Why I Can Agree With P&G’s Brand Cutting Plan

What is the news telling us? Not much.
Recently an increasing amount of news reports have covered P&G’s plan to cut brands. The story broke in the middle of 2014 and to date few details have been released, though there is plenty of water cooler speculation. As the story unfolds, I am curious about why P&G is divesting the brands we already know about, and what additional brands will be cut. There are so many articles online with different opinions and it is difficult for me to settle on an opinion of my own.

So I decided to try a cold analytical approach—analysis of the news reports online to see if I could uncover some hidden pattern. After searching the news database using inno360, I found 196 unique reports regarding P&G’s streamlining plan. The keyword analysis did not tell me a lot but I found “core business strength” and “core strength” collectively have been mentioned in more than 100 articles.

What is the core business strength of P&G?

I got curious about this topic and searched for more about “P&G‘s core business strength”. I found a P&G introspective on the subject (image). You’ll notice that it doesn’t speak to product categories, but instead to operational issues.

Reading down the list that explains the five core strengths in detail, a different imagery came to my mind as I pondered the inter-dependency of these core strengths.

No doubt that a company like P&G has to master all five core strengths in order to be successful. However, focusing on the top three strengths might be enough for a good business. Innovation capability is the rate-limiting choke point in the process that spans Consumer Understanding to production of a scaled popular brand with billion dollar sales. P&G realizes this so they leverage open innovation ecosystems to speed up the innovation process and maintain stronger pipeline—“more than half of all product innovation coming from P&G today includes at least one major component from an external partner.”

Thus, in my view P&G must protect the innovation core strength in order to remain fully effective after this streamlining plan, and to further evolve afterwards. The innovation core strength is distributed around categories, and it probably performs better in some than in others, and so I expect that P&G will not sell the category where they have the strongest infra-structure of innovation (high value IP and rich ecosystem of strong partners), and where they have invested heavily in R&D – in-spite of category performance.

“Clean and beauty” are major themes of P&G’s overall patent portfolio. This is especially true after we subtract themes associated only with snack, coffee, pet food and personal power categories:

I completed a domain analysis of P&G’s almost 21,000 patents (excluding duplicates, untitled, same family and personal power category) using the Patent Inspiration tool. Besides two unlabeled domains belonging to medical composition and food stuffs, all the technology domains are enablers of either clean or beauty positions and equities.

It is a surprise to no-one that in each and every clean and beauty related category that P&G plays there are strong competitors. It is therefore important for P&G to re-examine the strategy and technical strength in each category to refocus on the areas that converge on consumer needs, technical capability and business feasibility. I also expect that P&G will further strengthen technical capability and brand image in Clean and Beauty related categories.

Exit Personal Power Solution Category—Selling Duracell to Berkshire Hathaway Inc.
I wonder if you read this article and shared my initial feelings that Warren Buffet did not get a perfect deal. Since China is such a huge and expanding market (consider the population), and P&G unloaded Nanfu before selling Duracell to Berkshire.

As a generalization I note that for large companies like P&G their overall patenting activities reflect the R&D investment and its output (at least in terms of that which is made public). It indicates also the strength of the potential product pipeline – which if well directed will be reflected in future market success. If we consider Duracell (combined Duracell and Gillette in personal power technology) patenting as a subset of P&G patenting (including all P&G subsidiaries), we can see that the patenting activities of Duracell, relative to that of P&G, started a steep decline immediately after the acquisition in 2005 (ignore the data points of 2015).

An analysis of the text of all of the Duracell patents revealed that the 5 highest frequency words are (i) Alkaline; (ii) Anode; (iii) Battery; (iv) Cathode; (v) Electrolyte. Though in no way a critical analysis, the result is to my eye indicative that the main product and technology focus of the company is still alkaline batteries.

Counting the Patent Classification Codes for the patent set suggests that Primary cells (non-rechargeable) are the major product form upon which Duracell continues to focus. However, as massive a market as it is, non-rechargeable (primary cells) batteries of alkaline technology do not fit in the current global macro trend of sustainability. In addition, lithium-ion technology demonstrates better performance than alkaline technology.

Another indicator of the company’s core technology strength is Patent Value, measured by the frequency of citation of specific patent families by other inventors. In my Duracell Patent Value Analysis there seem to be few high value patents in the patent portfolio after The analysis indicates two things to me:

  1. The industry is not doing similar research nor following the technology path that Duracell has developed.
  2. The existing high value patents in Duracell’s patent portfolio are going to expire soon, at which time protection will be lost and competition will be able to close the gap.

My assessment is therefore that from a ‘strength of technological pipeline’ viewpoint it made sense for P&G to question the long-term competitiveness of this premier billion dollar brand that may have eroding technology value and decreasing R&D investment/output in a category with strong competition. Additionally, the Duracell innovation skillset does not complement well the core P&G skillset.

Learnings
It is typical that the 80-20 rule should apply to a company like P&G with a large number of brands: 80% (or a large portion) of the revenues are generated by 20% (a much smaller percentage) of the brands. Thus, finding and growing the next billion dollar brand should be the business focus rather than retaining and maintaining the entire brand portfolio. From the technology analysis I propose that P&G is using this streamlining plan to get back to their core of Clean and Beauty. In my view it is a good thing.

Overall, I like P&G’s brand shedding plan and believe it will help P&G to get on a new faster growing path. Strengthen the technology and brand claims around Clean and Beauty, and further identifying meaningful adjacent markets in which to leverage strong core technologies, could help P&G achieve the goal.

Qian Li, PhD

Associate

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