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Procter & Gamble and Nelson Peltz have a Pricing Problem: Gadfly | The Washington Post


Looking at individual business segments, too, this report echoed other recent P&G quarters. Once again, the grooming business was the most challenged, with organic sales declining 3 percent from a year earlier, as lower-priced insurgents keep taking market share. And again the SK-II brand — a luxury skin-care line that includes products such as a 2.7-ounce jar of face cream costing $230 — was a strong driver of growth in the beauty division.

One detail in Tuesday’s earnings report highlighted why such innovation is so urgent: P&G said pricing had a negative impact on its total sales haul. This came just one quarter after executives had bragged about a streak of 28 straight quarters of positive or neutral impact from pricing.

Yes, much of the quarter’s decline reflected smart, strategic price reductions in the Gillette razor brand to help it compete with upstart rivals. But P&G also said it had to cut prices in its value-oriented Luvs diaper brand, too, in response to aggressive moves by competitors.

P&G can only expect more challenges like this across its brand portfolio. For one thing, retailers such as Wal-Mart Stores Inc., Kroger Co. and Amazon.com Inc. are investing heavily in private brands. And as P&G CFO Jon Moeller pointed out, a slow-growth environment — which the consumer packaged-goods business is right now — can fuel steep pricing competition.

P&G has banked its turnaround strategy on investing in product performance, not price wars. That’s a fine approach, in theory. But these pressures could get too hard to ignore. It’s a good thing P&G and Peltz have publicly buried the hatchet; they’ll need each other’s help to figure this all out.

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Procter & Gamble and Nelson Peltz have a Pricing Problem: Gadfly – The Washington Post.

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