or Without Middlemen
Like many companies, Procter and Gamble (P&G) narrowed its focus not long ago, spinning off several businesses thought not to fit well with its core. Allegedly, spinning off businesses and being more focused is supposed to bring greater success. But, for the most part, merely shedding businesses does not necessarily mean that what remains will prosper. As P&G´s situation illustrates, it takes far more than greater focus to make companies thrive.
Even with a narrower stable of businesses, P&G continues to face challenges. It still must deal with slower growth. And, like many companies today, it has to concern itself with potential disruptive threats as rapidly changing technology alters the business landscape.
Furthermore, after shedding numerous businesses not thought suited to its core, Procter and Gamble is starting to do direct selling, a skill that likewise hardly fits the company´s core. And, direct selling may alienate retailers, thus, hindering P&G´s valuable retailer relationships, which clearly are integral to the company´s core. So, it remains to be seen how cutting out the middlemen can help P&G reignite growth. With the rise of online shopping, however, direct selling's elimination of the middleman has grown increasingly popular, not just for P&G, but for others as well.
P&G´s situation is discussed in the July 20, 2016 Wall Street Journal article “P&G Seeks to Turn Tide by Direct Selling” by Sharon Terlep. The article´s subhead is “Surprised by the Success of Dollar Shave Club, Retailer Takes Steps to Skip the Middleman.” According to the article, P&G “is looking for ways to cut out the middleman.” The article also reports that “P&G´s share of the men´s razor and blade businesses in North America fell to 59% last year from 71% in 2010, according to Euromonitor” and that “Dollar Shave Club had 5% of the market last year.”
Apparently, skipping the middleman is Procter and Gamble´s response to the threat of disruption by online companies like Dollar Shave Club, which was acquired by Unilever, a P&G rival. As I have written previously, however, responding to disruptive threats does not mean throwing away or eroding the existing business. Yet, P&G´s direct selling risks its core source of business, its retail middlemen. Nonetheless, some sources see eliminating the middleman as the way of the future. Furthermore, for consumer packaged goods companies like P&G, Amazon´s inroads into selling and delivering groceries and related items can make eliminating the middleman seem quite attractive.
As I see it, based upon my 25+ years researching business success and failure patterns, the directive to skip the middleman raises issues about whether P&G is paying enough attention to its strengths. P&G has strengths in its distribution relationships with retailers, including giants like Wal-Mart. Thus, cutting out those middlemen can be a success impeding disadvantage for P&G. Not only might retailers be alienated, but eliminating them shifts P&G toward areas where the company is not especially strong.
A key question is whether skipping the middleman really has merit as a solution to the disruptive threats P&G faces. Is P&G´s challenge really due to middlemen? Or, is it more likely the result of increased online shopping as well as a service brand—such as Dollar Shave Club—trumping traditional product branding as a driver of product sales? The latter two seem far more likely than the former.
So, why do away with P&G´s middlemen? Granted, skipping the middleman has been touted as the way of the future. But, might there be a better way? Why not address the latter two factors, which seem to be the real issues here regarding potential disruption? And, that might be better accomplished by working more collaboratively with middlemen retailers, if possible, rather than cutting them out.
Not all sources agree about P&G´s middleman goals. The recent Wall Street Journal article by Terlep seems to portray P&G as aiming to eliminate middlemen. But, other internet sources attribute more modest aspirations to P&G. Those sources say P&G is not trying to become an internet retailer per se, but is experimenting with middleman-free selling merely to collect data about the market. If so, I find P&G´s approach admirable for not overdoing a stray from its strengths. Even if the data only describes more digitally oriented market segments and misses those not predisposed to shop online, collecting it via middleman-free internet selling does have value. But, on the other hand, the value of middlemen is also important.
To build on that value, a major question is whether it is possible to create some sort of online product based clubs offered in conjunction with P&G´s retailers, instead of cutting them out. If that´s not doable, and/or P&G must have a direct sales online club, can they do it with an additional option that somehow involves retailers? After all, not just P&G, but also its middlemen can face disruptive threats from online subscription clubs. Consequently, middlemen would have an incentive to help promote P&G´s online merchandise clubs, perhaps as part of their own ecommerce efforts, if it is possible to find a way to jointly make this work.
Additionally, P&G should not disregard the trend toward consumers buying online and picking-up goods at the physical store. Tapping into this trend would seem to lend itself to offering subscription clubs through P&G´s existing retailers. After all, even Amazon, the powerhouse of online retailing, has recognized the value of physical locations where customers can pick up their purchases, and Amazon is integrating bricks and mortar with ecommerce.
In conclusion, it is beyond the scope of this article to define precisely what P&G should do. Rather, we raise questions here that companies like P&G should ask. And, unless they´ve thought these issues through, it´s not clear that they benefit from cutting out middlemen who play such a vital role in product sales.
La Grange Park, IL