The Cutting Edge: Procter & Gamble

The year 1830 saw the birth of the company called Procter & Gamble ("Procter & Gamble corporate history"). The company came about based solely upon a handshake between William Procter and James Gamble. The pair made soap and candles and saw steady growth during their initial years. Both partners were European immigrants, William Procter from England and James Gamble from Ireland. Procter sold his candles in Cincinnati, while Gamble was a soap maker apprentice. The pair met because they had the same taste in women, they married Olivia and Elizabeth Norris. Their father-in-law noticed that Procter and Gamble were in competition for similar raw resources, and recommended that they consider becoming business partners. This most basic of beginning has evolved into the biggest, most successful consumer goods business around the globe ("History of Innovation").

During this period, the country was in financial crisis ("Procter & Gamble Company"). Banks were closing and many thought that the United States itself would collapse. Yet, the partners continued to thrive, and in 1987 invested $3,596.47 each to start the Procter & Gamble Company. The business colleagues signed their partnership agreement on October 31, 1837, despite the fact that there were already fourteen other soap and candle makers in Cincinnati. The original office for the company was located just two blocks from the company’s current headquarters, a tribute to their enduring legacy ("History of Innovation").

The company never rested on its laurels and believed that the best way to achieving success was to be innovative and engage in continuous improvement ("History of Procter and Gamble"). If they find that they have made a substantial improvement, the company philosophy is to “improve on the improvement” ("History of Procter and Gamble"). The innovations and improvements were not limited to product, but the concept was attributed to their processes, to cost reduction, and advertising. As newspapers shuttled into the lives of the citizens, the age of advertising emerged. Procter & Gamble had their first print ad created to promote their machine and lamp oil, on June 29, 1838, in the Daily Gazette. William and James decided to further invest in their operation and in their effort to create the best quality candle, they engaged in research and then produced a new product, the star candle. The research took place at the Procter & Gamble plant on Central Avenue. The plant was near their raw material stockyards and also in close proximity to the Cincinnati canal, which provided them with easy access to transport their product to other developing markets in the Midwest. Unfortunately, the plant was lost in a raging fire on January 7, 1884 ("History of Procter and Gamble").

 In 1841, Gamble applied for a utility patent, the first in the company’s history, for a candle mold maker ("History of Innovation"). The company netted $37,000 by 1948, but by 1959, their slow and steady growth created sales of over $1,000,000, with a staff of eighty. At the time, their most successful product was lard oil, and their candles were in second place. Soaps and glycerin were the next most successful products on their lineup. Their moon and stars design started to appear on the crates that the partners shipped to their vendors. In 1850, this design appeared officially, to aid those handling their crates to differentiate their star candles. The image became the company’s logo and in 1860 was stamped on all their products and their letterhead ("History of Procter and Gamble"). The logo showed a man in the moon and 13 stars. The initial image was created by a company clerk who had sketched the stars on their crates so that they were distinguishable from the many others crates that were shipped at the same time. Later, a circle with a man in the moon was added to the stars, and recipients began to recognize the products by the logo on the crates they received. Eventually, vendors would refuse to accept the crates unless they had the logo on it, after which Procter & Gamble adopted the logo as their trademark. This logo was later replaced with the P& G word mark in 1993 ("History of Procter and Gamble").

Using their keen business acumen and foresight, and in anticipation of the likelihood of Civil War, Procter and Gamble sent their sons, William and James to purchase rosin, a raw material needed for making soaps in early 1861 ("History of Innovation"). The sons purchased a boat load of rosin at one dollar a barrel. Once the war broke, the price per barrel shot up to $15 per barrel and its reserves became scarce. Procter & Gamble was the only soap maker that had ample supplies of rosin, and consequently they were given numerous contracts to supply the military with soaps and candles, keeping their factory humming. Their consistent reliability during the Civil War caused them to obtain additional government contracts in World War II.

In the beginning, candles were Procter & Gamble’s best sellers ("History of Innovation"). Comparatively, the soap aspect was like a side job. Their candles were best in class, yet in 1867 their candle sales began to peak. In 1878, Procter and Gamble’s children were beginning to become part of the business, at this point. Several were graduating from college and became part of the family business. James Norris Gamble essentially became the COO of the factories, and made headway in the advancement of soap and candle creation. William Alexander Procter, involved in a variety of positions and oversaw the very profitable lard oil business. Harley Procter handled the sales and marketing aspects of the company. In 1879, James Norris Gamble introduced Ivory Soap, after years of research and tinkering. The soap was the first brand established by the company and became one of their best selling products. The key to the Ivory Soap brand was that you could use it on your body, but it was also able to clean clothes and more, saving the consumer money. Also, the soap was 99.44% pure, effective, lower in cost than the popular Castile soaps, and it was proven to float. A strong and compelling advertising program promoted Ivory Soap’s quality, and the rest is history ("History of Innovation"). The company trademarked Ivory the same year. The name Ivory was derived from a Psalms passage in the Bible ("History of Procter and Gamble").

Innovation was always the cornerstone of the company’s success. In 1882, Harley began the uncommon process of marketing to the masses through continuous national print advertising that shined a light and focus on Ivory’s purity ("History of Innovation"). In addition, the company produced radio soap operas which drew in the moms, just like our TV soap operas do today, just without the $2 billion advertising budget they have today (Swasy). Their competitors began to notice the impact that Harley’s strategies were having on the brand and began changing how they were conducting their marketing methods ("History of Innovation"). Another unusual practice used by Procter & Gamble, and now adopted by many of businesses since, is brand management – where competing brands are sold, despite the fact that they might cut into the profits of the other product (Swasy). In this strategy, the competing brands are set side by side as though they come from different companies. This is what Procter & Gamble did with Lenox Soap in 1884. Lenox Soap was the second in line to best-seller Ivory Soap. Selling Lenox Soap, a laundry cleaning bar, could have cannibalized the sales of other Procter & Gamble soaps, but it offered technological conveniences their other soaps did not, so they sold it anyway. The Lenox bar was formed to fit the users hand and worked particularly well when using a washboard.

Procter & Gamble Today

Today, Procter & Gamble is number 39 on the Forbes’ World Biggest Public Companies list with a market capitalization of $218.9 billion (“#39 Procter and Gamble”). The company’s current CEO is David Taylor, and still handles household and personal products at its headquarters in Cincinnati, Ohio, just two blocks from its original site. The company is still known for its research, development and innovation, but recent underwhelming company performance has hastened the call for a breakup because the company is considered simply too big (Trefis Team). Proponents of a breakup cite lack of agility as one of the factors screaming for attention. Also, breakers note that Procter & Gamble has recently been experiencing sluggish growth. Shareholder value accretion is another concern strengthening the clarion call. Yet naysayers cite that a Procter & Gamble breakup would cost shareholders too much money. In addition, they point to the fact that the company has already begun a restructuring program that will, in effect, address problem surrounding the need for a breakup (Trefis Team).

Agility. On the matter of the company’s lack of agility, when compared to smaller more sprightly enterprises, and the breakdown of its entrepreneurial spirit, which inspires growth, the no-breakers point to the company’s divestment program (Trefis Team). By selecting its underperformers and selling these brands to other companies, the loss in revenues will be limited and will impact minimal “total pre-tax profits” (Trefis Team). Also, the company should become leaner, due to the loss of associated bureaucracy.

Sluggish Revenue Growth Rate. The recent sluggish revenue growth rate has provided the breakers with additional breakup fodder (Trefis Team). Yet, Procter & Gamble’s, consolidation program is focusing on the company’s best-sellers. Essentially, the company’s plan is to extricate its deadweight with the goal of increasing “expansion and profitability” (Trefis Team). In addition, the company is going to reinvigorate the corporate culture of continuous innovation, one of its foundational principles, which the company has recently lost track of. The company has already started investing in its research and development program over the last two years. 

Accretion of Shareholder Value. Shareholder value protection and growth is at the top of Procter & Gamble’s list of must-do’s (Trefis Team). No-breakers cite that the $12.5 billion sale of the company’s beauty brand business is evidence of executives commitment to ensuring shareholder value grows. The sale of the beauty brand will cause a loss of 7% revenues, but 

non-GAAP EPS is expected to remain unaffected due to retirement of shares and reduction in overhead costs. Additionally, the company also plans to return a mammoth $70 billion to shareholders via dividends and share buybacks over the next four fiscal years. Notably, this will be accomplished without any impact on credit ratings by utilizing the cash realized from the Coty and Duracell transactions. This sufficiently demonstrates P&G’s capability to take care of its shareholders even amidst non-existent revenue growth and difficult macroeconomic environment (Trefis Team).

No-breakers point to the overwhelming costs associated with a breakup, the loss of the cost savings recent changes have inspired, distraction of management who would have to refocus on the new breakup plans, and other incremental costs that would creep into the process (Trefis Team).

Despite its recent issues, Procter & Gamble is still one of the most powerful household and personal care brands in the world, and is at the top of the list as The Most Effective Advertisers of 2016 (Rooney).

Works Cited

"#39 Procter and Gamble." Forbes. Forbes, Inc. n. d. Web. 25 August 2016. <http://www.forbes.com/companies/procter-gamble/>.

"History of Innovation." Proctor & Gamble. n. d. Web. 25 August 2016. <http://us.pg.com/who-we-are/heritage/history-of-innovation>.

"History of The Procter & Gamble Company." Reference for Business. Advameg, Inc. n. d. Web. 25 August 2016. <http://www.referenceforbusiness.com/history2/83/The-Procter-Gamble-Company.html>.

"Procter & Gamble Company." Reference for Business. Advameg, Inc. n. d. Web. 25 August 2016. <http://www.referenceforbusiness.com/businesses/M-Z/Procter-Gamble-Company.html>.

"Procter & Gamble corporate history." Marketplace. Minnesota Public Radio. n. d. Web. 25 August 2016. <http://www.marketplace.org/2008/05/20/procter-gamble-corporate-history>.

Rooney, Jennifer. "The Most Effective Advertisers Of 2016, According To The Effie Index, And What They Share In Common." Forbes. Forbes, Inc. 8 June 2016. Web. 25 August 2016. <http://www.forbes.com/sites/jenniferrooney/2016/06/08/the-most-effective-advertisers-of-2016-according-to-the-effie-index-and-what-they-share-in-common/#6bf5e8b74531>.

Swasy, Alecia. Soap Opera: The Inside Story of Procter & Gamble. New York: Times Books, 1993 Print.

Trefis Team. "Here's Why Procter & Gamble Should Not Break Up." Forbes. Forbes, Inc. 4 December 2015. Web. 25 August 2016. <http://www.forbes.com/sites/greatspeculations/2015/12/04/heres-why-procter-gamble-should-not-break-up/#63f810a14416>.