P&G Tinkers with Direct-to-Consumer Model

Procter & Gamble (PG) has entered the direct-to-consumer space, which must have retailers anxious. Its "eStore" is a standalone online retailer that sells P&G products, though the company is quick to explain it away as a consumer research laboratory. P&G also says that the store will benefit its retailers, as new ways to attract and retain customers online will be explored. According to Mark Layton, CEO of PFSweb, which will operate the online retailer, "We're creating this giant sandbox for the brands to play in."

Following a Black Friday in which online was the only serious growth star and which was largely shaped by Internet sales in the weeks that followed, the online channel is becoming increasingly important. Already, online retail sales are expected to reach $156.1 billion for 2009, according to a forecast by Forrester Research. If a viable and sustained behavior pattern could be established for household products, the online retail sector could become much larger.

Many of the products that P&G manufactures, such as Tide, Pampers and Gillette, aren't what you'd expect to find a consumer purchasing on the Web, but developing a way to tap the household product market via the Internet could open substantial new revenue streams for both consumer product manufacturers and retailers. So far, P&G generates only $500 million of its $79 billion in annual revenue through online sales -- only 0.6%. It sells online mostly through Amazon (AMZN) and Walmart's (WMT) website. But, according to Doug Herrington, vice president of consumables at Amazon, P&G product sales, such as diapers and shaving products, have been growing (he wouldn't offer exact sales data).

To engage consumers who gravitate toward its brands, P&G is going to advertise its online retail presence and offer special deals to make the environment more attractive. The company would not compare its pricing to online retailers that also sell products by its competitors.

P&G claims that the eStore isn't intended to push revenue or profit higher in the near future. Rather, the focus is on the data that can be secured and how it can be used to improve its online sales in general. P&G is interested in such factors as product pairings, social media connections, packaging options and even the effectiveness of traditional banner ads.

Says Kirk Perry, vice president of North America for P&G, "We're not in the business of being a retailer and we don't want to be."