Procter & Gamble’s Partnership with Non-profit organisations is Proof that Local Markets can be Won
Monday, March 31, 2008
In 2003, a $20 million R&D and marketing project at Procter & Gamble (P&G) had reached a financial impasse after eight years of work. A decade earlier, the company had spotted an opportunity to supply a water-purifying product to the developing world, which, it was hoped, would increase the company’s share of the mass consumer market in the emerging economies.
At the same time, the company believed it could save lives by providing a simple way to purify household and drinking water. Unsafe water supplies and inadequate sanitation kill more than 3 million people every year, making this problem collectively more lethal than Aids.
The project stalled in late 2003 when it became clear that the financial returns for selling a powder product called PUR Purifier of Water did not justify further investment in commercial terms. At this point, P&G changed tack, transforming the project into a corporate social responsibility (CSR) programme. Alan Lafley, P&G’s president and chief executive, moved it to the corporate sustainability department (CSD), itself a new division. Thereafter, the company developed partnerships with not-for-profit organisations in social, health services and humanitarian relief to market and distribute the product more effectively.
Procter & Gamble’s partnership with non-profit organisations is proof that local markets can be won over to new products.
In 2003, a $20 million R&D and marketing project at Procter & Gamble (P&G) had reached a financial impasse after eight years of work. A decade earlier, the company had spotted an opportunity to supply a water-purifying product to the developing world, which, it was hoped, would increase the company’s share of the mass consumer market in the emerging economies.
At the same time, the company believed it could save lives by providing a simple way to purify household and drinking water. Unsafe water supplies and inadequate sanitation kill more than 3 million people every year, making this problem collectively more lethal than Aids.
The project stalled in late 2003 when it became clear that the financial returns for selling a powder product called PUR Purifier of Water did not justify further investment in commercial terms. At this point, P&G changed tack, transforming the project into a corporate social responsibility (CSR) programme. Alan Lafley, P&G’s president and chief executive, moved it to the corporate sustainability department (CSD), itself a new division. Thereafter, the company developed partnerships with not-for-profit organisations in social, health services and humanitarian relief to market and distribute the product more effectively.
P&G Pakistan tried the commercial route once more in 2004, but the results were not encouraging. In 2005, P&G officially announced its new non-commercial approach and its decision to sell PUR at $0.04 per sachet, the cost of production. PUR would be sold at cost to non-profit partners, but a large number of donations of the product would be paid for by P&G corporate philanthropy and employee donations.
The new non-profit strategy proved a success and by the end of 2006, P&G had sold 57 million sachets, at cost, to humanitarian organisations, in contrast to the mere 3 million sachets sold during the commercial phase. The biggest lesson of this study is that P&G knew when to close the commercial venture and when to leverage partnerships with non-profit organisations to fulfill a broader social need. It did so with clear expectations about the cost of making it sustainable, meaning that PUR would be a non-profit venture – driven by a social mission rather than profits. It left the social marketing – educating the target customer about the risks of untreated water and distributing the product at an affordable price – to the non-profit organisations.
P&G first researched new water-purifying technologies in 1991, following a major outbreak of cholera in Central America. P&G’s diluted chlorine bleach water-purification technology was not well received by all its target customers in the region, some of whom said that the water looked dirty and tasted of chlorine. In 1995, the company signed a collaborative research agreement with the US Centers for Disease Control and Prevention (CDC) to test and develop water-purification products.
After joining forces with CDC, P&G tested a low-cost water filter in Guatemala, but local people complained that the filters clogged up too quickly. P&G then reverse-engineered the municipal water treatment process, leading to the discovery of the powder product.
PUR is a sachet of powder, which when swirled into a 10-litre bucket of dirty water results in clean and safe drinking water. It was launched in 2000, priced for a low-income commercial market at $0.08-$0.10 a sachet. Independent studies show that it is effective in reducing the cases of water-borne disease, with an upper range of 90% and an average disease reduction rate of 50%. However, after three years of market tests in Guatemala, Morocco and Pakistan, the product had not made a profit. Mixed results came back in 2003, with repeat purchase rates of 5%, 10% and sometimes 25%.
The decision then facing Lafley was clear: push ahead on the PUR initiative, given its public health benefits, or terminate the initiative, given its costs and low returns. Employees who had worked with the product, however, found it difficult to shut down a product line that held so much promise. Greg Allgood, who worked in the consumer health products unit, recalls an internal memo: “The memo had no conclusion about what to do with the product, but it was very clear that no product engaged our employees and our stakeholders – customers, governments, UN groups, NGOs – like this one.”
PUR was relaunched as a CSR product in 2004 within the Safe Drinking Water Alliance, a partnership comprising P&G and the Johns Hopkins University Bloomberg School of Public Health’s Center for Communication Programs (CCP), Population Services International (PSI) and UK charity Care. The Safe Drinking Water Alliance was the first in a series of partnerships between P&G and non-profit organisations featuring PUR and was designed as a pilot programme to test three marketing strategies: social marketing, commercial marketing and disaster and humanitarian relief networks.
Now working in P&G’s CSD unit as director of the Children’s Safe Drinking Water (CSDW) programme, Allgood says: “Our purpose as a company is to improve the lives of the world’s consumers. Our brands, such as Pantene, Oil of Olay, Always, Tide and Ariel, touch consumers every day in ways that meet their needs. Our focal philanthropy programme, the Children’s Safe Drinking Water programme, makes our purpose as a company tangible for our employees and critical stakeholders.”
Simple in theory, but finding the right formula is often more difficult. Local barriers to entry are often tricky to overcome in ’bottom of the pyramid’ markets. Certainly, P&G discovered that traditional marketing methods did not work; consumers were suspicious of new products that required them to change the way they managed their lives. During 2004, it began a new testing strategy. Putting the product into the CSD unit and turning it into a non-profit venture gave enthusiasts such as Allgood the room to explore alternative marketing.
