Procter & Gamble Balancing Luxury and Laundry

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Sept. 18 (Bloomberg) -- Robert Kaplan, professor at Harvard Business School and Bloomberg View columnist Bill Cohan examine Procter & Gamble's move into luxury products and what it may mean for the company going forward. They speak on Bloomberg Television's "Bloomberg Surveillance."

It is not growing as fast.

Well, this is a part of their strategy, and it has been for a while to move up market, luxury beauty, premium price products.

At the same time, they've got a very strategy to cut costs and make their products in developed countries, particularly the united states, more affordable because the consumers are more price sensitive.

They're doing both.


On the low end, they're doing a cheaper tide as well.

It speaks to the carved owl middle class.

Yeah, i'll go with that.

You know a.g. lafley.

I love how his strategy really works t. has an entire pen pant on microeconomics, must read.

Anyways, you've got lafley doing his thing.

Is he going to climb on board the previous c.e.o.'s idea?

He's going to continue that part of it, and he's all about the customer.

They have 25 different brands over a billion dollars, so they have a lot of different types of customers.

He realizes why they go into premium, and he will continue that.

They've got to make their core products more affordable.

Out of play do they have beer?

This beauty line, they're branding prestige, which is what they're pushing.

It's a segment of their beauty line.

Do they make a bronzer?

They make lots of bronzer.

Remember, most of their products are under a sub brand that they promote.

They have 25 different brands, again, which we said that are over a billion dollars, so they are good at promoting sub brands that don't use the name other than in the little corner.


When you look at this, who makes the decisions?

Who decides to go to the milan?

Is this the boardroom or some 28-year-old m.b.a. -- but it has four divisions that he's divided the company into, and each one of them is so man.

But one of his chief missions right now is to choose a successor because he wasn't supposed to be there for very long.

This is critical.

We love stella mccartney.

Let's go to milan.

How do you teach an h.b.f. how to delegate?

Well, you have to empower people.

They attract and retain and develop superb people, and they give them authority, and you've got to run this company in a decentralized way, and they do.

With that, how do you teach people to fail and not get hit over the head?

It starts with the tone at the top.

He you treat people like owners.

When they make mistakes, you support them, teach them, and keep moving on.

Whoever the c.e.o. is, whether it's going to be a.q. lafley, they are dealing with an effort to really boost organic sales.

If you look at the charts, whether it's fabric and home care or beauty or grooming, we're talking low single digit organic growth.

The chart is a little bit messy here, but the idea is that you're not looking at very big organic sales growth.

So when you talk about the activist investors coming in, rob kaplan, can they really make that much of a difference and move those 3% rates to somewhere in the neighborhood of 10%? no, i think activism has its place, but more likely on corporate restructuring, governance issues, maybe balance sheet issues.

Day-to-day operating management, they're not going to add a lot of value.

And so if you want to do that, you should buy the company.

P&g has bill ackman.

So you can have influence at that level, even though you can't booths sales 3% to 4%. that's the big problem ultimately.

He fond he could not have the same kind of influence at jcpenney, so it varies from situation to situation.

And that raises the question about a.g. lafley.

He has a good reputation.

He was transform active at p&g in the early years.

What is he going to bring to this company now, and is it enough, to scarlet's chart, to turn it around?

He's going back to what the basics.

Innovation, customer orientation, and in particular, he's got to continue the cost cutting and find a successor.

Let's tie this into fed day right now.

9% dividend growth, 3% dividend.

Over the last 10 years, procter & gamble has been a single-digit performer.

Granted, they're doing better.

Now, are they a slave to no, ma'am natural g.d.p. like any other big company where they need a better economy as their first order of solution?

Interestingly, this stock and this company looks more attractive in a sluggish economy, because it's a very -- these brands are very defensive.

What they have to do is innovate and keep driving costs.

And so i don't think -- they can do well in a weak economy also, but they're very sensitive to the health of the consumer, which is right now a little bit strapped.

Let's turn to sara eisen.

Would you buy a prestige shampoo from procter & gamble, or do you need some high-end -- of course i would.

Actually, it's interesting.

They own high-end brands, too, like frederick fekkai.

I use it.

I have a separate management question for you, rob, and that is, a.q. lafley had retired briefly.

He went to sarasota, florida, to live.

Cincinnati is the company's headquarters.

This company is cincinnati.

It's part of the identity and the fabric.

I can speak to that with authority.

Where is this leading to?

He's commuting.

He's living there temporarily and commuting.

And other c.e.o.'s have done this too.

Ed whitacre, for instance, lived temporarily in detroit.

Is that effective as a c.e.o.? do you need to live in the city?

I think it helps to live in the city, but a.g. lafley is not in this job for -- i don't think he's in this job for more than 24, 36 months.

Next week we're going to do an entire hour on procter & gamble.

That was really interesting.

We thank our producer, courtney.

She tried 14 procter & gamble shampoos to prepare us.

Tide pods.

That's the new innovation.

Tide what?


You throw it into the washing machine and everything comes clean, but it costs a lot more than the powder detergent.

Oh, ok.

And you use the right amount.

All right, and don't miss our special at 2:00 p.m. on the

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