Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, April 16, 1993 TAG: 9304160162
SECTION: BUSINESS PAGE: B4 EDITION: METRO
SOURCE: KARA SWISHER THE WASHINGTON POST
DATELINE: LENGTH: Medium
BRAND NAMES CUTTING PRICES
Pressed by cost-conscious shoppers and increasingly popular discount and generic brands, some of the nation's best-known consumer product manufacturers are caving in and cutting prices to keep their share of the market.Following the turbulence caused by Philip Morris Cos.' recent price cut of Marlboro cigarettes, the maker of one of the world's best-known disposable diapers - Pampers - said this week it would trim its price by 5 percent.
The idea that manufacturers of generally popular, brand-name products are fighting on the nickel-and-dime level is worrying both Wall Street and a wide range of companies.
Most name brands - pumped up with snazzy advertising and slick packaging - have relied for years on loyal customers paying higher prices. No longer. There is growing evidence that shoppers are insisting on value, with retailers offering less expensive store-brand alternatives of good quality and discount brands proliferating.
For companies, lower prices that are not offset by lower costs mean lower profits. Consumers, of course, benefit.
"Once brand names cut their price, rebuilding it could be very difficult," said Carl Steidtmann, chief analyst for Ohio-based Management Horizons, the retail consulting arm of Price Waterhouse & Co. "When there are no longer clear differences in quality between a brand name and generic . . . there is no longer the opportunity to extract that higher price."
According to David Weiss of Packaged Facts, a New York-based market research firm, there have been substantial private-label increases across the board in recent years as quality has improved and shoppers have become more comfortable with them.
"Customers are looking for a better buy and looking to stretch their purchasing power," said Barry Scher, spokesman for Landover, Md.-based Giant Foods Inc. In its supermarkets, private-label products account for 15 to 20 percent of total sales.
High prices had let companies such as Philip Morris and Procter & Gamble Co., makers of Pampers, churn out higher profits year after year. But on April 2, Philip Morris said it would slash about 40 cents per pack off the price of Marlboros and likely take a 40 percent drop in annual profits in its tobacco division.
The Philip Morris move started a bumpy ride for the stocks of many food and consumer product companies that rely on brand names - including Campbell Soup Co., Dole Food Co. and the Cincinnati-based Procter & Gamble.
Seeing similar problems in protecting their share of the $3.4 billion U.S. disposable-diaper market, Procter & Gamble made its third price cut in less than a year on diapers, which account for 16 percent of its $29 billion in annual sales.
"As the competitive environment in the U.S. and around the world gets tougher for all brands, so must P&G," said Edwin L. Artzt, Procter and Gamble's chairman and chief executive.
Procter & Gamble officials said the diaper cuts were part of a company-wide effort to bring down prices, but that profit margins would not be affected because of cost cutting.
Lower prices were coming, said John M. McMillin, analyst with Prudential Securities Inc. in New York. "It's a free country, so you can price with what you can get away with; and the diaper makers have gotten away with a lot."
Private-label diapers have run up a 15 percent market share in recent years, aided by both increased effort on the part of retailers to sell them and customer acceptance, said some analysts.
"Basically, the world is moving to an everyday low-price policy," said McMillin of Prudential Securities. "It doesn't mean the death of brands, but a challenge to brands that have been battered and bargained and are now fighting back."