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1 + 1 = 3

By: Jeb Gleason-Allured
Posted: September 4, 2009, from the September 2009 issue of GCI Magazine.

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“Fragrance is what I call one of the ‘ultimate multipliers’ in this business,” says Hicks. “We developed Tide to make cleaner clothes and Pantene to make softer and shinier hair, and Crest toothpaste for healthier teeth. But a superior fragrance or flavor experience in the context of those brands makes the overall experience for the consumers better. Superior flavors and fragrances build brands for us.” Delivering this “consumer delight” in addition to performance results in brands that are greater than the sum of their parts: “It’s like 1 + 1 = 3.”

“I think you’ll continue to see strong investment in fragrances and flavors by companies like mine,” he says. “That’s for a good reason: the consumers respond. [Flavors and fragrances] certainly contribute to the size of our business because of that.”

The Cost Basis of Developing Markets

Like other consumer products companies, P&G has identified strong opportunities for continuing economic and brand growth in the developing world. However, says Hicks, “the hard reality in terms of the fragrance business is that there is a different cost basis. The cost profiles that we’ve all been able to afford, in developed markets like Western Europe and the United States versus what you need to be able to compete in India or China or Southeast Asia, are different.” He offers the example of Crest toothpaste, which originated in the U.S. and now appears on the Chinese market. While the brand has been successful in this new arena, Hicks points out that even the premium price points in China fall in the range of just $1 or $2. Non-premium offerings of course sell for much less. “It’s extremely successful,” Hicks says of the brand, “but it’s an entirely different economic reality. You have to look at how you balance the economics of the flavors and fragrances that you use so that you can offer value to the consumers based on what they can afford in those marketplaces.”

Challenging Belief Systems

“Part of our philosophy [at P&G] is challenging belief systems,” says Hicks. “Sometimes I find that belief systems in a category can hold that category in a grip that limits its innovation. [P&G has] always believed that it has fundamentals that can translate well between businesses.” The company’s unexpected entry into fine fragrances in the early 1990s highlights this business philosophy. Founded 172 years ago, P&G evolved from a candle company to a soap company to an organization with expertise across dozens of consumer product categories. “We’ve had strong capabilities in flavors and fragrances inside the company for decades,” says Hicks. “We made a choice to have the ability to create perfumes inside the company and have kept that capability.” Combining this internal expertise, partnerships with fragrance suppliers and lessons learned from optimizing brands in other categories, P&G grew its modest fine fragrance business of “tens of millions of dollars” into a “multibillion dollar business behemoth.” Hicks notes, “It’s arguably one of the more successful things that we’ve done in the broader beauty care business.”

Hicks adds, “We discovered we can innovate in new fine fragrances in ways that drive enormous consumer passion. Some of it involved reapplying some of the consumer understanding work and development techniques from other parts of the business, and some of it was things we learned that were novel to that category. There are some people who might believe there’s nothing in consumer product perfumery that could possibly benefit fine fragrances or that there’s nothing in fine fragrances that would be affordable in consumer products, or that consumer understanding research limits creativity. We found [that] none of that is true.” P&G, in Hicks’ words, has “laddered up” consumer product perfumery aspects into fine fragrance while bringing affordable facets of fine fragrance to consumer categories. Meanwhile, he credits much of the company’s consumer loyalty and passion to consumer understanding.

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