the multiple signs of aging. The products marked a significant improvement in skin-care performance for consumers.
The new, more effective products could credibly be sold in departments stores like Macy’s and Saks, the prestige channel that accounted for more than half of the market. Olay had traditionally been sold only in the mass channel, through drugstores and discount retailers. These mass retailers, including Walgreens, Target, and Walmart, were P&G’s biggest and best customers across multiple categories. But the company had precious little experience in, and influence with, department stores, where it sold in just a few categories. To play to P&G’s strengths, it made sense to stay in mass channels, but only if department store consumers would defect there for Olay. To win with Olay in mass, the company had to bridge the mass and prestige markets, creating what it would come to call a masstige category. Olay needed to shift the perception of beauty care in the mass channel, selling higher-end, more prestigious products in a traditionally high-volume environment. It needed to attract consumers from both the mass and the prestige channels. To do so, the product itself was only a part of the battle; Olay also needed to shift consumer perception of the brand and channel through its positioning, packaging, pricing, and promotions.
First, Olay needed to convince skin-care-savvy women that the new Olay products were just as good as, or better than, higher-priced competitors. It began with advertising in the same magazines and on the same television shows as those populated by the more expensive brands; the idea was to put Olay into the same category in the consumer’s mind. Ads highlighted Olay as the way to fight “the seven signs of aging,” and outside experts were enlisted to bolster claims relating to the new and better ingredients. Drosos explains, “We developed a breakthrough external-relations and credentialing program. We determined who would be the key influencers for consumers. We opened our labs to some of the top dermatologists to come in to see the work we were doing.” Independent tests, which showed Olay products performing as well as or better than department store brands costing hundreds of dollars more, helped reframe consumer perceptions of performance and value. All of a sudden, Olay was seen as offering high-quality products at an affordable price.
Olay also needed to look the part. The packaging had to represent an aspiration, but also effectively deliver the product. Recalls Listro, “Most products in mass, and even prestige to some extent, were sold either in squeeze bottles or in generic jars. What we were looking for was a technology that could deliver a thick cream elegantly, more like a lotion. We found this design that could actually pump creams.” The result: a package that would look distinctive and impressive on the shelf, but also work effectively once the product was at home.
Pricing was the next element. Traditionally, Olay products had sold, like most drugstore brands, in the sub-$8 price category (compared with department store brands, which could be priced anywhere from $25 to $400 or more). As Drosos explains, in skin care, there was the pervasive belief “that you get what you pay for. Women felt the products available in the mass-market channel were just not as good.” Olay’s advertising and packaging promised a high-quality, effective product that could compete with department store brands. Its pricing needed to hit the perfect note as well—not so high that mass consumers would be turned off, but not so low that prestige consumers would doubt its efficacy (no matter what those independent experts said).
Listro recalls the testing that went on to determine the pricing strategy for Olay Total Effects: “We started to test the new Olay product at premium price points of $12.99 to $18.99 and got very different results at those price points.” At $12.99, there was a positive response and a reasonably good rate of purchase intent (a stated intention to buy the product in the future). But most of the subjects who signaled a desire to buy at $12.99 were mass shoppers. Very few department store shoppers were interested at that price point. “Basically,” explains Listro, “we were trading people up from within the channel.” That was good, but not enough. At $15.99, purchase intent dropped considerably. Then, at $18.99, purchase intent went back up again—way up. “So, $12.99 was really good, $15.99 not so good, $18.99 great. We found that at $18.99, we were starting to get consumers who would shop in both channels. At $18.99, it was a great value to a prestige shopper who was used to spending $30 or more.” The $18.99 price point was just below Clinique and considerably below Estée Lauder. For the prestige shopper, it was great value, but not too cheap to be credible. And for the mass shopper, it signified that the product must be considerably better than anything else on the shelf to justify such a premium. Listro continues: “But $15.99 was no-man’s-land—way too expensive for a mass shopper and really not credible enough for a prestige shopper.” So, with a strong push from the senior leadership team, Olay took the leap to $18.99 for the launch of Olay Total Effects. It was set as the manufacturer suggested retail price, and the team worked hard to convince retailers to stick to that price.
Momentum started to build. Olay followed up with an even more expensive premium brand, with a yet-better active ingredient: Olay Regenerist. Then, it introduced Olay Definity and then the still-higher premium Olay Pro-X—which sold at a $50 price point, something inconceivable ten years earlier. The team built and deepened capabilities around the new strategy. For most of the 1990s, P&G’s skin-care business had grown at 2 to 4 percent per year. Following the 2000 relaunch, Olay had double-digit sales and profit growth every year for the next decade. The result: a $2.5 billion brand with extremely high margins and a consumer base squarely in the heart of the most attractive part of the market.
What Strategy Is (and Isn’t)
Olay had a strategic problem that many companies struggle with—a stagnant brand, aging consumers, uncompetitive products, strong competition, and momentum in the wrong direction. So, why was Olay able to succeed spectacularly where so many fail? The people at Olay aren’t harder working, more dedicated, bolder, or luckier than everyone else. But their way of thinking about the choices they made was different. They had a clear and defined approach to strategy, a thinking process that enabled individual managers to effectively make clearer and harder choices. That process, and the approach to strategy that underpins it, is what made the difference.
Strategy can seem mystical and mysterious. It isn’t. It is easily defined. It is a set of choices about winning. Again, it is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition. Specifically, strategy is the answer to these five interrelated questions:
1 What is your winning aspiration? The purpose of your enterprise, its motivating aspiration.
2 Where will you play? A playing field where you can achieve that aspiration.
3 How will you win? The way you will win on the chosen playing field.
4 What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way.
5 What management systems are required? The systems and measures that enable the capabilities and support the choices.
These choices and the relationship between them can be understood as a reinforcing cascade, with the choices at the top of the cascade setting the context for the choices below, and choices at the bottom influencing and refining the choices above (figure 1-1).
FIGURE 1-1
An integrated cascade of choices
In a small organization, there may well be a single choice cascade that defines the set of choices for the entire organization. But in larger companies, there are multiple levels of choices and interconnected cascades. At P&G, for instance, there is a brand-level strategy that articulates the five choices for a brand such as Olay or Pampers. There is a category strategy that covers multiple
