Dec 27, 2008

Business - Q&A COO Procter & Gamble (V.G.Read)

Vinay Kamath

Robert McDonald, Chief Operating Officer (COO) of consumer goods multinational Procter & Gamble (P&G), maker of several blockbuster brands such as Ariel and Head & Shoulders, among others, was listed as one of the star speakers at the Pan-IIT 2008 global conference. Zipping into Chennai in a corporate jet, McDonald, a former US Army Officer who served five years in the Army before joining P&G in 1980, spoke to BrandLine on P&G’s innovation, on competition and the Indian market.

Ask him how his military career helped him, he says, “The mission is different in the military but it’s all about leadership, its part of the same piece of cloth.” And if the techniques he learnt in the Army helped his corporate career, pat comes his reply: “Yes definitely, you get a lot of responsibility at a very young age and that usually means peoples lives and that’s a good way to learn.” Excerpts from an exclusive interview:

Your growth in China has been spectacular, perhaps mixed in India. How would you compare P&G’s performance in China vis-À-vis India?

Our Indian business is actually growing at a remarkable rate. Since the year 2000 our business has quintupled. The difference is in China too we started at the same time in 1988 when the economy opened up. Whereas, Hindustan Unilever is very strong and established in India. So, we are coming from behind but that can be a competitive advantage as well because you can leapfrog technology and infrastructure.

How would you compare the two markets — the Chinese and Indian? Are the growth rates comparable?

Our total sales would be more in China. In India, our sales would be lower, but we are in fewer product categories. Here, we are in about eight product categories; in the US we are in 21 categories. As a result, it is pretty obvious what our strategies will be going forward.

Bijoy Ghosh

How are you innovating products for the Indian market — would you say the market here is similar to markets elsewhere?

There are peculiarities to every market and we try to spend time and lot of money understanding individual consumers. When I arrived in Mumbai, the first thing I did was go to a consumer’s home — what I did was watched them use our products. I spoke to them about our products, looking for insights, nuggets of information we can use to innovate. Of course, there are lots of differences. I am visiting an Indian home after 17 years, and there are lots of changes I see. But the cultural things will remain the same.

For example, in China, every household has a washing machine, many don’t use it, but they have one. In India, I was talking to this lady, she was relatively well off, but said her husband wouldn’t buy her a washing machine because he said it would make her lazy.

So, we have to formulate our product differently since she is not using a machine, but we also have to understand her psychology because if her husband is measuring her energy levels on her washing, we have to help her be the hero of the family.

It’s fascinating, that’s one of the reasons I love my job. Can you imagine the versatility I get to see all around the world and the detective work we got to do to uncover these nuggets of knowledge that lead to innovation, and that leads to touching and improving lives, which is our goal.

Sometimes the consumer insight is blindingly simple, so what kind of insights have you gleaned from the Indian market that have helped you develop products?

One example is, in India, many of the households don’t have water supply for 24 hours, and they may have a pump and a tank, so we have to develop products, which are efficient in the use of water. And we have a product, which is available in many other international markets called Downys single rinse that allows consumers to use less water to rinse clothes thereby saving water. In some markets, the water they use is more expensive than the detergent. It’s true in Japan!

So you have to formulate for that kind of an environment.

In China, we discovered that the clothes were very dirty and because they were so dirty it was overwhelming the cleaning agents. So we took one of the cleaning agents, substituted something else and it cleaned better but if we use the formula anywhere else it would be a disaster.

I ran the Asia hair care business for five years. Asian hair is twice the diameter of Caucasian hair — if you look at the cross section under a microscope at Asian hair it’s much thicker than Caucasian hair — so, they need a lot more conditioning. If an Indian or a Japanese consumer buys shampoo in the US they won’t like it because it won’t condition your hair. Our job is to get close to consumers and formulate our products innovatively for those consumers.

So, is that why you launched Rejoice brand of shampoo in the Chinese and Indian markets?

Yes, they were specific for these markets. When we launched Rejoice in China 60 per cent of our business was anti-dandruff, which is a very high percentage to rest of the world, but Chinese consumers wash hair only once a week, so you have to take into account consumer needs.

Plus, you got such economic gradations you need a brand for people at the bottom and top of the pyramid, their habits and cultures are different.

So you have Pantene, Head & Shoulders and you also have different sizes, sachets, bottles, and the formulation will be different because the usage experience is different, you got to design it for the usage experience. It sounds complex because you have these different permutations, but it is all focused on consumer needs.

You said you are present in only eight categories in the Indian market — so do we see P&G entering more categories?

Of course, the US is our most developed market and there consumers spend $100 a year on P&G products in 21 categories so we would like to replicate that everywhere. India’s about a dollar a year, China is about $3, Mexico is about $20 and Russia is about $9 a year. So, it varies.

How do you view the development of modern trade in India?

We really haven’t seen the entry and dramatic growth of modern global retailers, even Wal Mart has small stores. We see quite a growth of small stores. Our job is to get our products to all stores.

Our largest customers globally are small stores. They would be 19 per cent of our business; Wal Mart would be 16 per cent of our business. So these small stores are critical to our business. So that’s why we set up an innovation centre in Bangalore to better understand these consumer needs.

So, you are not looking only at the premium end of the market you will look at the mass end of the market as well?

Our purpose is to improve lives. There are 6.5 billion people in the world; we are reaching 3.5 billion so we think by the end of decade it will be 4 billion. We still have 2.5 billion to go, those people tend to live in rural areas and at the bottom of the economic pyramid, so innovation is the challenge, how do we innovate for those people.

There was a time in the early part of the decade when P&G was very aggressive, took the battle to the Unilever camp, but somehow it seemed P&G withdrew from the battle. What’s your perspective on that?

Obviously if our business quintupled since the year 2000 we wouldn’t see it that way. We have lots of respect for Hindustan Unilever, Nirma and all of our competitors. This is a huge market and one that is growing quickly. There is plenty of room for everyone. So we are not fixated with any one competitor.

P&G did a lot of innovation on sanitary products and Whisper is a huge brand, would one see that kind of innovation where P&G would put its entire marketing buck behind new brands?

We put money behind all our brands. Whisper Choice has been a great innovation. Pampers is a good growing business too. We have said publicly that we are installing a diaper line somewhere in the world every two weeks.

We have two in India and adding one more.

Are you revisiting your distribution in the Indian market? You had the golden eye programme a few years ago to target the premium end only …

That is one of the things we did in India. But it is true globally we are trying to innovate in ways to reach markets so that we can reach more consumers.

We use distributors not stockists so it takes time to develop their capability but that’s the right thing to do.

P&G has major share of market elsewhere in the world, but somehow in detergents and shampoo you haven’t ramped up in India as in other markets to gain the share.

It takes time, not due to lack of investment or lack of innovation or capability. We went to Japan in 1973, we made our first profit in laundry in Japan in 1994 and now we are competing with Kao, a Japanese company, for leadership.

So it takes time, we have been around for 170 years, so we measure time in long spans. I am confident that we will do in India what we have done in other markets of the world.

The market for skincare and cosmetics has exploded around the world. But P&G, apart from Olay, hasn’t come in with its brands such as Max Factor, Cover Girl. Would you look at special formulations for the Indian market?

Something like cosmetics is very fashion oriented so you have got to be relevant to consumers in local markets — if you look at those 21 product categories and look at other eight categories in Indian market we have to get into those 13 categories and we have plans in place to do those.

In the earlier part of this decade, it seemed consumer goods giants like you and Levers were warring but now it seems that each is sticking to their markets and core strengths?

It’s good news that you are telling me that you are not seeing a war — we don’t want a war we want to go out and earn the respect and loyalty of consumers to our brands, we don’t want a war with competition.

Surprising coming from a military man, that you don’t want a war…?

Well, if you look at the history of warfare and you can decide what kind of war you want — guerrilla warfare is better for shareholders and employees!

Vicks is another huge brand for you. What plans do you have for it?

Last week, we announced a new home care strategy. Vicks has an important role in that strategy — India is one of the largest markets for Vicks. We bought Vicks in 1986-87 which gave us our first geographic footprint in Asia. If it wasn’t for that acquisition we wouldn’t have expanded as fast in Asia.

Is the great recession worrying you?

We have been around for 170 years. We have been through recessions, through currency crises.

I was in Asia in 1997 when the currency crisis exploded, I was in Japan after the Kobe earthquake, recession is part of life but you can’t lose your focus, you have got to keep innovating — if you innovate and launch great products consumers will buy them regardless of the economic conditions. Innovation is everything.