P&G (maybe) won the battle but Nelson Peltz was right; CPG must change faster

Last month P&G declared victory in the largest proxy battle of it’s kind. And this week Peltz claimed he’d won. While the final answer might not come for months, the fight exposed deep divides among shareholders:

Peltz said he believed the vote margin was plus or minus 1 percent, and the support he garnered from shareholders should be a sign to Taylor that he deserves a board seat. “Even if they win, which I’m not sure they did, think about what Pyrrhic victory it is,” he said in an interview on CNBC. “Everybody but the current employees voted for us. Up and down the line.”

Mr. Peltz has facts on his side. P&G has some facts too. Facts are stubborn things. Most of the public disagreement focused on strategy. There was less discussion about the secular trends at the heart of CPG disruption. Three stand out to me:

  1. Technology adoption is accelerating
  2. Mobile is moving faster than previous trends
  3. Purchase decisions are increasingly high consideration

At the heart of the Peltz proxy fight was whether P&G should react — and react more quickly — to these trends. Let’s draw some hypotheses based on the trends above:

  1. Traditional competitive advantage in R&D, brand building, and distribution is necessary but not sufficient
  2. Durable competitive advantage will accrue to brands that establish direct-to-consumer relationships in terms of both CAC and LTV economics
  3. Incumbents underestimate the impact of changes to the consumer journey changes — driven by mobile specifically — and risk disruption

Let’s examine each in turn.


Traditional competitive advantage in R&D, brand building, and distribution is necessary but not sufficient

Last year Unilever acquired Dollar Shave Club (DSC). At the time, here is how the NYT covered the sale:

It used to be that if you wanted to sell razors, you needed a factory, a distribution center, a sales force, a research and development team and a marketing budget. Keeping all of these functions under one roof lowered transaction costs and made operations more efficient. In part this was because of communication structures — having telephone and mail together was a necessity.

These competencies are still important. The example of DSC does not diminish the importance of brand building. In fact, in a world where almost any information is just a click away, understanding consumer needs and storytelling are more important than ever.

Disruption starts to look like death by a thousand cuts for CPG brands like P&G. Starting a business is easier today than ever before. Friction will continue to decrease. With Amazon Web Services, Braintree, Fulfillment by Amazon, you have on-demand, plug-and-play business services.

When go-to-market time and cost are decreased, brands must develop new competencies to sustain their competitive advantage. Direct-response marketing is a core competency that CPG brands have undervalued.


Durable competitive advantage will accrue to brands that establish direct-to-consumer relationships in terms of both CAC and LTV economics

Let’s turn back to DSC. In it’s coverage of the Unilever acquisition, here is how The Washington Post covered the sale:

In other words, Dollar Shave Club is accustomed to selling directly to consumers, while, Unilever, of course, is accustomed to people shopping for its brands in drug stores or in supermarkets. It’s not hard to see why Unilever would want to join forces with a brand steeped in that kind of selling. Many consumer goods lines that have traditionally sold through stores — from packaged foods to sporting goods — are giving fresh consideration to whether it’d be advantageous for them to sell online without retailers as an intermediary.

In his analysis of the DSC sale, Ben Thompson of Stratechery honed in on the economic advantage of this approach:

The net result is that thanks to the Internet every P&G advantage, save inertia, was neutralized, leading to Dollar Shave Club capturing 15% of U.S. cartridge share last year… According to the traditional way of measuring market share Dollar Shave Club only has 5% of the U.S.; the discrepancy is due to the massive price difference between Dollar Shave Club and Gillette. And yet, the price difference is the entire point: in a world with good enough products (Dollar Shave Club imports their blades from Korean manufacturer Dorco) that can be bought on zero marginal cost websites and shipped to your home directly there is no reason to charge more.

In addition to the economic advantage, consumers are increasingly reachable. VC has recognized this trend for several years. A16Z partner Jeff Jordan shared his thesis that betting narrow can be big after their investment in Walker & Company:

Today, the Internet (and social media) enables us to target these segments more precisely. There’s an important nuance here, however: This targeting is not about narrowing per se, but about reaching and including segments that weren’t addressed before… That’s why our newest investment is e-commerce company Walker & Company, which was founded by Tristan Walker to build a modern personal care brand for people of color. Globally, this is not a narrow audience given that a giant percentage of the world’s populations are people of color.

In a world where small upstarts can serve unmet needs more quickly than large incumbents, category leaders must invest more heavily in direct-to-consumer marketing competency. This starts with understanding changes to the consumer journey.


Incumbents underestimate the impact of changes to the consumer journey changes — driven by mobile specifically — and risk disruption

McKinsey released their consumer decision journey (“CDJ”) research in 2009 highlighting huge shifts in consumer behavior. The average skin care consumer in 2008 had 1.5 brands in their initial consideration set but added +1.8 during their evaluation. With two-thirds of evaluation touchpoints happening on digital, consumers were demanding information.

Eight years later, these trends continue. Take search as an example. Changes in beauty search reflect changes in purchase behavior. Consumers are craving assistance. While digital’s share of wallet has grown over the years, it’s outpaced by the opportunity and capped by historical trends. As a byproduct of last-click attribution and pressure on budgets, advertisers have increasingly focused on “lower funnel” auctions. It’s not a recipe for growth.


This proxy fight is just one skirmish in the broader war. From mattresses to socks to private labels, new brands are being built in category after category — disruption starts small, it’s easy to disregard, and, with the benefit of hindsight, it always seems obvious. Get out the popcorn.