UPDATE: It's "Tide Thursday" and it turns out Ad Age's story was mostly wrong. No significant price cuts were announced by P&G -- in fact, the company may stage some price increases! It seems that P&G learned the lessons of Marlboro Friday better than Age did. Procter & Gamble is set to announce price cuts to its Tide brand on Thursday, according to Ad Age. Tide, a premium brand, has lost market share to discount brands, and P&G wants to stem those losses, Age says.
This is boring news indeed unless you are part of the cult that worships "Philip Morris: Marlboro Friday," a case study published by the Harvard Business School and an article of faith among the MBA crowd. "Marlboro Friday" is to business school graduates what crack is to crack addicts: It encapsulates in a single (lengthy) anecdote the significance of price discounts, advertising, profit maximization and the idea of "cooperating" with your competitors in order to manage a market.
Age is suggesting that P&G may be about to do for laundry detergent what PM did for cigarettes in 1993 -- embark on a profit-crushing discount war.
But a closer look suggests Age may have jumped the gun by declaring that the success of PM's 1993 episode of marketing aggression is about to be repeated by P&G.
(Interestingly, the subhed on Jack Neff's article says "P&G Expected to Trim Prices," but the story itself does not specifically say that will happen. In fact, Neff's copy says, "Few people are expecting big across-the-board price cuts from P&G," belying the promise of the article.)
The nugget of the story comes from of a survey by Consumer Edge Research, which claims that 19 percent of Tide users have traded down for a discount brand and that most of them don't want to return to the more expensive P&G brand. P&G has lost revenue and share in Q1 2009, according to Age.
This, if true, places P&G is in superficially the same position as PM. Before 1993, PM's Marlboro dominated the premium cigarettes segment. RJ Reynolds dominated the discount cigarette channel with brands such as Austin and Jacks. (Never heard of them? That's because they're discount smokes -- you're not supposed to have heard of them.) But by 1993, RJR had increased its market share and PM had declined.
So PM announced a price war: It would cut the price of Marlboro and begin a customer loyalty program, the "Marlboro Adventure Team," that rewarded smokers who stuck with the brand. The move crushed PM's stock and profits, and a lot of packaged goods marketers' stocks suffered alongside.
This is pretty much where Age's explanation of Marlboro Friday ends -- it was the day a big brand died by deciding to rely on discounts, promotions and tons of advertising.
The real significance of Marlboro Friday, however, is what happened afterwards. PM also raised the prices of its discount brands and eventually PM regained its share from RJR and preserved the dominance of Marlboro. From that point on, both companies concentrated on loyalty programs for their own smokers (remember RJR's Camel Cash?), not on discount wars to steal each other's customers. PM wasn't capitulating to a price war, but signalling to RJR that both companies should stay in their niches -- premium and discount -- and not undermine each other. PM's stock regained its value within two years. By going back to their niches, both companies made more money; they were no longer burning their profits by competing.
Is this what P&G is doing, signalling to Clorox et al to stay within their niches? Possibly, but there are some key differences. First, no one is addicted to laundry liquid the way they are to cigarettes. The repetitive consistency of laundry isn't as resistant to price changes as the repetitive consistency of smoking. All detergents clean clothes -- not all cigs taste the same to smokers.
Second, consumers aren't trading down because competitors are in a price war, they're trading down because they have less money due to the recession. It's not clear where discount detergent makers are supposed to retreat to -- they've always been cheap. It's P&G's brands that are the problem, not theirs.
Third, the significance of Marlboro Friday is that it was entirely generated by internal category competitive measures, not external environmental factors. Thus, P&G may have started a price war that it cannot finish, because there is no way to win a discounting battle by stealing share and then, later, re-raising prices if your consumers feel they don't have enough money to remain brand loyal. And when the recession ends and consumers again feel rich, the experience may only have taught them about the relative value of discount brands.