Behind P&G's Risky Decision to Open Its Own Online Store [Updated]

Last Updated Jan 22, 2010 9:04 PM EST

(NOTE: Item has been updated.) Consumer-goods giant Proctor & Gamble officially opened its own e-commerce site last week. The big question is why it bothered, given that it runs a very real risk of annoying its retail partners -- seemingly for relatively little gain.

Here's one thought: P&G may be laying the groundwork to link its own branded e-commerce site to a social-media marketing strategy. Recently, it's been encouraging managers for each of its brands to create Facebook fan pages, and it recently opened a Silicon Valley office as a base for developing its social-networking strategy, Advertising Age reports.

Other major brands have already begun using social media to sell -- Dell, for instance, has moved $7 million of its goods through Twitter without much difficulty. P&G could well be looking for new ways to reach customers online â€"- particularly younger shoppers -â€" and provide them with an easy way to instantly buy their products without leaving home.

Of course, that's not what P&G says. Describing the site as a "learning lab" for building its online brand, the company has pledged to share information it gleans about shoppers' habits with its retail partners. The company's big brands, including Tide, Olay and Pampers, will be offered through the site, with $5 flat shipping available.

Fine so far. But P&G already sells a half-billion dollars worth of goods online, much of it through Amazon.com. There's a fundamental rule in wholesaling -â€" if you compete directly with your retailers (both online and off) too much, you tend to piss them off. P&G has so far managed to sell a substantial amount of its wares to customers online without inciting the ire of major retailers such as Walmart. But it's not hard to see why its distribution partners might get a bit hot under the collar at the notion of competing online with P&G itself.

What's more, if P&G just wanted to learn about customer behavior, it could conduct focus groups, analyze its Amazon data or take any number of other steps to study online buying habits. It doesn't really need to open its own online store.

On the other hand, P&G's eStore is currently password-protected and available to just 5,000 selected consumers. If they're smart, P&G managers will keep it to a limited audience. That would go a long way toward keeping retailers -â€" some of whom have decreased their stock of P&G goods in recent years in favor of their own private-label goods -â€" pacified.

One more point to ponder: P&G has quietly had this online store up for more than a year. P&G told the Financial Times in 2008 that it was treating the site â€"- operated by third party e-commerce vendor PFSweb -â€" as it would any other retailer. The real news seems to be P&G's more hand-on role, and its decision to raise its online profile by broadcasting its growing involvement in the site.

  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include Allbusiness.com and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.