At P&G, New Tide Comes In, Old Price Goes Up

Procter & Gamble Co. (PG) is trying to stave off a receding Tide.

To compensate for the introduction of a lower-end version of its big-selling Tide detergent, P&G is raising prices on some fancier Tide varieties by as much as 25%.

The goal is to preserve margins while heading off competition from lower-cost rivals. The detergent, in its signature reddish-orange containers, brings in around $2.8 billion in annual sales and holds a commanding 38% share of the North American

laundry soap business, according to Nielsen Holdings NV data. But Tide has come under pressure in recent years as more shoppers have reached for bargain brands such as Arm & Hammer, made by Church & Dwight Co.

In response, P&G recently began rolling out a lower-priced liquid, called Tide Simply Clean & Fresh, that is around 35% cheaper than regular Tide detergent, which currently retails for about $12 for a 100-ounce bottle.

In part to offset lower profit margins from sales of Tide Simply, P&G is raising wholesale prices on its line of upgraded Tide detergents—Tide Plus—which contains ingredients like color-safe bleach, Downy or Febreze that purport to make clothes whiter, softer or better smelling than Tide alone.

The price of regular Tide won't change.

Consumers may not notice that they are paying more for Tide Plus, because rather than up the cost of the bottle, P&G is shrinking each container: 100 ounce bottles, for example, will become 92 ounces, and 50 ounce bottles will be downsized to 46 ounces. The tactic has been a tried and true way for consumer-goods makers to sell less volume for the same price.

In some cases, P&G is also reducing the number of loads per Tide bottle, which amounts to a stealth price increase. The current 100 ounce bottle of Tide with Febreze scent now states it contains 60 loads. The new 92 ounce version will be good for 48 loads, according to marketing materials P&G has shared with retailers, a 20% drop in loads on an 8% drop in volumes. In P&G's lingo, it is "harmonizing" the number of loads, using 48 loads as the standard for medium-sized jugs. A P&G spokesman says consumers had found the different load numbers on different Tide variations confusing.

The net result is that shoppers in some cases will be paying up to 25% more for their Tide detergent. The average price increase that P&G is imposing on retailers for Tide Plus—which currently brings in around $1 billion a year in sales—will be around 13%.

The idea is to "keep the profit pool the same," said William Schmitz, an analyst at Deutsche Bank.

P&G's new detergent strategy is one of the first major product changes under Chief Executive A.G. Lafley, who returned to the helm of the company last May to improve its performance after a previous stint as CEO from 2000 to 2009. Investors want to see P&G increase sales faster than rivals, something it hasn't done for several years.

Mr. Lafley has preferred to focus resources on P&G's biggest brands rather than its lesser known names in the stable. In the U.S. laundry business, P&G also owns Gain, Era, and Cheer, but sales of the latter two brands have shrunk amid little marketing investment, and P&G's overall 59% market share has contracted slightly over the past year. Gain, which shoppers typically buy for its distinct scents, is growing and recently launched new varieties including single dose packets priced at a premium.

P&G's laundry business falls under the purview of Giovanni Ciserani, who in June was named group president of global fabric and home care. The 51-year-old Italian-born executive is one of five people the company has identified as possible successors to Mr. Lafley.

Sales of Tide liquid fell 9% last year to $2.1 billion, even as total revenue for the brand rose slightly to $2.8 billion, according to Nielsen. The driver of both trends was growth from P&G's higher-margin Tide Pods single-dose laundry packets. But the industry trends also pointed to better growth prospects for inexpensive detergents.

Introducing a lower-priced Tide comes with the risk that some shoppers accustomed to paying a premium for the brand will "trade down" to the new product, hurting P&G's margins. To reduce that risk, P&G has recommended retailers shelve Tide Simply away from other Tide detergents and close to rival brands. One goal is to attract individuals from "hard working households" and people who "work in odor-generating environments," according to marketing documents P&G has shared with retailers.

Tide Simply comes in a yellow container, not Tide's usual orange. That will make it closer to the color of Arm & Hammer detergent, even though Tide Simply will cost more than that bargain brand.

To combat P&G's move, Church & Dwight is launching new versions of Arm & Hammer and other laundry products and stepping up ad spending.

Some loyal customers say they won't be swayed by the cheaper Tide. Maureen Deller, a 65-year-old retiree in Covington, Ky., said she has used Tide for over 30 years and often clips coupons to get a small discount. "I doubt I would try it," Ms. Deller said of Tide Simply, even if it costs a third less. For it to be that much cheaper, she said, "They've got to be taking something out."