Procter & Gamble Launches Premium Products to Counteract Tariff-Driven Cost Increases
Procter & Gamble (P&G) is using premiumization to counteract tariff-related cost increases, introducing high-priced products like a $380 electric toothbrush and enhanced razors. This strategy, previously used during the COVID-19 pandemic, aims to maintain margins despite rising input costs. P&G's supply chain faces tariff challenges, particularly with imports from China and India. Despite a $5 billion growth opportunity in premium products, consumer spending is slowing. P&G has lowered its financial outlook for fiscal 2025, with net sales and organic sales growth missing expectations, leading to a nearly 5% drop in share prices.
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04/24 21:00
Procter & Gamble Launches Premium Products to Counteract Tariff-Driven Cost Increases
Procter & Gamble (P&G) is using premiumization to counteract tariff-related cost increases, introducing high-priced products like a $380 electric toothbrush and enhanced razors. This strategy, previously used during the COVID-19 pandemic, aims to maintain margins despite rising input costs. P&G's supply chain faces tariff challenges, particularly with imports from China and India. Despite a $5 billion growth opportunity in premium products, consumer spending is slowing. P&G has lowered its financial outlook for fiscal 2025, with net sales and organic sales growth missing expectations, leading to a nearly 5% drop in share prices.
Premium Products Take Center Stage
P&G’s latest product lineup includes the Oral-B iO Series 10 electric toothbrush, priced at $380, and a more affordable iO Series 2 model at $60. These toothbrushes are part of a broader push to introduce “new and improved” products that command higher price points. Other offerings include Venus razors with shower-hanging handles, a $12 Crest whitening toothpaste, and deeper-cleaning Tide pods.
Chief Financial Officer Andre Schulten explained that these innovations are designed not only to meet consumer demand for better performance but also to help the company absorb the financial impact of tariffs, particularly those stemming from the Trump administration’s trade policies. “Without the ability to easily move sourcing out of China, P&G is leaning on price hikes, particularly on new and improved products, to counter the tariffs,” Schulten said during a recent earnings call.
A Strategy Revisited
This is not the first time P&G has turned to premiumization as a buffer against economic headwinds. During the COVID-19 pandemic and the inflation surge that followed, the company successfully used a similar playbook. By introducing higher-end versions of its core products, P&G was able to maintain profitability even as raw material and transportation costs soared.
The strategy proved effective in helping the Cincinnati-based company weather those turbulent periods. Now, with tariffs once again disrupting supply chains and increasing costs—particularly for imported ingredients and materials—P&G is doubling down on this approach.
Navigating Tariff Complexities
P&G’s supply chain is deeply intertwined with global markets. While approximately 90% of the products it sells in the U.S. are manufactured domestically, the company still relies on imported raw materials and packaging components. For example, the psyllium husk used in Metamucil is sourced almost exclusively from a specific region in India, making it difficult to avoid tariffs on that ingredient.
CEO Jon Moeller noted that the company’s business model emphasizes production close to consumption, but acknowledged that certain inputs cannot be easily sourced elsewhere. “There’s a tariff impact on that importation,” Moeller said, citing the lack of alternative sources for some materials.
In addition to direct tariffs on imports, P&G is also facing retaliatory tariffs on exports to countries like Canada, where much of its product is sourced from the U.S. These layered trade barriers have added complexity and cost to the company’s operations.
Consumer Behavior and Market Dynamics
Despite the higher price tags, P&G believes there is still room for growth in the U.S. market. Schulten said the company sees a $5 billion opportunity by encouraging more consumers to trade up to its premium offerings. However, he also acknowledged that consumer spending is showing signs of strain.
“Consumption in the United States fell to 1% in February and March from 3% in the past 12 months,” Schulten said. He attributed the slowdown to a mix of economic uncertainty, including volatile mortgage rates, job market instability, and political divisiveness.
Still, P&G is betting that consumers will continue to prioritize quality in essential categories like oral care, cleaning, and personal hygiene—even if they cut back on discretionary spending such as entertainment and apparel.
Expanding the Premium Portfolio
In addition to oral care and grooming, P&G is expanding its premium product strategy across other household categories. The company plans to unveil new offerings under its Febreze, Dawn dish soap, Mr. Clean, Swiffer, and Cascade brands. These products are expected to feature enhanced performance and convenience, justifying their higher price points.
This move aligns with P&G’s broader strategy of “flexing its pricing power.” While the company had previously indicated it would ease off price hikes, it raised prices by 1% in the third quarter of fiscal 2025, even as volumes declined by the same amount. Executives now say they will continue to introduce new products at elevated price levels and selectively raise prices on existing items.
Financial Outlook and Market Response
Despite its strategic efforts, P&G has revised its financial outlook downward. The company now expects core net earnings per share growth of 2% to 4% for fiscal 2025, down from a previous forecast of 5% to 7%. It also lowered its full-year organic sales growth projection to 2%, compared to an earlier range of 3% to 5%.
Net sales for the third quarter came in at $19.8 billion, a 2% decline from the previous year and below analyst estimates. Organic sales growth was 1%, also missing expectations. The company cited weakness in fabric and baby care segments, while grooming and healthcare showed modest gains.
Shares of P&G fell nearly 5% in early afternoon trading following the earnings release, reflecting investor concerns about the company’s ability to sustain growth amid economic and geopolitical headwinds.
