Tide, Pampers, Bounty, Gillette, Crest, Scope, and Febreze. What do they all have in common? They are just a few of the brands owned by Procter & Gamble (P&G), the iconic marketer of household products. The company was established in 1837 and today serves more than five billion people in more than 70 countries. In 2017, sales exceeded US$65 billion. Of the large collection of brands, 23 have annual sales above US$1 billion. It is estimated that 98 percent of North American households use at least one P&G product, a position that has grown largely by targeting middle-class consumers. However, P&G is facing a puzzling marketing dilemma because the number of mid-range shoppers is shrinking.

 

The source of the problem is the reduction in middle-class purchasing power. Many families are now pinched with rising prices for housing, food, gasoline, and medical products but little or no wage increases. This economic condition has been described as the "Consumer Hourglass Theory." Advocates of the theory believe that purchasing power has shifted away from the once-massive middle and is concentrated now at the bottom and top. That's where consumer action is now, at the high-end market and the low-end market.

Is this simply a short-term issue? Based on P&G's research, Melanie Healey, group president for P&G's business in North America, expects middle-class downsizing will be a continuing trend. Accordingly, P&G and other companies are rethinking their target markets. Aiming at the high-end segment, the company introduced its more expensive Olay Pro-X skin-care product. Previously, P&G introduced Gain, the bargain-priced dish soap, which is aimed at the growing lower portion of the previous middle-class market following a dip in sales of the mid-priced Tide brand. During the previous recession, P&G's lower-priced Luvs diapers gained market share from their higher-priced Pampers brand. Following a path like that of P&G, H. J. Heinz has developed more food products for the lower-priced markets. Meanwhile, retailers focusing on lower-income consumers, such as Winners and Dollarama, are attracting customers from higher-priced retailers.

 

Refocusing away from the mainstream middle onto high- and low-end consumers is a new marketing experience at P&G. They have increased market research on lower-income households, often using face-to-face interviews to gain an in-depth understanding of these consumers. So far, the low-end and the high-end segments each are generally smaller than the former massive middle-class market, which means P&G is splitting its marketing efforts. As one company official noted, historically they have been good at doing things on a larger scale, but now they are learning how to deal with smaller sales volumes for products in each of the two segments. New product development is affected, too, because the high-end segment often involves fewer products with attractive extra features that will sell profitably at higher prices. P&G is betting that the Hourglass Theory has set the course for the company's future.

 

QUESTIONS

1. P&G's marketing research includes face-to-face interviews for the situation described in this case. Would other forms of marketing research also be useful in this situation? Explain your reasoning.
2. Explain the roles of target marketing and market segmentation as they apply in this case.
3. In what ways are the components of P&G's marketing mix affected by the situation described in this case? Give examples.

Part 2: Reflection
Discuss how you will apply or use this information when you are working in the field of Human
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