At the beginning of this chapter, you read about Michelle Phan and how she expanded a blog into a beauty and lifestyle empire. Using the information presented in this chapter, you should now be able to answer the following questions.

There aren’t many consumer products segments Procter & Gamble has dominated as thoroughly as shaving. With help from powerhouse brands, including Gillette, Mach3, and Fusion, P&G is the global leader for a product that millions of people use daily. In fact, it commands 65 percent of the blades and razors market. However, this core product line is under attack, both from value-focused rivals and from subscription services like Unilever’s Dollar Shave Club. Recent competitive wins have whittled P&G’s market share down from 70 percent just four years ago.

With its lineup of popular brands such as Folgers, Clairol, Charmin, and Gillette, it is estimated that 98 percent of U.S. households are using at least one P&G product, a position that has grown largely by targeting middle-class consumers. Its products are sold in more than 180 countries, but U.S. consumers provide more than 35 percent of P&G sales and nearly 60 percent of annual profits. However, the company is confronted with a marketing dilemma: annual revenues declined sharply in 2015 and 2106. In fact, fiscal 2016 marked P&G’s lowest sales point since 2006.

One problem facing P&G is the shrinkage of middle-class purchasing power, a change that began with the 2008 recession and continues today. Many once-well-off middle-class families are pinched with rising prices for gasoline, food, education, and health care but little or no wage increases, despite the recovering economy. On top of changing economics, preferences also are changing among consumers. Generation Y and Z buyers have been raised on premium brands. Rather than getting their clothes at bargain retailers, younger adults spent their teenage years in clothes from Hollister and Abercrombie & Fitch. As adults, they show a preference for premium brands, even when their incomes are solidly middle class. Based on P&G’s research, executives for P&G’s North America business expect middle-class downsizing will be a continuing tend. Accordingly, P&G and other companies are rethinking their target markets. The company is now focusing on ten product categories, which include 65 brands, and has reduced its brand portfolio to focus on core categories and fewer brands in order to drive sales growth. In addition, they have increased market research on lower-income households, often using face-to-face interviews to gain in-depth understanding of these consumers. So far, the low-end and the high-end segments each are generally smaller than the former massive middle-class market, which means P&G is splitting its marketing efforts, rather than having just a single larger thrust. As one company official noted, historically they have been good at doing things on a larger scale, but now they are learning how to deal with smaller sales volumes for products in each of two segments. New product development is affected, too, because the high-end segment often involves fewer products with attractive extra features that will sell profitably at higher prices.¹⁴