Will P&G Clean Up By Selling Us Soap on Facebook?
byJul 14th 2011 10:00AM
Procter & Gamble (PG) recently added "Shop Now" buttons to the Facebook fan pages for its of several brands such as Gillette, Olay and Tide. This isn't the first time the consumer goods giant has taken a plunge into e-commerce. However, P&G, which competes with Unilever (UL), Colgate-Palmolive (CL) and Kimberly-Clark (KMB), had to scrap its earlier partnership with Amazon (AMZN) for the fulfillment of orders due to poor user experiences resulting from technical issues.
While P&G currently fulfills the items purchased on Facebook through its own e-store (See P&G's E-Commerce Play Should Help Operating Margins), it has plans to expand its retailer network for servicing orders to include the likes of Walmart (WMT) and even Amazon again. We value P&G's stock with a $68.40 Trefis price estimate, about a 5% premium to its current market price. Below we explore the implications of P&G's move to expand its Facebook commerce and the impact that may have on its stock.
Word-of-Mouth Publicity Over Internet
With more than half a billion users, Facebook is undoubtedly the most popular social networking platform. Users can become 'fans' of the products they like, which in turn can influence their friends' opinions and subsequently their future purchases. Facebook facilitates word-of-mouth publicity, a more credible form of advertising with no additional expenses incurred by the brand.
Benefiting from Retail Partnerships
Given the size of its audience and growing online retail business, Facebook has the potential to draw a significant share of sales volumes from brink-and-mortar retail outlets. P&G has always maintained friendly ties with its distributors and retail partners, and its partners now have the opportunity to service purchase orders via P&G's Facebook commerce.
Better Allocation of Advertising Budget
Facebook helps P&G target the most appropriate audience for each of its products. Hence, selling over Facebook provides a more efficient use of the advertising budget. Of late, P&G is trying to expand its focus on the digital channel for reaching out to its consumers. (See P&G CEO Ad Spend Moving Online to Reach Emerging Markets.)
Limited Upside to P&G's stock
While this may seem counterintuitive, we believe P&G's Facebook presence does not provide a significant upside to P&G's stock. Firstly, being present on Facebook is more of a necessity for P&G since all other leading brands have similar pages dedicated to them. Secondly, Facebook only moves volumes between trade channels and does not drive volumes. Users are unlikely to consume more laundry detergent just because it can be bought online. They can however be expected to substitute the purchase from the neighborhood store to the convenience of online shopping.
View our detailed analysis of Procter & Gamble.
Trefis is an online investment research platform targeted towards individual and professional investors. Trefis also includes a community of users that can create and share their models and analysis on trefis.com.
Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.