Higher is better

Ning: endorsing Gillette razors

After Tiger Woods, Thierry Henry and Roger Federer had appeared together in an ad campaign for shaving products in 2008, there were rumblings about the ‘Gillette curse’.

The Federer Express started to lose steam; Henry was forced to admit to a deliberate act of handball that put Ireland out of the World Cup; and Tiger Woods’ personal problems saw him transformed from sporting demigod to mere mortal almost overnight.

Let’s hope Ning Zetao escapes the same fate. The Chinese swimmer, recently tapped to endorse Gillette, is one of the athletes to watch at the Rio Olympics, after winning the 100-metres freestyle at last year’s world championships in Russia (see WiC292).

Certainly, P&G – which owns Gillette – needs some of the golden touch to reverse its fortunes in China, where it has spent much of the past year trying to explain why its sales have slumped.

In the third quarter of P&G’s fiscal calendar, which ended in March, its organic sales – i.e. revenues excluding acquisitions, divestitures and currency impact – fell 4% in China. That’s actually better than many expected, as previous quarters had recorded 8% declines, but still bleak news for a company that described its performance in China as “unacceptable” earlier this year.

Changes of leadership in its local business don’t seem to have revived the company’s fortunes, says Beijing Business Today, which notes P&G has replaced its head of sales three times in the last four years. Most recently, Lin Xiaohai, who has been with the Cincinnati-based firm for over two decades, “resigned for personal reasons”, although insiders say his departure has more to do with the disappointing results in the country.

After plenty of market research and internal discussion, P&G has come to the rather fundamental conclusion that the root of its problems in China is that its products are simply not “premium” enough.

“We looked at China too much like a developing market as opposed to the most discerning market in the world,” David Taylor, the chief executive, admitted to a conference in New York in the spring.

There were a lot of missed opportunities. Take diapers, where Pampers has been losing out to more expensive Japanese rivals. The reason: parents believe that Japanese imports are better quality and more absorbent. Pampers, on the other hand, chose to target mid-market consumers by producing its nappies at Chinese factories to keep costs down (see WiC299).

“I lived and worked in China in the mid-1990s, and probably 2% of the category was transacted at premium or super-premium price tiers,” Jon Moeller, the company’s CFO, told another gathering of analysts at a conference in Paris. “Today, that’s over 50%. It’s one of the most premium markets in the world.”

Moeller says the shift in purchasing behaviour was aided by local concerns about quality, particularly in the food and beverage industry.

“Chinese families responded by looking for the highest-quality products they could find,” he continued. “And in many cases, price became a proxy for quality, rightly or wrongly. So, that drove this change very, very quickly.”

To that end, P&G is trying to expand its range of higher-priced offerings.

Pampers has released a premium-priced product made in Japan. Its Ariel liquid detergent has been given a new look, and now comes in capsule format.

And there’s a luxury line of Oral B toothpaste that retails for Rmb159 ($24). The product, which is only available for sale in China at the moment, is the most expensive toothpaste ever introduced to the market. According to National Business Daily P&G says that the product is specially tailored for Chinese consumers, many of whom have neglected their dental health.

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