P&G Lines Up This New Growth Strategy

Procter & Gamble (NYSE:PG) won’t let tradition come in the way of its rescue efforts in developed markets. The company lost 0.2 points off its overall market share in the third quarter and, more worryingly, 0.6 points in just North America, where it has seen stagnant growth lately, but the standard approach in such a scenario — focusing on emerging markets — is not the only strategy for P&G. It has another play: innovation.

“Innovation as we’ve seen many times is the best antidote to sluggish growth in developed markets,” company chief financial officer Jon Moeller said in a call with investors on Friday.

P&G has been forced to lower prices of its powdered laundry detergent in the U.S., but the North American laundry business was not all bad news for the company in the third quarter. Its new Tide single-dose laundry detergent pods captured 67 percent of the unit-dose market within just one month of their launch. The company is expecting the product to eventually account for 30 percent of the U.S. laundry business, and is planning similar innovative products in other areas as well.

“We’re upgrading existing products with innovations like the Crest and Oral-B Pro(equals)Health Clinical lineup and a significant performance improvement across the Bounty franchise,” Moeller added.

While the company is also rolling back prices of some laundry products in Mexico and the U.K., and of oral care products, blades, and razors in the U.S., some price increases have stuck. The rollbacks are worth about $100 million to $200 million, but the company has already gained about $3.5 billion in revenue through the increases. “We do not currently expect a broad scale reversal of the price increases we implemented over the past five quarters or those we’re implementing right now,” Moeller added.

Net income fell 16 percent to $2.41 billion during the January to March quarter, and revenue of $20.19 billion was short of analyst expectations, leading the company to bring down its guidance for the full fiscal year. It now expects a 2012 net income of $3.82 to $3.88 per share, excluding one-time costs, down from the earlier guidance of $3.93 to $4.03.

However, P&G is hoping that a combination of product innovation and geographic expansion, along with cost-cutting measures that are projected to save $10 billion by the end of the fiscal year ending 2016, will help it tide over current problems.

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