The Procter & Gamble Company

views updated

The Procter & Gamble Company

One Procter & Gamble Plaza
Cincinnati, Ohio 45202
U.S.A.
(513)983-1100
Fax: (513)983-2060

Public Company
Incorporated: 1890
Employees: 79,000
Sales: $24.08 billion
Stock Exchanges: New York Cincinnati Amsterdam Paris Basel Geneva Lausanne Zurich Frankfurt Antwerp Brussels Tokyo

Few companies have influenced American lifestyles as has The Procter & Gamble Company (P & G). The company is recognized as one of the most aggressive marketers in the world. Committed to remaining the leader in almost all of the product markets in which it operates, P & G is among the larges advertisers in the world. Many customs of corporate America were first established at Procter & Gamble, including extensive market research, the brand-management system, and employee profit-sharing programs.

In 1837, William Procter and James Gamble formed Procter & Gamble, a partnership in Cincinnati, Ohio, to manufacture and sell candles and soap. Both men had emmigrated from the United Kingdom. William Procter emigrated from England in 1832 after his woolen shop in London had been destroyed by fire and burglary. Gamble came from Ireland as a young boy in 1819 when famine struck his native land. Both men settled in Cincinnati, then nicknamed “Porkopo-lis” for its booming hog-butchering trade. The suggestion for the partnership apparently came from their mutual father-in-law, Alexander Norris, who pointed out that Gamble’s trade— soapmaking—and Procter’s trade—candlemaking—both required use of lye, which was made from animal fat and wood ashes. The partnership began October 31, 1837, with paid-in capital of $7, 192.24.

Procter & Gamble first operated out of a storeroom at Main and Sixth streets. Procter ran the store while Gamble ran the manufacturing operation, which at that time consisted of a wooden kettle with a cast-iron bottom set up behind the shop. Early each morning James Gamble visited houses, hotels, and steamboats collecting ash and meat scraps. Gamble bartered soap cakes for the raw materials. Candles were Procter & Gamble’s most important product at that time.

Procter & Gamble was in competition with at least 14 other manufacturers in its early years, but the enterprising partners soon expanded their operations throughout neighboring Hamilton and Butler counties. James Gamble was assisted in his morning collection round by the company’s first employee. Cincinnati’s location on the Ohio River proved advantageous as the company began sending its goods downriver. In 1848 Cincinnati was also linked to the major cities of the East via rail, and Procter & Gamble grew.

About 1851, when P & G shipments were moving up and down the river and across the country by rail, the company’s famous moon-and-stars symbol was created. Because most people were illiterate at this time, trademarks were frequently used to distinguish one company’s products from another’s. Company lore asserts that the symbol was first drawn as a simple cross on boxes of Procter & Gamble’s Star brand candles by dock hands so that they would be easily identifiable when they arrived at their destinations. Another shipper later replaced the cross with an encircled star, and eventually William Procter added the familiar 13 stars, representing the original 13 U.S. colonies, and the man in the moon.

The moon-and-stars trademark became a symbol of the company’s quality. While some other companies short-weighted their goods, Procter & Gamble never did so, even if it meant charging more. This philosophy built up a base of loyal customers, and in the days before advertising, Procter & Gamble’s trademark was the only way of identifying the product. In 1875 when a Chicago soapmaker began using an almost-identical symbol, P & G sued and won. In 1882 it registered its trademark with the U.S. Patent Office to protect itself against future copycats. The emblem changed slightly over the years until 1930, when Cincinnati sculptor Ernest Bruce Has well refined the emblem to its current form.

During the 1850s Procter & Gamble’s business grew rapidly. In the early part of the decade the company moved its operations to a bigger factory. This location gave the company better access to shipping routes and stockyards where hogs were slaughtered. In 1854 the company leased an office building in downtown Cincinnati. Procter managed sales and bookkeeping and Gamble continued to run the manufacturing. By the end of the decade, the company’s annual sales were more than $1 million, and Procter & Gamble employed about 80 people.

Procter & Gamble’s operations were heavily dependent upon rosin—derived from pine sap—which was supplied from the South. In 1860 on the brink of the Civil War, two young cousins, James Norris Gamble and William Alexander Procter (both sons of the founders), traveled to New Orleans to buy as much rosin as they could. The two were successful in procuring a large supply at the bargain price of $1 a barrel. When wartime shortages forced competitors to cut production, Procter & Gamble prospered. The company supplied the Union Army with soap and candles, and the moon and stars became a familiar symbol with Union soldiers.

Although Procter & Gamble had foreseen the wartime scarcities, as time wore on, its stockpile of raw materials shrank. In order to keep up full production the company had to find new ways of manufacturing. Until 1863 lard stearin was used to produce the stearic acid for candlemaking. With lard in short supply and expensive, a new method was discovered to produce the stearic acid using tallow. What lard and lard stearin was available was instead developed into a cooking compound. The same process was later adapted to create Crisco, the first all-vegetable shortening. When P & G’s supply of rosin ran out toward the end of the war, the company experimented with silicate of soda as a substitute, which later became a key ingredient in modern soaps and detergents.

After the war Procter & Gamble expanded and updated its facilities. In 1869 the transcontinental railroad linked the two coasts and opened still more markets to Procter & Gamble. In 1875 the company hired its first full-time chemist to work with James Gamble on new products. One of those products was a new soap equal in quality to expensive castile soaps, but which could be produced less expensively. In 1878 Procter & Gamble’s White Soap hit the market with little more than the usual fanfare, but it was this product that catapulted P & G to the forefront of its industry.

The most distinctive characteristic of the product, soon renamed Ivory soap, was developed by accident. A worker accidently left a soap mixer on during his lunch break, causing more air than usual to be mixed in. Before long Procter & Gamble was receiving orders for “the floating soap.” Although the office was at first perplexed, the confusion was soon cleared up, and P & G’s formula for White Soap changed permanently.

Harley Procter, William Procter’s son, developed the new soap’s potential. Harley Procter was inspired to rename the soap by Psalm 45: “all thy garments smell of myrrh, and aloes, and cassia, out of the ivory palaces whereby they have made thee glad.” Procter devoted himself to the success of the new product and convinced the board of directors to advertise Ivory. Advertising was risky at the time; most advertisements were placed by disreputable manufacturers. Nevertheless, in 1882 the company approved an $11,000 annual advertising budget. The slogan “9944/100% pure” was a welcome dose of sobriety amidst the generally outlandish advertising claims of the day, and endeared Ivory to the public. Procter, committed to the excellence of the company’s products, had them analyzed and improved even before they went to market. This practice was the origin of P & G’s superior product development. Procter believed that “advertising alone couldn’t make a product successful—it was merely evidence of a manufacturer’s faith in the merit of the article.”

The success of Ivory and the ability of Procter & Gamble to spread its message further through the use of national advertising caused the company to grow rapidly in the 1880s. In 1886 P & G opened its new Ivorydale plant on the edge of Cincinnati to keep up with demand. In 1890 James N. Gamble hired a chemist, Harley James Morrison, to set up a laboratory at Ivorydale and improve the quality and consistency of Procter & Gamble’s products. P & G soon introduced another successful brand: Lenox soap. Marketed as a heavier-duty product, the yellow soap helped P & G reach sales of more than $3 million by 1889.

The 1880s was a decade filled with labor unrest, and Procter & Gamble was not exempt from the struggle. It experienced a number of strikes and demonstrations, and although these were relatively mild, the company sought to avert labor problems before they became significant. Behind P & G’s progressive labor policies was a founder’s grandson, William Cooper Procter. William Cooper Procter had joined the company in 1883 after his father, William Alexander Procter, requested that he return from the College of New Jersey (now Princeton University) just one month before graduation to help with the company’s affairs. The 24-year old learned the business from the ground up, starting in the soap factory. He quickly became acquainted with the circumstances and attitudes of the workers.

In 1885 the young Procter recommended that the workers be given Saturday afternoons off, and the company’s management agreed. Nevertheless there were 14 strikes over the next two years. In 1887 the company implemented a profit-sharing plan in order to intertwine the employees’ interests with those of the company. Although the semiannual dividends were met enthusiastically by employees, that enthusiasm rarely found its way back into the workplace. The next year William Cooper Procter recommended tying the bonuses to employee performance and received better results.

In 1890 Procter & Gamble incorporated, with William Alexander Procter as the first president. Two years later the company implemented an employee stock-purchase program, which in 1903 was tied to the profit-sharing plan. By 1915 about 61% of the company’s employees were participating. The company introduced a revolutionary sickness-disability program for its workers in 1915, and implemented an eight-hour workday in 1918. Procter & Gamble has been recognized as a leader in employee-benefit programs ever since.

Meanwhile, new soaps, including P & G White Naphtha introduced in 1902, kept P & G at the the forefront of the cleaning-products industry. In 1904 the company opened its second plant, in Kansas City, Missouri, followed by Port Ivory on Staten Island, New York. Also in 1907 William Cooper Procter became president of the company after his father’s suicide.

Procter & Gamble soon began experimenting with a hydrogenation process which combined liquid cottonseed oil with solid cottonseed oil. After several years of research, Procter & Gamble patented the procedure, and in 1911 Crisco was introduced to the public. Backed by strong advertising budget Crisco sales took off.

World War I brought shortages, but Procter & Gamble management had again foreseen the crisis and had stockpiled raw materials. William Cooper Procter was also active in the wartime fundraising effort.

During the 1920s the flurry of new products continued. Ivory Flakes came out in 1919. Chipso soap flakes for industrial laundry machines were introduced in 1921. In 1926 Camay was introduced and three years later Oxydol joined the P & G line of cleaning products. The company’s market research became more sophisticated when F.W. Blair, P & G chemist, began a six-month tour of U.S. kitchens and laundry rooms to assess the effectiveness of Procter & Gamble’s products in practical usage and to recommend improvements. After Blair returned, the economic-research department under, D. Paul Smelser, began the careful study of consumer behavior. Market research complemented Procter & Gamble’s laboratories and home economics department in bringing new technology to market.

Soon after Richard R. Deupree became president of the company in 1930, synthetic soap products hit the market. In 1933 Dreft, the first synthetic detergent for home use, was introduced, followed by the first synthetic hair shampoo, Drene, in 1934. Further improvements in synthetics resulted in a host of new products years later.

In 1931 Neil McElroy, a former promotions manager who had spent time in England and had an up-close view of Procter & Gamble’s rival Unilever, suggested a system of “one man—one brand.” In effect, each brand would operate as a separate business, competing with the products of other firms as well as those of Procter & Gamble. The system would include a brand assistant who would execute the policies of the brand manager and would be primed for the top job. Brand management became a fixture at Procter & Gamble, and was widely copied by other companies.

The Depression caused hardship for many U.S. corporations as well as for individuals, but Procter & Gamble emerged virtually unscathed. Radio took Procter & Gamble’s message into more homes than ever. In 1933 Procter & Gamble became a key sponsor of radio’s daytime serials, soon known as “soap operas.” In 1935 Procter & Gamble spent $2 million on national radio sponsorship, and by 1937 the amount was $4.5 million. In 1939 Procter & Gamble had 21 programs on the air and spent $9 million. That year P & G advertised on television for the first time, when Red Barber plugged Ivory soap during the first television broadcast of a major league baseball game—between the Brooklyn Dodgers and Cincinnati Reds.

In 1940 Procter & Gamble’s packaging expertise was given military applications when the government asked the company to oversee the construction and operation of ordinance plants. Procter & Gamble Defense Corporation operated as a subsidiary and filled government contracts for 60-milimeter mortar shells. Glycerin also became key to the war effort for its uses in explosives and medicine, and Procter & Gamble was one of the largest manufacturers of that product.

After World War II the availability of raw materials and new consumer attitudes set the stage for unprecedented growth. Procter & Gamble’s postwar miracle was Tide, a synthetic detergent that, together with home automatic washing machines, revolutionized the way people washed their clothes. The company was not ready for the consumer demand for heavy-duty detergent when it introduced the product in 1947; within two years Tide, backed by a $21 million advertising budget, was the number-one laundry detergent, outselling even the company’s own Oxydol and Duz. In 1950 Cheer was introduced as bluing detergent, and over the years other laundry products were also marketed: Dash in 1954, Bold in 1965, Era in 1972, and Solo in 1979.

The 1950s were highly profitable for the company. In 1955, after five years of research, Procter & Gamble firmly established itself in the toiletries business with Crest toothpaste. Researchers at the company and at Indiana University developed the toothpaste using stannous fluoride—a compound of flourine and tin—which could substantially reduce cavities. In 1960 the American Dental Association endorsed Crest, and the product was on its way to becoming the country’s number-one toothpaste, nudging past Colgate in 1962.

Procter & Gamble began acquiring smaller companies aggressively in the mid-1950s. In 1955 it bought the Lexington, Kentucky-based nut company W.T. Young Foods, and acquired Nebraska Consolidated Mills Company, owner of the Duncan Hines product line, a year later. In 1957 the Charmin Paper Company and the Clorox Chemical Company were also acquired.

In 1957, Neil McElroy, who had become Procter & Gamble president in 1948, left the company to serve as secretary of defense in President Dwight D. Eisenhower’s cabinet. He was replaced by Howard Morgens who, like his predecessor, had climbed the corporate ladder from the advertising side. In 1959 McElroy returned to Procter & Gamble as chairman and remained in that position until 1971, when Morgens succeeded him. Morgens remained CEO until 1974.

Morgens oversaw Procter & Gamble’s full-scale entry into the paper-goods markets. A new process developed in the late 1950s for drying wood pulp led to the introduction of White Cloud toilet paper in 1958, and Puffs tissues in 1960. Procter & Gamble’s Charmin brand of toilet paper was also made softer.

Procter & Gamble’s paper-products offensive culminated in the 1961 test marketing of Pampers disposable diapers. The idea for Pampers came from a Procter & Gamble researcher, Vic Mills, who was inspired while changing an infant grandchild’s diapers in 1956. The product consisted of three parts: a leak-proof outer plastic shell, several absorbent layers, and a porous film that let moisture pass through into the absorbent layers, but kept it from coming back. Test market results showed that parents liked the diapers, but disliked the 10¢-per-Pamper price. Procter & Gamble reduced the price to 6¢ and implemented a sales strategy emphasizing the product’s price. Pamper’s three-layer design was a phenomenal success, and within 20 years disposable diapers had gone from less than 1% to more than 75% of all diapers changes in the United States. Procter & Gamble improved the technology over the years, and added a premium brand, Luvs, in 1976.

In the 1960s Procter & Gamble faced charges from the Federal Trade Commission that its Clorox and Folgers acquisitions violated antitrust statutes. In a case that found its way to the Supreme Court, Procter & Gamble was finally forced to divest Clorox in 1967. The Folgers action was dismissed after Procter & Gamble agreed not to make any more grocery acquisitions for seven years, and coffee acquisitions for ten years.

In the late 1960s public attention on water pollution focused on a key group of ingredients in products—phosphates. After an initial struggle Procter & Gamble, along with other soapmakers, drastically reduced the use of phosphates in its products.

In 1974 Edward G. Harness became chairman and CEO of Procter & Gamble and the company continued its strong growth. Many familiar products were improved during the 1970s, and new ones were added as well, including Bounce fabric softener for the dryer in 1972 and Sure antiperspirant and Coast soap in 1974.

In 1977, after three years of test marketing, Procter & Gamble introduced Rely tampons. The product’s “super-absorbent” qualities contributed to its rapid acceptance. In 1980 the Centers for Disease Control (CDC) published a report showing a statistical link between the usage of Rely and a rare but often fatal disease known as toxic shock syndrome (TSS). The CDC reported that “35% of women were using Rely at the onset of TSS.” On September 22, 1980, the company suspended further sales of Rely tampons. The company took a $75 million write-off on the product.

In 1981 John G. Smale became CEO of Procter & Gamble. He had been president since 1974. Smale led the company further into the grocery business through a number of acquisitions. Procter & Gamble added the Ben Hill Griffin citrus products in 1981 to its Crush International soft drinks purchase of a year before. The company also entered the over-the-counter (OTC) drug market with the 1982 purchase of Norwich-Eaton Pharmaceuticals, makers of Pepto Bismol and Chloraseptic. The company completed its biggest purchase in 1985, with the acquisition of the Richardson-Vicks Company for $1.2 billion, and bought Dramamine and Metamucil from G.D. Searle & Company. These purchases made Procter & Gamble a leader in the over-the-counter drug sales.

In 1985, unable to squelch perennial rumors linking Procter & Gamble to Satanism, the company reluctantly removed the famous moon-and-stars logo from product packages. The logo began to reappear on some packages in the early 1990s, and the company continues to use the trademark on corporate stationary and on its building.

During fiscal 1985, Procter & Gamble experienced its first decline in earnings since 1953. Analysts said Procter & Gamble’s corporate structure had failed to respond to important changes in consumer shopping patterns. The company’s standard practice of extensive market research slowed its reaction to the rapidly changing market. The mass-marketing practices that had served Procter & Gamble so well in the past lost their punch as broadcast television viewership fell from 92% to 67% in the mid-1980s. Many large companies responded to the challenge of cable TV and increasingly market-specific media with appropriately targeted “micro-marketing” techniques. Procter & Gamble was forced to rethink its marketing strategy. In the latter years of the 1980s, Procter & Gamble diversified its advertising, reducing its reliance on network television. Computerized market research including point-of-sale scanning also provided the most up-to-date information on consumer buying trends.

In 1987, the company restructured its brand-management system into a “matrix system.” Category managers became responsible for several brands, making them sensitive to the profits of other Procter & Gamble products in their areas. Procter & Gamble brands continued to compete against one another, but far less actively. The restructuring also eliminated certain layers of management, quickening the decision-making process. The company became more aware of profitability than in the past. A company spokesperson summed it up for Business Week: “before it had been share, share, share. We get the share and the profits will follow.” In the later 1980s, Procter & Gamble did not settle just for market share.

Procter & Gamble initiated a major thrust overseas in the late 1980s as well, where its micro-marketing emphasis took cultural differences into account. Advertisments in Japan, for example, were less bold than those shown in U.S. markets.

In September 1988 Procter & Gamble made its first move into the cosmetics business with the purchase of Noxell Corporation, maker of Noxema products and Cover Girl cosmetics, in a $1.3 billion stock swap. Procter & Gamble also planned to further develop its international operations. In 1988, the company acquired Blendax, a European health- and beauty-care goods manufacturer. The Bain de Soleil sun care-product line was also purchased that year. By 1989, foreign markets accounted for nearly 40% of group sales, up from 14% in 1985.

In the late 1980s, health-care products were one of the fastest-growing markets as the U.S. population grew both older and more health conscious. To serve this market, Procter & Gamble’s OTC drug group, which had been built up earlier in the decade, entered a number of joint ventures in Pharmaceuticals. Procter & Gamble teamed up with the Syntex Corporation to formulate an OTC version of its best-selling antiarthritic, Naprosyn. Cooperative deals were also struck with the Dutch Gist-Brocades Company for its De-Nol ulcer medicine; UpJohn for its antibaldness drug, Minoxidil; and Triton Bioscience and Cetus for a synthetic interferon.

William Procter and James Gamble could never have imagined how their soap-and-candle company would blossom. After more than 150 years, the Procter & Gamble Company continues to maintain the same standards of quality that its founders introduced. The company continues to invest heavily in research and development, and remains committed to marketing products that are often superior to competitors’. Despite its recent stress on profitability, Procter & Gamble insists that it will continue to produce the best products. Former chairman John Smale and Edwin L. Artzt, who replaced Smale in early 1990, have been quite successful at adapting to new market conditions—container recycling has taken on new importance at P & G for the 1990s. Given the company’s long tradition of excellence, it is certain to remain a leader.

Principal Subsidiaries

The Procter & Gamble Distributing Company; The Procter & Gamble Manufacturing Company; The Procter & Gamble Paper Products Company; The Procter & Gamble Cellulose Corporation; The Folger Coffee Company; Norwich Eaton Pharmaceuticals, Inc.; Richardson-Vicks Inc.; Procter & Gamble A.G. (Switzerland); Procter & Gamble Benelux (Belgium); Procter & Gamble Inc. (Canada); Procter & Gamble España, S.A. (Spain); Procter & Gamble France; Procter & Gamble GmbH (Germany); Procter & Gamble Italia, S.p.A. (Italy); Procter & Gamble Limited (U.K.); Procter & Gamble de Mexico, S.A. de C.V.; Procter & Gamble Philippines, Inc.; Procter & Gamble de Venezuela, C.A.