How do you sell $76 billion of consumer goods? One brand at a time. Fortune's Geoff Colvin talks with Jim Stengel.
(Fortune Magazine) -- In the vast world of marketing and advertising, James Stengel just may be the king. He is Procter & Gamble's global marketing officer, and thus commands the world's largest ad budget - about $6.7 billion. It's an enviable position, but uneasy lies the head that wears an ad king's crown.
The Digital Age is revolutionizing the way consumers use media, though no one yet knows what the new model will be or if it will last longer than an eye-blink. Product innovation happens faster than ever. Opportunity is exploding in developing economies, but marketing to billions of low-income consumers - rather than millions of affluent ones - is a new skill for Procter & Gamble, which was founded in Cincinnati in 1837.
The stakes are high for P&G (PG, Fortune 500), which has built its $200 billion market cap in large part on superior marketing. So far, Stengel has met the challenge. He has been P&G's chief marketer for six years; the average tenure of a chief marketing officer is less than two, according to recruiting firm Spencer Stuart.
Before an invited audience at the Time & Life Building in Manhattan, Stengel sat down recently with Fortune's Geoff Colvin to talk about consumer power, the value of brands, the decline of mass media and who needs chief marketing officers. Edited excerpts follow.
COLVIN: What's the best marketing you've seen lately?
STENGEL: Outside P&G, I think Harry Potter. You had to be dead to miss it. My wife's and daughter's lives just stopped when the book came out until they finished it. They didn't look at anything in the media in case they would see the ending. I mean, there were chatrooms that began an hour after the book came out. The whole way that Harry Potter has engaged people has been a phenomenon that any brand or business would aspire to.
Inside P&G, I would highlight one of our high-growth brands last year, and that is Tide.
Tide is a high-growth brand? It's 61 years old.
It's one of our oldest brands, one of our largest ($3 billion-plus in North America alone), and yes, one of our fastest growing. What the team has done to energize this brand has been just phenomenal. They have gotten close to their consumer. They have developed a positioning, as well as products and packages that have surprised and delighted.
There's the new compact size, which is great for the environment, great for our retailers, and great for the consumer. They've done a lot of work to get more people to wash in cold water, which is terrific for energy savings. They've also come out with the stain stick, which we get tremendous letters about. People carry it around. If you look at what Tide is doing on outreach with its consumers, it's a brand that is doing well by doing good.
You are in a great position to evaluate consumer trends. What is the most important thing you are seeing?
The biggest thing going on with U.S. consumers is that they want to trust something. They want to be understood, they want to be respected, they want to be listened to. They don't want to be talked to. It's trust in the largest sense of the word. People really do care what's behind the brand, what's behind the business. They care about the values of a brand and the values of a company. We can never forget that. We can never be complacent about that.
This is an enormous phenomenon, enabled by technology in many ways. Businesses and brands that are breaking records are those that inspire trust and affection and loyalty by being authentic, by not being arrogant, and by being empathetic to those they serve.
Technology is giving consumers more power than they've ever had - more information, more choice, more control. Can any of that possibly be good for P&G?
I think it's great for us. People ask if we're afraid of TiVo and the trend toward on-demand programming. Absolutely not. What's happening in the media world is enabling us to make marketing that's much more creative and much more customized for a certain consumer group or a certain brand. The end of the era of mass marketing is a very positive thing for our company, for our brands and for the industry.
Procter & Gamble is a $76 billion business, built by selling giant brands through mass media. Now that mass media is losing its dominance, what's the new model?
I don't think there is one. What we have now are principles by which we approach marketing. One such principle is to understand the consumers we're trying to serve. On most of our brands, it's a relatively small group. Olay is a $2 billion brand this year, and there's a relatively small number of people who make up this business. It's about understanding these consumers in a complete way. Our research has changed a lot. We do much more immersion research, much more anthropological research. We really try to get at what we can do through our brands to make a difference in people's lives.
"Immersion research" means you spend time with consumers in their homes or other settings, rather than in focus groups. Can you give me an example of what that has done for you?
I had a wonderful field visit in Latin America on a recent trip - I went into the home of a woman who had very little money. She was tremendously proud of her children, tremendously proud of her home. Our brands play an important role in her household, because though she didn't have much disposable income, she spent some of it on the kind of brands that we sell. It was important to understand what role our brands played in her life.
At P&G, we all do that kind of thing, up through [CEO] A.G. Lafley. We all go out and really spend time with consumers, especially those who are not like us. When I was in China the last time, I wanted to visit a very poor consumer and a very wealthy one, just to look at the differences in how they thought about brands, how they thought about media, what was important in their life.
Two years ago a P&G executive estimated that the company was spending 85% of its marketing budget on 30-second television spots. What is the proportion now, and what will it be in five years?
It continues to go down, but you have to realize we are a global company. We do business in 140 countries. In many of them television is the primary form of entertainment; it's on five or six hours a day. Paid advertising is still effective in those markets, and our challenge is to make our advertising engaging, interesting, persuasive, fun - everything we should be doing. Many of those countries have only a few stations, so the 30-second ad is very important in many countries - including the U.S.
You are going to see us more and more fragmented in our spending. We are spending a lot more on interactive and a lot more on mobile as that makes its way around the world. The trend of the past five years will continue, which is that TV advertising will go down as a percentage of our spending, and we will continue to move money to where the consumers are. The interesting news in all of this is that consumers are spending more time with media than ever. If the content is good, consumers will spend an awful lot of time with media. That is what Harry Potter proved.
Not long ago, a social-networking Web site launched a video feature called "Kate Modern," a British version of "Lonely Girl 15." The sponsors included such P&G brands as Gillette, Tampax and Pantene. Can sponsoring this possibly have enough impact to make the time and trouble worthwhile?
The program you just referred to is an experiment to see what will happen. If it explodes and becomes a phenomenon, then we are there.
We have to leverage what has worked before and always be thinking about how we get some knowledge going forward. The marketing world, enabled by technology, is in some ways very scalable. The impact of your efforts can be amplified greatly because of the connectivity and networking of consumers. So we find that if we do something that is worth talking about, word of it spreads very, very quickly at relatively little investment.
Are mobile devices a game changer or are they just another part of the digital revolution?
They are not a game changer yet, because people are still mostly using them as telephones. I think what the iPhone will do is reset expectations for how people will interface with a mobile device. This is already the most important device to most people. In five, seven, eight years, I think it will become even more important as 3G networks are built out. People will have more of their media with them. So I think it's going to be a game changer, and it's going to have a big impact on our business model.
It is very difficult to maintain a tangible product advantage for any length of time. Is that a problem for P&G?
No, it's not a problem. I hate it when someone says they're in a commodity category. We don't accept that there are any commodity categories. We are growing Charmin and Bounty very well, and if there is any category that people could say is a commodity, it's paper towels and tissues. We have developed tremendous equities, tremendous loyalties from our consumers. So, no, I think that is a cop-out. That is bad marketing and an excuse. We are not in any commodity categories.
What gives a brand power?
If you go back at Procter & Gamble, and in a lot of the industry, we often thought of our brands in terms of functional benefits. But the equity of great brands has to be something that a consumer finds inspirational and an organization finds inspirational. You know, our baby-care business didn't start growing aggressively [in the early 2000s] until we changed Pampers from being about dryness to being about helping Mom with her baby's development. That was a sea change. Or look at all the different areas we are in at Olay. That's because Olay is not just about being a pink fluid that moisturizes. It is about helping women look better and feel better as they age.
It all begins with this idea that we want to make life better. We want to serve better. We want to make a difference. That leads you to a different place than a functional benefit. That has been one of the transformational things about P&G over the past seven or eight years. Our equities are much broader, and our people are much more inspired. That's why you see so many of our brands growing.
You mentioned visiting China. How is P&G doing there?
We were early in China, and have done very well. We have a large beauty business there, and we are a market leader in almost every category we are in. In fact, we are happy with our progress in developing markets in general. They are growing at about double the rate of the developed markets.
What do you want from an ad agency today?
We are the world's largest advertiser, so we want to be working with the best agencies, and we want the best talent in the agencies to want to work on P&G business. We want to be a magnet client. And we really do want a special partnership. We want an agency culture that's different from ours, yet compatible. Obviously we want fantastic ideas. And we want a holistic approach to how we think about our marketing. The days of working with one or two agencies are over. To do holistic marketing, we need to work with great design firms, great interactive firms, great advertising firms, great media firms, great public relations firms.
Google is a giant consumer-understanding organization. They know so much about consumers and what they're interested in and what the patterns are. We think there is a great affinity between P&G and Google because we are also a consumer-understanding machine. Putting us together and figuring out how our brands can be more relevant for people as they're searching for information - there's a gold mine there.
Google is a disrupter in many ways; no one knows how things are going to play out. Who should be worried? I don't like that word. I think Google is a positive force.
I asked you earlier about big changes among consumers. What's been the biggest change in yourself as you have adapted to this changing world of media and marketing?
There is so much to learn and there are so many interesting things happening, inside and outside the company. It is even more important to be inquisitive. To be curious. To be asking questions. To be searching. And to try to deliberately keep in touch through what I read and what I look at online. When I travel, I always think, Is there a thought leader or someone who is doing something interesting who I can drop in on? And I always ask people their reaction to our company and what they are doing.
A study to be published in The Journal of Marketing, covering 167 companies - including P&G, Microsoft (MSFT, Fortune 500), and Apple (AAPL, Fortune 500) - concludes that chief marketing officers have no effect on financial performance. Is it time to retire?
No. The fun is only beginning. I thought you might ask about that, so I asked A.G. that same question before I came here. He said, "Rubbish." And he said the most transformational thing at P&G over the past seven years [A.G. Lafley became CEO in June 2000] has been our new approach to marketing. We believe that marketing is at the center of the company. It always has been. I wouldn't be sitting here six years into this job if our equities weren't stronger, our innovation pipeline wasn't stronger, our organization wasn't stronger. Those are the kinds of things a CMO needs to be accountable for and should be measured on. A.G. has held me accountable for that, and we've had a great run and will continue to have a great run.
The C-Suite Series :This is the latest interview with top executives by Fortune senior editor at large Geoff Colvin. See video excerpts of this interview at fortune.com/csuite, plus find out how FedEx CIO Rob Carter gets it there on time; where Citigroup CFO Sallie Krawcheck sees growth; how former Best Buy CMO Michael Linton envisions 21st-century marketing; where health care is going, according to CIO Randy Spratt and CEO John Hammergren of McKesson; why Boeing took off, with CFO James Bell; how Xerox innovates, with CTO Sophie van der Broek; and how CEOs A.G. Lafley of P&G and Jeff Immelt of GE find billions in new revenue.