On Point Advisor's  Instablog

P&G's got problems; that's clear from the latest reports. OTC Product News provided opinion in a recent editorial "The Tide Washes Out at P&G"--- now activist investor Bill Ackman atPershing Square has jumped with a $2 billion investment smelling blood in the water. His target CEO McDonald has had a tough time at unruly earnings calls posting less than encouraging numbers. Competitors in the space like Clorox, Colgate, among others seem not to suffer the same disorder. We propose that this failure is endemic to the P&G culture…

The investor community and the stock analysts following P&G have it right: something is wrong and the symptoms are visible: a P&L that looks like the wheels are coming off, a strategy that at times verges on the incoherent, costs and prices that are inflated. It is easy to forget the history of P&G as a starting point to explain the self-inflicted harm.

First, P&G's evolution from a largely domestic enterprise to a global one dates from the late 1940's - 1950's under CEO Lingle who expanded manufacturing and sales of detergents into Europe, Mexico, and elsewhere. By the 1960's much of the expansion of core businesses outside the US had taken place, and by the 1980's reached a peak with the acquisition of Richardson-Vicks' international health and beauty care businesses in 1985. Other companies like Colgate operated differently focused on ex-US categories like toothpaste "first most" while Crest migrated centrifugally from the US late in the game.

Second, although widely touted as a premier marketing company P&G is actually comprised of two components: marketing and engineering, and has blended these into a staunchly conservative mix in which caution reigns supreme. The chemical engineering, and promote from within culture, known to all P&G'ers worked well to create a fluid work force capable of migrating from one business to another, albeit with a steep learning curve and vulnerable to mistakes. But this culture breeds a shortness of corporate memory and can quickly turn incestuous and turgid. Fungibility has a price...

Read more at OTC Product News...

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

When was the last time you read about innovation in the OTC healthcare industry? The proxy that comes up most often is the switch of prescription drugs to sale over-the-counter, but arguably that is at best not a common event albeit perhaps the most notable. Are companies investing in innovation or just talking a good game? What does innovation look like anyway?

Innovation is a code word for growth, or at least a hat-tip to intellectual capital that most mysterious of assets. When it comes to the pharmaceutical industry most observers would feel comfortable describing where and how innovation is found and by what means. Rarely is innovation talked of when applied to the over-the-counter healthcare industry. Why is that?

Innovation is most often incremental not saltatory. Incremental innovation is what defines the OTC from the Rx world. Exporting prescription drugs to the OTC market is the rare exception to the rule. The flow of these exceptions will increasingly be limited by fewer entities available in established categories and the lack of categories into which to switch. Rx/OTC switching in the future will be the switching of diseases, indications, claims, and risks - not ingredients.

Innovation is often line extensions. The bread and butter growth in the OTC industry is most often represented by line extensions, or better the addition of new sku's to an established brand. This has the dual effect of adding facings, sales, and giving consumers more choice. These extensions can bring new consumers into the franchise if they offer expanded benefits, extend into other categories or segments, or drive shelf turnover. Yet they can also cannibalize the brand. I call this "brand autophagy", a new use of an old term. Alternatively companies can force annual replacement of sku's when they bomb, so-called "Red Queen marketing", a zero-sum game represented by the sheer act of preserving shelf presence at all costs. Line extensions must bring new consumers into the brand.

Innovation is not an outcome despite the fact technology often looks for a home. Innovation is an asset. Innovation assets can support the following actions among others: 1) extending brands; 2) introducing new technology; 3) laddering benefits; 4) improving product performance; 5) boosting consumer satisfaction; all of which aim to increase sales, profitability and to grow share. Innovation does this by satisfying the consumer, to paraphrase P&G's AG Lafley, at one of two moments of truth: at point of sale or at point of use. Products must be built with this in mind.

Innovation is awareness first, imagination second. Each of these capabilities is often underrepresented in internal R&D and marketing organizations; to wit, awareness of unmet consumer needs and available technology solutions, and management's commitment to rational risk taking and brand building. Awareness also means tracking day to day events in the industry. One way to do this is to sign up for an RSS news feed, for example at OTC Product News.

Areas of "under-innovation" include: drug delivery, drug dispensing, packaging, sensory benefits, merchandising, dosing, and introduction of true first-to-market product concepts, including new products and new brands. Whether these can be supported by 1-3% NOS spending on R&D, conservative managements, and a monograph that regulates parity is the challenge to marketers. Transposing just 1%NOS from advertising & promotion spending to R&D can effectively boost innovation by 30-100%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: No financial interests.

Swiss researchers published the results from their careful analysis of the most credible clinical trials that have evaluated the efficacy of glucosamine, chondroitin and their combination in osteoarthritis.  Their publication appeared in the British Medical Journal online.  About at the same time Norwegian researchers published a well-done controlled trial of glucosamine in low back pain with lumbar osteoarthritis in the highly visible Journal of the American Medical Association.  Each analysis failed to show a positive benefit of these dietary supplements widely used by consumers with joint disease.  The efficacy of these dietary supplements has been the subject of controversy for decades and remains elusive.

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Disclosure: No positions