Oil of Olay-2018

OIL OF OLAY
By the late 2000s it became clear that P&G really needed to win in skin care market. Skin
care (including soaps, cleansers, moisturizers, lotions, and other treatments) constitutes
about a quarter of the total beauty industry and has the potential to be highly profitable.
When done well, it can engender intense consumer loyalty compared with other beauty
categories like hair care, cosmetics, and fragrances. Plus, there’s significant knowledge
and skill transfer from skin care to these other categories in terms of technology and
consumer insights. To be a credible player in the beauty business, P&G needed leading
hair-care and skin-care brands.
Skin care category was the weak link in P&G portfolio. In particular, Oil of Olay was
struggling. It wasn’t P&G’s only skin-care brand, but it was by far the largest and best
known. Unfortunately, the brand had baggage. Oil of Olay was seen as old-fashioned and
no longer relevant. It had come to be derisively called “Oil of Old Lady,” a not entirely
unfair characterization, as its customer base was growing older every year. More and
more, when selecting a skin-care regiment, women were passing over Oil of Olay in favor
of brands with more to offer. Oil of Olay’s core product (pink cream in a simple plastic
bottle), sold mainly through drugstores at the bargain-basement price of $3.99
(compared with department store brands, which could be priced anywhere from $25 to
$400 or more), just wasn’t competitive against an ever-growing range of skin-care
alternatives. 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. Traditionally in the beauty industry, department store
brands have taken the lead on innovation, developing new products and better products
that, over time, trickle down to the mass market.
Conventional wisdom was that the most attractive consumer segment was women aged
fifty-plus and concerned with fighting wrinkles. These women would pay significant
premiums for promising products, and this was where the leading brands tended to focus.
The research showed that wrinkles were but one of many concerns. Joe Listro, Olay’s R&D
vice president, notes, “Besides wrinkles, there was dry skin, age spots, and uneven skin
tone problems. Consumers were telling us, ‘We have these other needs.’ At some typical
age the consumers became aware of the skin problems and got committed to, a regimen—
cleansing, toning, and moisturizing and using day creams, night creams, weekly facials,
and other treatments to keep the appearance of youthful, healthy skin”. By the late 1990s,
Oil of Olay sales were clocking in below $800 million a year, nowhere close to the industry
leaders in the $50 billion skin-care category.
1
All this presented a difficult strategic choice and generated a number of possible
responses. 1) P&G could maintain status quo on Oil of Olay and launch a more relevant
alternative under a different brand name to compete for a new generation of consumers.
But building a skin-care brand from scratch to market leadership could take years, even
decades. 2) P&G could go for an immediate fix, buying an established skin-care leader
(think Esté e Lauder’s Clinique or Beiersdorf’s Nivea brand) to more credibly compete in
the category. But an acquisition would be both expensive and speculative. Plus, over the
previous decade, P&G had actively pursued several opportunities for leading brands with
no success. 3) P&G could attempt to extend one of its leading beauty brands, like Cover
Girl, into the skin-care category. This too would be highly speculative. How easily could
even a leading cosmetics brand gain traction in skin care? 4) Finally, P&G could attempt
to revive a fading but still valuable Oil of Olay to compete in a new segment. This meant
finding a way to reinvent the brand in the minds of consumers, a big investment with no
guarantee of success. In the medium term, P&G had to aim for a 20% share in the skincare
market and Oil of Olay could play a critical role.

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