There was a time not long ago when Procter & Gamble's reputation for marketing prowess was a reflection of its competencies in both communications and product innovation--old school marketing comprising the 4 p's of product, placement, promotion, and pricing. That reputation translated into pricing power and outsized margins that wound their way down to net income and stock price. No more. Bloomberg reports that Procter and Gamble is now trading at a 22% discount to the 31-company Bloombert Industies Global Household Products Index.

The loss of innovation Mojo traces back to what was then celebrated as a brilliant stroke of open innovation. P&G let go of control of innovation, killed-off the not-invented-here bias, and advanced the mindset of "proudly invented elsewhere." By 2006, more than 35 percent of P&G's new products in market had elements that originated from outside P&G. The Harvard Business Review promoted this turn of events as an evolution to be emulated.

Increasingly, its looking like another case of it-seemed-like-a-good-idea-at-the-time. "There’s been a dearth of pioneering brands emerging from the world’s largest consumer-products company. Spending on research and development in fiscal 2012 ended June 30 was $2.03 billion, or 2.4 percent of sales, the same as the prior year and down from 3 percent of sales in 2006. P&G’s most recent homegrown blockbusters -- Swiffer cleaning devices, Crest Whitestrips, and Febreze odor fresheners -- all went on sale at least a decade ago, reports Bloomberg."

The Steel City Re reputation metrics indicate that P&G is a well regarded powerhouse ranking in the 95th percentile among the 43 members of the Household/Personal Care products sector. But its reputation is shaky. Its most recent reputational volatility is ranked in the 58th percentile of its peer group; for the past year, it was only ranked in the 14th percentile. There is no clear directionality, but our experience suggests that when a stable giant begins to shake, the direction is more likely than not downward.

The rest of the nation is sweltering under a general heat wave but it pales in comparison to the burning platform supporting Bob McDonald in Cincinatti. Activist investor Bill Ackman is wielding the torch.

Writes Slate Magazine (R Cyran, 13 July), “Procter & Gamble is a hulking target for an uppity investor like Bill Ackman… Since Bob McDonald replaced Lafley as CEO in 2009, the shares are up 16 percent. The S&P 500 index, however, has gained more than 40 percent over the same span, and rival Colgate’s stock is up almost 50 percent.” We could go on documenting the case being built agains McDonald. Let’s cut to the chase and turn to the Steel City Re reputation metrics.



Over the past few years, Procter & Gamble morphed itself from an marketing/R&D/product development giant into a marketing/licensing/sales machine. Only problem is, it is paying a premium for innovation and is being squeezed by the big box retailers on the other end of the value chain. What do the reputation metrics show? There are 347 companies in the Consumer Non-Durables sector of which 44 compete in the Household/Personal care Industry where Procter & Gamble is one of 20 firms with market caps of $175 billion +/- 35%. Among this peer group, the company’s reputation rank has slipped to the 91st percentile. All of its directional derivative metrics – both its velocity and vector -- are negative. The vital signs chart shows that its reputation value is very volatile. Historically it ranked in the 7th percentile; now it is in the 68th percentile relative to its peers. Its return on equity is in the 60th percentile having lost 3% over the trailing twelve months (median -4%, S&P500 -0.6%). Forward looking metrics show an above average level of stability, which is not good when the trend is negative. Procter & Gamble is a company whose reputation once stood for innovation. The company monetized that innovation with fabulous marketing. It still has great brands, for sure, but what does that mean today if the value chain leaves little for the brand owner at the end?