set for the company over the next few years: a product of the company's research that promises health benefits to customers and profits for the company.
P&G officials believe -- backed by the company's typically meticulous research -- that increasingly health-concious consumers want new kinds of products. So P&G is taking the calories out of fat, putting calcium in orange juice, pushing Crest as a fighter of tartar on teeth, checking into the possibility that Metamucil cuts down on cholesterol, and positioning Pepto-Bismol as a remedy to many ills in addition to stomachaches. It also has been on an acquisition binge, acquiring several major makers of health-care products.
"We think it's the kind of business -- the health care, nutritional business -- that is kind of our kind of business," Smale said. "This is our kind of a ball game, just by the very nature of our dedication to and conviction about the importance of research, the importance of understanding how products work, why they work, and understanding the consumer."
This push into health might seem a major departure for a company that started out in the making soap. But it actually is the latest in a series of evolutionary steps that over the past 150 years have taken the company from soap to other household products to food to beverages and now to health-care products.
"We evolve from what we know," said Geoffrey Place, the company's vice president for research and development. "We don't leap into green fields, even though perhaps from the outside world it looks like we're leaping into green fields. If you get down to the heart of what we're doing, we're progressing from our built-in knowledge base into different areas, and as we expand our knowledge into one area, then we can bring it back and use it in other areas."
Procter & Gamble is nothing if not conservative. Virtually everything it has done in the past 150 years has been undertaken with great caution and a careful weighing of the risks. That philosophy can be seen in everything from the company's obsessive consumer research and test-marketing programs -- it will sometimes test products for years in selected markets, adjusting and honing everything about them before deciding to sell them nationally -- to its unusual hiring philosophy: everybody, without exception, starts at P&G in an entry-level position, so that all of its managers come up through the ranks imbued with the corporate culture, rather than joining as hired gunslingers from outside.
Even something as simple as interoffice memo writing is an integral part of P&G's conservative corporate culture. P&G's memo policy is legendary in the business world: Memo writers are urged to do draft after draft after draft, until they can express their ideas succinctly. Longtime P&G managers defend the practice as an excellent way of thinking through ideas and getting them right before sending them to the next level up, but critics see it as damning evidence of the company's bureaucracy.
For decades, P&G's conservative management style held it in good stead. The company slowly and carefully developed products and new lines of business by examining consumer desires in minute detail, testing products thoroughly and advertising heavily and precisely to its target markets. When consumer desires and needs changed, P&G was there with products.
Take detergents, for instance. As automatic washing machines became popular after World War II, P&G introduced a full line of detergents, beginning with Tide. When customers began washing clothes in cooler water, P&G came up with "All-Temperature" Cheer. And as customers moved from detergent powders to more convenient liquids in the early '80s, Liquid Tide was born.
P&G took similar leadership positions in other products and markets: Pampers virtually invented the disposable diaper business, Crest played a pioneering role in the acceptance of fluoride as a fighter of tooth decay, Head & Shoulders created and dominated the antidandruff shampoo market, and so on.
But by the beginning of this decade, Procter & Gamble's magic touch had begun to falter. Competitors willing to move more quickly and take greater chances began outflanking it in key markets.
Pampers, one of the company's major profit centers, was hammered when competitors introduced tighter-fitting, more leak-proof disposable diapers, and P&G was slow to match them. Rival Colgate-Palmolive got to market with toothpaste in a pump dispenser months before Crest could answer. And the company took a big blow in 1980 when its hot-selling Rely tampon was implicated as a contributor to toxic-shock syndrome. P&G, which still claims Rely was safe, nonetheless pulled it off the market.
These problems and others led to the sharp drop in profits in the 1985 fiscal year. Analysts complained that the company's conservatism had become stodginess. P&G officials, however, saw the turbulence that buffeted the company as a signal of the latest step in its evolutionary scale. "We look at what's gone on with the wish that we would have been smarter and better, but I think also with the feeling that what's happened has been basically sound, and has not been that far out of pattern with what the company has gone through in past times," Smale said.
P&G already had begun making changes. "As we got into the late 1970s, we concluded we were going to need to get into some new categories of business for the company to grow the way we wanted it to grow," Smale said.
That led P&G into the health-care products industry, in which it had dabbled for several years, and which wasn't too far removed from its toothpaste and mouthwash business. In 1982 it acquired Norwich Eaton Pharmaceuticals, and three years later, it paid $1.25 billion to acquire Richardson-Vicks Inc., maker of such products as Vicks cough drops, Nyquil cold medicine and Oil of Olay beauty products. The acquisitions instantly gave P&G the No. 1 position in the nation's over-the-counter drug market.
By acquiring the business from other companies, P&G got established brand names and research to which it could add its own marketing muscle and product know-how. "The benefit from the acquisition is it has dramatically accelerated our ability to learn," Place said. "It's shortened the time frame and improved the quality of the learning."
P&G executives believe the company's expertise in promoting consumer products is directly applicable to the over-the-counter drug business, which traditionally has been one with little marketing pizzazz. The company already has begun applying its philosophies of market research, targeted advertising, line extensions and product improvements to its health-care offerings. It also is cross-pollinating by attempting to make its other products more health-oriented, such as by putting calcium in Citrus Hill orange juice.
Procter & Gamble now finds itself in a period of digesting the health-care acquisitions and otherwise adjusting the company to current business and market conditions. Those were the reasons behind the restructuring last month, which included the closing of several outmoded plants, streamlining of some of its less-profitable operations, and other actions.
Among other things, the restructuring reflected the shift in the detergent market to liquids from powders, the disappointing results of the company's cookie venture, and the combination of deregulation of the trucking industry and consolidation of many of P&G's biggest wholesale customers.
The restructuring generally was praised by Wall Street analysts, although many said P&G should have acted earlier. And the analysts said the accompanying $800 million writeoff showed that P&G now appears willing to move a little more aggressively, and with a little more daring, than before. "They're fighting themselves and they're fighting their environment," said Jay Freedman, an analyst who follows the company for Kidder Peabody & Co. "They responded slowly at first and a little more aggressively now."
Another analyst, Hercules Segalas, at Drexel Burnham Lambert Inc., described the restructuring as "suddenly bringing the company up to 1987," and suggested that Smale's experience as a member of General Motors Corp.'s board may have educated the chief executive on the perils of moving too slowly to correct fundamental problems.
There is other evidence that P&G is more willing now to make needed changes in its way of doing business. Stung by rivals' speed in bringing products to market, the company has started to forgo some of its more detailed test marketing in the interest of getting products out more quickly, for example. "The competitive world has changed and you don't have as much time as you did to get out there with a new idea -- somebody will be on top of you," Smale said.
And while promotions from within and well-wrought memos still are hallmarks of P&G, the company is making some efforts to cut through its bureaucracy.
Chief among these has been the apparently spontaneous establishment at various spots in the company of "business teams" -- ad hoc gatherings of people from all disciplines in the company who come together to solve specific problems. The first business team appeared in the company four years ago, and the idea has spread.
"It's a great facilitator, and it's one way that you get away from the bureaucratic issue," Smale said. "That represents a very significant, a very real way of getting out from under the bureaucratic procedure of going from one level to another level to another level and so forth."
The efforts to make Procter & Gamble more flexible, to push it into new, more profitable markets and to play on its strengths in product development as well as marketing will determine whether the company will regain its previous level of success, which Olestra might guarantee in any case.
Because their marketing expertise teaches that they need to be flexible on the consumer level, P&G's executives know the dangers of complacency, and are trying to avoid it at higher levels of the company. "Because of the competitiveness of our business, we have to stay young, as it were, in the sense of fresh ideas and things," Smale said.
"It's very easy to just sit here and think that the world has always been the way it is today," Place said. "One of the big traps you can fall into as a company is not recognizing that tomorrow is not going to be the same as today. There is no stability. There is no eternal life for any product, or for any R&D program. In fact, to me, commercial success comes from being able to manage the dynamics of the marketplace."
In the maelstrom of change, Smale said it is hard to determine just what Procter & Gamble will look like in the future. "It's a lot easier to describe why we are where we are than it is to describe where we are going to be," he said.
Still, he said, he is sure of one thing: "This company indeed is going to be here in another 150 years. And one of the reasons I think I can have that kind of confidence is that we've been through so much," he said. "There's no way you can describe what the company will look like, but there will be a Procter & Gamble Co."