WWD.com/beauty-industry-news/retailing/p-g-adopts-strong-diversion-tactics-454758/
government-trade
government-trade

P&G Adopts Strong Diversion Tactics

On the heels of launching an entirely new and updated Sebastian hair care range,

On the heels of launching an entirely new and updated Sebastian hair care range, Procter & Gamble is taking on one of the salon industry’s biggest challenges: diversion.

Tackling the sale of professional products in unauthorized venues has been important to P&G since it entered the professional industry with the acquisition of Wella in 2003.

According to Kevin Otero, general manager of P&G Professional Care North America, “Susan Arnold [P&G vice chairman, Beauty & Health] was very supportive of us cleaning up the professional market to protect the growth of the brand and to protect the salon channel and its integrity.”

Otero said that from 10 to 30 percent of a salon’s revenue comes from the sale of products, and because of the sales that diversion takes away from traditional outlets, many salons go bankrupt each year. Diversion, he said, can be attributed to both salons selling product out their back door to unauthorized retailers, as well as to distributors who sell product to vendors outside their regular salon and professional network.

After learning these facts, P&G decided to make diverting products more difficult. As salons were presented with Sebastian’s new lineup, they were also shown an independent contract that said if they were to divert any Sebastian items they would be responsible for a financial penalty. The Sebastian contract is not new to the industry, Otero said, but P&G’s intent to follow up on contract breakers is hard core.

“I know others in the industry do [a contract] but what is unwavering is our diligence,” said Otero. “They have to sign the contract before we ship the products. It is a way to police and control any diversion that is going on.”

P&G also runs a program that includes coding and tracking products.

“We can see the original recipient by a product’s coding. Then we can use the contract to take legal action. We have severed relationships with many customers that were in our network. The bulk [of diversion we discovered] was coming from three distributors, two in the U.S. and one in Canada.”

Since the crackdown, P&G said it has seen sales of its professional products in retail channels decrease. According to AC Nielsen data, sales of P&G professional products in retail channels fell 15 percent in the most recent 52 weeks, ended April 12.

Otero cited Paul Mitchell as another company that “is also very good” in cleaning up diversion. Other manufacturers, he said, claim to be committed but “sometimes turn a blind eye.” Recently, in part for its diversion efforts, as well as to recognize its service and partnership, 350 Regis banner salons switched to carrying Wella hair color.

The new Sebastian range ships to salons in July. The line consists of 33 stockkeeping units, and includes Whipped Creme, a next-generation mousse that is a styler and a conditioner in one, which sells for $18.95.