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P&G's Trickle-Up Success: Sweet as Honey

A new over-the-counter medicine from Vicks that has become popular in Switzerland in the past year isn't as new as it seems. The product, Vicks Cough Syrup with Honey, is really just the latest version of an elixir that Vicks parent Procter & Gamble (PG) initially created for lower-income consumers in Mexico­ and then "trickled up" to richer lands.

The term applies to a new corporate strategy of creating products for consumers in emerging markets and then repackaging them for developed-world customers. Before, these affluent consumers in the U.S. and Western Europe could afford the latest and greatest in everything. Now, with much of their wealth vanished, they're happy to settle for bargains.

The multinationals, too, are learning they can make their dollars stretch further by selling Third World goods around the globe, since it requires less money for research and development. "It's very expensive and time-consuming to come up with new ideas­—great ideas are scarce," says David Dintenfass, Vicks' global marketing director.

A Preference for Homeopathic Remedies

P&G isn't the only big name pushing hand-me-ups. Other practitioners of trickle-up innovation include General Electric (GE), Microsoft (MSFT), NestlÉ, and Nokia (NOK). What's unique about P&G's Honey Cough, as it's also called, is that it has moved around the globe in more than one direction.

Honey Cough originated in 2003 in P&G's labs in Caracas, Venezuela, which creates products for all of Latin America. Market researchers found that Latin American shoppers tended to prefer homeopathic remedies for coughs and colds. So they set out to create a medicine using natural honey rather than artificial flavors typically used. P&G introduced the syrup in Mexico first, under the label VickMiel, and then in other Latin American markets such as Brazil.

P&G wagered that the product could appeal to parts of the U.S. that have large Hispanic populations. In 2005, the company rebranded it as Vicks Casero for sale in California and Texas, at a price slightly less than Vicks' mainstay product, Vicks Formula 44. P&G won't release sales figures, but within the first year of its release the Cincinnati company boosted distribution to 27% more outlets.

Big Sales in Europe

Figuring that natural ingredients could appeal to even wider groups, P&G took the product to other markets where research indicated that homeopathic cold medicines are popular. In the past two years, the company has been marketing the product in Britain, France, Germany, and Italy, as well as Switzerland, and plans to add other Western European countries to the roster. Dintenfass says that Honey Cough has raised P&G's dollar share in Western Europe's cough-medicine segment since it was introduced in 2006, though he declines to be specific.

Western Europe isn't the last destination for iterations of Honey Cough. If P&G's current market research in the greater U.S. shows that mainstream American shoppers will buy Honey Cough, P&G will repackage it and market it nationwide, not just as Vicks Casero in Latino markets.

Developing and marketing a new product for each nation or ethnic group could take half a decade, says Dintenfass. Trickle-up innovation "can take years out of a process," he adds. Indeed, with each rollout, P&G has needed to do little more than make adjustments for each nation's health regulations.

At a time when companies are looking to speed product offerings while dealing with shrinking budgets and cash-strapped consumers, P&G's experience with its Honey Cough line show how an international product portfolio can be tapped quickly and cheaply. "Many of the business solutions America needs for the next 50 years could be found in emerging markets," says Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business and chief innovation consultant at General Electric. That is, if American companies learn how to go against the flow.

Jana is the Innovation Dept. editor for BusinessWeek.

Jana is the Innovation Dept. editor for BusinessWeek.

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