What do a water-purifying agent, an anti-bacterial soap and an anti-ageing cream have in common? They are all award-winning, life-improving products developed by Proctor & Gamble (P&G) in response to real-life consumer needs, wants and desires.
Going by the adage of providing branded products and services of superior quality and value that will improve the lives of the world's consumers, now and for generations to come, P&G has created more than 300 branded products which are found in 80 countries.
The company, with its headquarters at Ohio, has to date nurtured 23 billion-dollar brands - those that generate at least US$1 billion in sales each year, gone towards the US$83 billion in revenue that the company earned for the last financial year. The company employs more than 135,000 employees worldwide and has enjoyed 4-6% organic growth annually since the beginning of the decade. In the last three years, it has delivered annual profit growth north of 10%. Even in the economic downturn of 2008, P&G registered a 2% growth in earnings per share.
At a recent seminar organised by the Singapore Management University's (SMU) Institute of Innovation and Entrepreneurship, Dr Shekhar Mitra, P&G's Senior Vice-President of Research and Development, shared how the 172-year-old multi-national giant, which started as a small, family-operated soap and candle company, has consistently developed award-winning consumer products through its open innovation network driven by knowledge-based leadership. The company's values of integrity, leadership, ownership, passion for winning and trust, have been integral to this process.
Innovation inspired by consumer needs can be a powerful transformational experience, said Mitra. P&G focuses its research and development on products that meet needs in the areas of health, family and confidence-building. Whether it is an anti-bacterial soap that improves the quality of life for children in developing nations, or daily essentials like laundry detergent and bleach, or fragrances and skin care products that build up individual confidence and self-esteem, these products were all developed with the aim of creating a meaningful consumer experience with long-term sustainability in terms of product, packaging and operations.
Innovation, which is the lifeblood of P&G, is driven by three guiding principles. One of these is having a global view of scale. We create platforms that cut across specific consumer groups. There can be slight tweaks but these scale-driven platforms can essentially go round the globe. You need to know your consumer targets. When you look at consumers in cities like Shanghai and New York, there isn't really much difference. So when we design Dolce & Gabbana perfume, the chemistry inside the bottle is such that consumers across these cities love it, explained Mitra.
Secondly, the company believes that innovation can only occur at the confluence of ideas, and hence, its openness to game-changing innovation proposals from external partners. There is power in internal and external connections and having a culture of open innovation. Many of our products were the result of making connections across our internal brands and core competencies, said Mitra. For example, Crest WhiteStrips, teeth-whitening home kit, was a consumer product that resulted from P&G's knowledge of bleaching technology.
The world is an incubator of ideas that we have never even heard of, and we were missing it left and right. We had consumer inspiration that were written into problem statements for our top-notch creative thinkers and we couldn't come up with a solution. So we started on this culture of open innovation to create win-win partnerships, said Mitra.
Thus, what he did was to post it on the Internet, and he got ten suggestions each from India, Mexico and China - all of which are large, developing markets in their own right. Now, the company's extensive innovation network includes governments, entrepreneurs, medical associations, universities and research centres. The peptide technology, which was developed by a small French cosmetics company, and which is the key component of its hit Olay Regenerist skincare range, was discovered through this network.
Thirdly, P&G's commitment to social responsibility by providing products and services that improve consumers' lives, in terms of health, hygiene and convenience is one of their spring boards to new product creations, he said.
The most well-known ones are the PUR water-purifying agent and the Safeguard anti-bacterial soap. The former was developed in collaboration with the United States Center for Disease Control and Prevention to meet the need for safe drinking water in rural communities. The powdered mixture's ability to reduce bacteria, viruses and parasites in polluted water and its small packaging makes it a convenient water-purification tool that has reduced diarrhea-related disease in the developing world by up to 90%. It has also been considered an effective technology by the World Health Organization.
Today, more than one billion litres of clean drinking water have been provided by global relief organisations such as World Vision and AmeriCares through the use of PUR packets, and has touched almost 10 million children. Safeguard, which is the world's top-selling anti-bacterial soap brand, has been used to educate rural children on basic hygiene practices, helping them to reduce the incidence of diarrhea by 50%. The children then share the hygiene procedures they have learnt with their families so that the overall health of the village is also improved. It is an amazing instance of how innovation can really touch lives, he said.
Meaningful, measurable and noticeable
The innovative approach to developing consumer-meaningful products requires the implementation of right and left brain thinking, said Mitra. All P&G products must pass the tests of being meaningful, measurable and noticeable, that is: it must assure consumer desire (meaningful), consumer performance (measurable), and consumer delight (noticeable). The company uses a holistic 360-degree innovation model that includes talking to consumers and trend influencers such as beauty journalists and dermatologists, studying the target market, and most importantly, analysing how to get the desired consumer experience.
When I create the technology that removes spots, the consumer is not going to buy it at any cost. We found out that the beauty industry is not just about products, but also deep-down emotions. It gives us tremendous inspiration to fix the technology where the 'noticeable needs' as well as the 'emotional and experiential needs' are met before it goes out. We then highlight all these through 'touch-point holistic marketing' and bring it all to life at the stores. That's what makes Olay a US$2.5 billion brand, said Mitra, referring to a leading skin-care product range under the P&G umbrella.
Long road of innovation
The journey from innovation to an affordable and desirable product is fraught with challenges and past case studies have shown that the experiential aspect of a product can make or break a product. Even the poorest consumers in the rural parts of India have a value equation, which is not only price but also the experience, said Mitra. Citing the case of bringing P&G's Crest toothpaste to China, he said that they initially lost market share because the product did not converge with the palette of flavours and habits the Chinese have grown up with, even though the product was very affordable. P&G had to re-look its innovation process to meet the value equation expected by the target market.
Building customer loyalty for each innovative product is also an intricate process. When a consumer looks at a shelf or a counter, there are two moments of truth. The first is the packaging. Is it attractive and logical to what the company is selling? The more important one is the second moment of truth: Is it a delightful product to use and does it bring about meaningful change? If it happens, you're loyal to the product, said Mitra.
He used the case of Olay Regenerist as an illustration. When this product was launched, the trial rate - the percentage of skincare users trying out the product - was 6-8%. But the conversion rate was 50%, so one in two women would repurchase the product. That's loyalty, said Mitra.
Upholding the innovative culture of P&G is a model of knowledge-based leadership where technical mastery, collaboration and excellent execution are deemed critical skills. Leaders must behave like the CEO of the business by being self-directed and visionary, said Mitra. They must be able to advocate vision and business interest objectively in a win-win manner, as well as possess an ability to initiate action, urgency and perfectionism on the 20% of things that would fetch 80% of results. It's important for us that our people are entrepreneurial and are making a difference to the lives of our consumers.
Thus, without the company's commitment to creating products that improve consumers all around the world, coupled with the firm belief that the only way to do so is via open innovation, it is difficult to imagine what the humble soap company would be today.