Leading consumer products company, Procter & Gamble (NYSE:PG), recently announced the launch of a new mid-tier Tide detergent to increase its share in the value-priced laundry detergent segment. The liquid detergent called “Tide Simply Clean & Fresh” is expected to reach stores in North America by February 2014. P&G made a similar move in 2010, when it attempted to launch a cheaper product under the Tide brand. However, the product was withdrawn after it was found during tests that consumers didn’t like the value derived from the discounted product and confused it with the flagship brand. This time around, the company expects to keep such confusion and dissatisfaction at bay by clearly distinguishing the value and the premium priced products. 
Lower Level Of Cannibalization To Bring In More Revenues
Tide Simply Clean & Fresh is designed with a level of cleansing and freshness that is more appealing to mid-tier customers. The product is aimed at attracting those shoppers who forego premium brands for less expensive ones.
- Why Consumer Products Companies Might Be Overvalued At Current Prices?
- Procter & Gamble’s Q4’16 Earnings: Organic Sales Driven By Higher Volumes
- Procter & Gamble Q2 Earnings Preview: Tough Competition and Weak Macros to Pose Difficulties
- P&G 2016Q3 Earnings Review
- Here’s What to Expect From P&G’s Q3 Earnings
- Procter & Gamble’s Q2 Organic Sales Growth Returns to Positive Territory on Pricing; Profits Jump on Productivity Improvements
While we believe the new product could result in some level of cannibalization, we expect the impact to be small since premium buyers are unlikely to trade for a new product that has lower perceived quality. Instead, the product should bring in incremental revenues for the company as its presence in value-priced laundry detergents is relatively small. With the launch of the product, P&G will have more goods to offer at different price points.
Higher Visibility For P&G In The Mid-tier Segment
According to Euromonitor, total spending on laundry detergents in North America is close to $8.6 billion of which P&G accounts for over 50%. However, such a high share has come for P&G mostly through its premium brand, Tide, which commands over 25% share in its segment globally due to its quality. The company doesn’t have a significant presence in the mid-tier segment, which is as big as $2 billion. 
For the year ended June about 40% of the U.S. households were buyers of value-priced laundry detergents while only 29% customers bought premium brands. The market share for value-priced laundry detergents has increased in dollar terms from 26% to about 30% in the last three years. On the contrary, the market for premium-priced laundry detergents has not registered significant growth contemporaneously.  We believe the new Tide detergent will help P&G get greater exposure to the faster growing mid-tier detergent market.
Growth Of Value Brands Could Impact Profit Margins
Although P&G is currently introducing the product in North America, its focus on expanding its portfolio in the emerging markets has remained strong in recent years. While the emerging markets have faster growth rates in general, consumers in these regions are more price-sensitive as they have lower disposable incomes. Thus, consumer products firms usually sell lower-priced goods in these regions, but due to lower pricing they also earn smaller margins on the cheaper products compared with the premium products.
As P&G’s revenue share from the emerging economies increased in recent years, home & fabric care EBITDA margins have declined from 23% in 2010 to about 19% in 2012. In the foreseeable future, the demand for mid-tier products should remain robust due to a growing middle class. We believe that P&G will soon expand its cheaper Tide brand into these markets to leverage the opportunity. This could lead to lower EBITDA margins for the home & fabric care division in the future if the product sells well, which is a trend we are watching.Notes: