Reflecting higher value creation based on its differentiation
strategy, P&G generally charges a 20–40 percent
premium for its products in comparison to retailers’ private label
brands. For instance, a 150-oz. container of liquid
Tide detergent is $18 at Target, while the retailer’s private label
brand is priced at $15. Given recent recessionary
pressures on disposable household incomes, many consumers
switched to private-label brands that they felt
did just as fine a job. Not only
has P&G lost market share
because of its higher prices to
consumers; its profit margins
have also been squeezed by rising costs of input factors.
One underlying problem that P&G is facing is that
rather than creating new product categories that it is
famous for, it is tweaking existing products incrementally.
P&G’s recent major product breakthroughs such as
Swiffer cleaning devices and supplies, Crest Whitestrips,
and Febreze odor fresheners were all launched over a
decade ago. In an attempt to bring in more innovation
from the outside through its Connect 1 Develop initiative,
P&G has slashed its R&D spending in recent years by as
much as 50 percent, and is now spending less than some
of its rivals. The Connect 1 Develop initiative was put in
place by A. G. Lafley during his first term as P&G’s CEO