I’ve been surprised at the amount of attention my little corner of Twitter has given to the news P&G, the largest CPG company in the world, is making significant cuts to its brand portfolio (a Marc Andreessen tweetstorm certainly helped). From the Wall Street Journal:

Procter & Gamble Co. will shed more than half its brands, a drastic attempt by the world’s largest consumer-products company to become more nimble and speed up its growth. The move is a major strategy shift for a company that expanded aggressively for years. It reflects concerns among investors and top management that P&G has become too bloated to navigate an increasingly competitive market. Chief Executive A.G. Lafley, who came out of retirement last year for a second stint at the company’s helm, said P&G will narrow its focus to 70 to 80 of its biggest brands and shed as many as 100 others whose performance has been lagging. The brands the Cincinnati-based company will keep—like Pampers diapers and Tide detergent—generate 90% of its $83 billion in annual sales and over 95% of its profit.

The obvious way to interpret this news is to assume, as the WSJ did, that the reason for this move is to “become more nimble” and that P&G has “become too bloated.” This has certainly been the take of most of the folks in my Twitter feed, who have long been regaled by tales of Apple’s focus in particular:

6/Steve Jobs legendarily used strategy of cutting brands & SKUs for Apple's turnaround. But few CEOs have followed suit in last 15 years. — Marc Andreessen (@pmarca) August 5, 2014

I think, though, there is something much deeper at play here, and it’s far more of a tech story than a superficial Apple comparison might suggest.

One of the more interesting – and telling – factoids about the consumer packaged goods (CPG) market is that there are no product managers; rather, there is a very similar position called a “brand manager.” The nomenclature is no accident: while tech products have traditionally differentiated themselves by their product attributes, the distinguishing feature of your typical consumer product is its branding and positioning.

Take something like health and grooming products: on a product level there are not massive differences between, say, Axe and Dove. But their branding could not be more different. Dove has had massive success with their “Real Beauty” campaign that fights against highly sexualized stereotypes that only serve to make most women feel worse about themselves:

Axe, on the hand, in an attempt to appeal to young men, heavily emphasizes exactly the sort of stereotypes Dove is objecting to:

Here’s the kicker, though: Axe and Dove are both owned by Unilever, the Anglo-Dutch CPG conglomerate.

When we in tech talk about identity, we’re usually talking about the ability to manage individuals, whether that be for connecting to corporate networks or for effectively running ad networks. In social science, however, the concept of identity is about a person’s own personal conception of who one is and one’s place in the world. It is this definition of identity that is at the root of effective branding. What both Dove and Axe are doing in the above ads is appealing to identity: to use Dove products is to reject society’s expectations and to embrace your identity as a woman; to use Axe is to drown insecurity and affirm your manliness, whatever that means.

In fact, if you squint, you can see that both Dove and Axe are trying to accomplish basically the same thing but for two totally different audiences; while the ends may be similar, the means are necessarily different. Moreover, identity is not just about demographics: it is also about psychographics – things like personality, opinions, lifestyles, etc. This means that, by definition, one brand can not fit all. That is why Unilever sells both Dove and Axe, and it’s the primary reason why P&G has nearly 200 brands of its own: when you can’t differ hugely on product , you find growth through winning niche by ever-more-specialized niche.

There is one more factor that explains P&G’s brand proliferation: shelf space. The most effective way to beat out competition is to have your product in front of the customer – and to ensure your competitors’ are no where to be found. Buying decisions for low cost/relatively undifferentiated items are not made through extensive research and online price comparisons; rather, you need body wash, so you go to the body wash aisle, and pick from what is available. P&G leveraged its size and ownership of dominant must-stock brands like Tide, Pampers and Gillette to finagle the maximum amount of shelf space possible, and then filled that shelf space with a cornucopia of specialized brands that not only appealed to specific niches, but also kept competitors away from P&Gs real breadwinners.

So how, then, have changes in technology forced P&G into a different direction?

The first change has been the massive increase in noise. It is so much more difficult today for a brand to break through, especially as compared to the halcyon days of one local newspaper and three broadcast channels. Today there are not only TV channels galore, but display advertising, search advertising, Facebook, Twitter, and more. While it is true that uber-specialized brands can now more easily hone in one specific niches, that takes real money and is much more difficult to pull off across 200 brands. P&G has likely realized that many of its brands were simply getting drowned out, rendering the money spent marketing them effectively worthless. Thus P&G has decided it needs to “go big or go home” – either spend a lot of money to make sure a brand stands out, or simply get rid of the brand.

This is a phenomenon that is playing out across multiple industries. For example, it is significantly easier today to get a startup off the ground; however, that actually means startups need more venture capital, not less, because the real challenge is marketing and/or sales (and thus, by extension, venture capital is bifurcating between very large and very small). The same thing is playing out in the app store. Similarly, there are a few big winners when it comes to journalism and attention, with many medium-sized players fighting for survival. In music stars like Beyoncé are richer and more powerful than ever before, while many smaller acts are struggling to survive. The ease with which information flows means we all get a whole lot more of it, which actually makes it more likely we glom onto whatever it is that stands out, which makes it stand out even more.

The other big technological change that is affecting P&G’s strategy is e-commerce. As I’ve previously noted in the context of Amazon:

Jeff Bezos’ critical insight when he founded Amazon was that the Internet allowed a retailer to have both (effectively) infinite selection AND lower prices (because you didn’t need to maintain a limited-in-size-yet-expensive-due-to-location retail space).

That’s great for Amazon, but not so great for P&G: remember, dominating shelf space was a core part of their strategy, and while I’m no mathematician, I’m pretty sure dominating an infinite resource is a losing proposition. What matters now is dominating search. That is the primary way people arrive at product pages like this:

There are two big challenges when it comes to winning search:

Because search is initiated by the customer, you want that customer to not just recognize your brand (which is all that is necessary in a physical store), but to recall your brand (and enter it in the search box). This is a much stiffer challenge and makes the amount of time and money you need to spend on a brand that much greater

If prospective customers do not search for your brand name but instead search for a generic term like “laundry detergent” then you need to be at the top of the search results. And, the best way to be at the top is to be the best-seller. In other words, having lots of products in the same space can work against you because you are diluting your own sales and thus hurting your search results

The way to deal with both challenges is the same way you break through the noise: you put more focus on fewer brands.

There is a lot that tech companies can learn from companies like P&G. Probably the biggest one is that brand matters. It is the key to breaking through the noise and a major part of sustainable differentiation. However, it’s also worth noting that even after this cull P&G is still going to have nearly 100 brands: that’s because identifying and serving specific groups matters as well. P&G is trying to figure out the balance between specialization and reach that makes sense for them as a Fortune 50 company, and right now that balance is leaning towards less specialization and more reach.

However, I think that means the opposite is the case for smaller players: the Internet may be noisy, but it also makes it possible to identify and reach niches that were previously too hard to segment or reach at a scale great enough to support a business. As I wrote last week, independent app developers ought to pursue a niche strategy, but so should writers, musicians, and even CPG startups.

More broadly, I strongly believe P&G’s changes are yet another example of how technology is touching – and massively changing – every single industry. To be sure, P&G has been at the forefront of using technology in its business practices, but now technology is changing the very foundation of how they approach business itself. And, in a way, it speaks to how impressive P&G is as a company that they are among the first to significantly alter their business in the face of these changes; they won’t be the last.

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