Bringing up baby’s market share at J&J

After missing out on major shifts in consumer tastes and watching sales stall, the company has remade its baby line from head to toe. Catching up won’t be easy

It’s a high-stakes corporate gamble, full of peril: Johnson & Johnson has turned its iconic, golden-hued baby shampoo clear. The move is part of a sweeping plan to overhaul the company’s struggling namesake franchise. J&J has remade its Johnson’s baby product line, cutting out chemical dyes and adding natural ingredients like coconut oil. It has updated its packaging and rolled out a new digital marketing campaign. And it’s trying to reconquer the baby-care market it has dominated for more than a century.

In recent years, that market has changed. Many new parents, millennials looking for natural ingredients, have come to view Johnson’s as old-fashioned and chemical-laden, according to current and former employees and industry officials. Younger rivals like California Baby, Honest and Earth Mama have been able to gain a foothold with young parents, building up sales in part by leveraging the growing influence of parents online who recommend organic brands.

Johnson’s baby products have lost more than 10 percentage points of share in the U.S. over the past five years, according to Nielsen. Johnson’s now has a market share just under 37 per cent—still the largest in the market, but down significantly from its heyday. Johnson’s—J&J’s flagship baby products line—accounts for only about $1.5 billion of the company’s $76.5 billion in yearly sales. J&J gets most of its revenue from its higher-margin prescription-drug and medicaldevice businesses. But Johnson’s significance extends well beyond the revenue it generates.

Johnson’s is the only product line in the US that carries the company name. Many consumers come to know— and trust—J&J through the brand. That trust spurs sales of other products. Some J&J employees in other parts of the company refer to Johnson’s as the “trustmark”.

Johnson’s baby is nearly as old as J&J itself, a side-effect of one of the fledgling medical-supply business’s first products. The company, founded in 1886, sold medicated plasters—bandages that delivered medicine through the skin—which were painful to peel off. So the firm’s chief scientist sent powder to customers to soothe their irritation. Soon, parents discovered another use: diaper rash. Shortly after, in 1894, the young company launched Johnson’s Baby Powder.

In the decades following, J&J created more baby products, including a lotion to comfort a newborn’s skin and a shampoo that wouldn’t irritate a child’s eyes. Johnson’s popularity spread further in the 1960s, 1970s and 1980s, as J&J brought the franchise to emerging markets like China and adults began using the products, too.

“If you ask what does J&J mean to you, the majority would tell you it’s Johnson’s Baby,” says Jorge Mesquita, who runs the company’s consumer-health business. “This brand is the face of the company. So for us, it’s incredibly important to restore its relevance and preserve its image.”

Now, J&J is trying to catch up. To regain its baby-care perch, the company will need to overcome a risk-averse corporate culture that has been slow to embrace change. It will need to take on its smaller, nimbler rivals. And it must get better, fast, at marketing and selling its products online, an area in which the company has lagged.

‘WE’RE MISSING E-COMMERCE’

In 2013, J&J officials noticed a problem: Johnson’s baby sales were slowing worldwide, especially in China, a key market and leading indicator.

The company had been focused on other parts of its consumer-health business in the years before, according to current and former company officials. Manufacturing problems led to a series of recalls of over-thecounter medicines like Benadryl and Motrin starting in 2009. The problems, including products with metal particles or too-high concentrations of ingredients, cost J&J billions of dollars in sales, and hundreds of millions to fix.

The company says the manufacturing problems weren’t related to Johnson’s, and it has since passed government and third-party inspections.

Manufacturing consumed much of the consumer business’s attention at the time, says Erica Robinson, an associate brand manager during the recalls. She had to give back the $400,000 in her budget that was allotted for Motrin store displays, and scrap focus groups.

It was a bad time to cut back on marketing and research, because consumer preferences were changing dramatically.

The Internet was emerging as a destination for new parents looking for information on baby products. More of these parents were seeking products with natural ingredients, such as raw shea butter and argan oil — and heeding recommendations of other parents online.

“There was a desire to stay up-to-date with the consumer, but there wasn’t a focus or energy there,” says Ms. Robinson, who left J&J in 2012. “It was all going to manufacturing issues.”

Where J&J did seek to modernize, it took half-steps. In response to the growing interest in natural ingredients, J&J scientists at various points removed phthalates and other chemicals from the products, but didn’t publicize the changes, to avoid the impression chemicals were unsafe, according to company officials.

In 2013, J&J hired Alison Lewis, a marketing official from Coca-Cola Corp., to oversee marketing for the consumer business. Ms. Lewis saw Johnson’s U.S. sales falling in weekly market-data reports she received. Yet the spreadsheets indicated market share was still hovering above a healthy 40%.

That suggested the franchise needed help, Ms. Lewis recalls thinking, but not life support. She pinned hopes on a new marketing campaign launched in February 2015. Ads pictured babies smiling during a bath with Johnson’s products. “Why just clean your baby, when you can give her so much more?” television spots asked.

The numbers didn’t improve. Nielsen’s data showed the baby-care market growing overall, but Johnson’s share wasn’t. By the fall, Johnson’s share of the U.S. market was heading for a drop below 40%.

Ms. Lewis and colleagues across the consumer business pored over sales and market-share data to diagnose what went wrong. When she asked where the data came from, she began to see the problem. The data firms J&J relied on, including Nielsen, captured sales at big-box stores like Walmart Inc. and Target Corp. But they didn’t track online retailers such as Amazon.com and Boxed.com.

“We’re missing e-commerce,” Ms. Lewis recalls realizing. It was a big miss. Online sales were increasingly important in the then-$14.8 billion world-wide market for baby-care products, accounting for $908 million that year. E-commerce sales were rising at a 21% compounded annual rate compared with the overall market’s 5.7%, according to Euromonitor.

At a strategy meeting with fellow consumer-business executives that November, Ms. Lewis outlined all the ways Johnson’s— and J&J—would have to change.

J&J must rework product formulas and marketing, Ms. Lewis told the group, gathered in the company’s headquarters. If it couldn’t find a vendor with e-commerce data, the company would have to collect the data itself. It needed to add new products and freshen packaging. Consumers needed to see the franchise was transformed. Above all, Johnson’s must appeal to parents where they research and shop: online.

“If you’re not playing there, you’re not winning these consumers,” she said.

PROJECT APOLLO

The executives agreed to a total revamp— including the first major changes to Johnson’s packaging since 1973.

J&J hired data scientists and social economists for its in-house think tank. The team replaced the weekly sales and share reports with a web-based application dubbed Panorama that broke down the market online and in traditional channels.

J&J interviewed parents and conducted focus groups. It surveyed them online and mined their conversations from Facebook to Amazon. All told, it collected insights from 26,000 people.

The lessons were painful. “We were still not being trusted,” says Deeptha Khanna, who now leads J&J’s global baby-care business. She says the market research suggested that J&J had too much “confidence that our products continued to be best in class and” failed to keep up with consumers.

The changes that J&J would have to make would be painful for the company, too. Inside J&J, the mission was referred to as Apollo—borrowed from NASA’s program to put humans on the moon—to reflect how critical and ambitious the effort was. A big sticking point for some insiders: a proposal to eliminate dyes, like the ones that gave Johnson’s baby shampoo its distinctive golden hue. In early 2015, 20 top officials responsible for the brand’s sales, research and manufacturing met to hash out the matter. “We are not leaving this room until we all feel comfortable,” one participant said at the outset of the meeting, according to Sandrine Alvarado, a J&J consumer research official who helped direct the reformulations.

Many in the room, in a J&J building across the street from the company’s New Brunswick, NJ, headquarters, had grown up using the gold product. Some expressed concerns that such drastic changes aiming to appeal to new customers would repel those who had stuck with Johnson’s.

After hours, a truce was reached. What if the bottle itself were colored in the shampoo’s familiar shade, a packaging official suggested. And everyone agreed the yellow dyes would be brought back if consumers weren’t happy.

It took more than a year to work out how to keep the new shampoo from yellowing over time, Ms. Alvarado says. In 2017, results from surveys of hundreds of Johnson’s consumers who were given samples of the new shampoo came back. They liked it.

After six decades, the gold shampoo was going to be clear. “It seems impossible when you’re being told, ‘Look, this is the most precious brand and you need to change everything—and make sure everyone loves it just like they did before,’” Ms. Alvarado says.

The company’s new digital-marketing plan is another key part of the strategy to restore the brand’s relevance. Among the steps it is taking to promote the overhauled products, J&J is working with parents with big social-media presences to talk about the products online.

J&J has agreed to pay about 100 “social influencers” in North America for their recommendations on Instagram, blog posts and other Internet endorsements, while arranging to furnish free samples and product information to a similar number of other parents prominent on social media, a company spokeswoman says.

In a post on her Instagram page last month, one of these influencers, Houston mother Joy Green, 30 years old, wrote about Johnson’s pink baby lotion. “It’s made with coconut oil,” she wrote, describing using the product on her 2¾-year-old daughter. “It absorbs in a flash.” The post has been viewed more than 10,600 times and drawn more than 1,930 likes. Ms. Green says her joyfullygreen Instagram page averages 100,000 visitors a week and that many of her followers are working mothers like herself between 24 and 35 years old. Ms. Green uses the hashtag #ad in the first line of her posts to signal they are ads, but says the opinions are her own.

Ms. Green, a freelance marketer who has signed similar social-media deals with other companies, says she agreed to work with Johnson’s because its shift to more-natural ingredients fits with her postings about motherhood and healthy living. She declines to say how much she gets paid for the posts. For an upcoming post, Ms. Green is planning a video review of a new Johnson’s baby lotion infused with tiny, milled cotton particles. The company hopes the new “CottonTouch” line will re-establish the company’s reputation for cutting-edge products. Ms. Lewis and Ms. Khanna say they see positive signs from the overhaul. J&J’s internal data points to a two percentage point increase in Johnson’s U.S. market share over the last three months, and sentiments on social media have improved. But challenges abound.

A string of personal-injury lawsuits alleging that women’s use of Johnson’s talcum powder resulted in ovarian cancer have grabbed headlines. Most recently in July, a jury in St. Louis, awarded $4.7 billion in damages to 22 women and their families. Other cases allege that the powder is tied to mesothelioma.

J&J disputes the allegations, saying “Johnson & Johnson is confident that its products do not contain asbestos and do not cause ovarian cancer” or mesothelioma. It has filed a motion to appeal the $4.7 billion verdict, which has not been heard yet, and has succeeded in overturning some of the other verdicts. Ms. Lewis says such decisions haven’t affected consumers’ perceptions of Johnson’s.

Yet marketing experts say these trials could be damaging. J&J’s reputation suffers every time a jury returns a multimillion-dollar verdict, according to data company TruValue Labs.

Meantime, rivals like California Baby aren’t standing still. California Baby is reformulating products to replace traditional preservatives with those made from basil and other plants, some of which are grown on a 100-acre organic farm. The privately held company plans to begin selling a lotion with the plant-based preservatives in the next two weeks.

“We never used sulfates and that was 20 years ago,” says Jessica Iclisoy, California Baby’s founder and chief executive. “We are 10 steps ahead of everybody.”