PG has been built through the character of its people. That character is reflected in the Companys Values, which have been fundamental to its success for more than 160 years. Its continued success depends on each of its doing its part to uphold these values in the company’s day-to-day work and in all the decisions they make, as reflected in their Principles. These Principles flow from our Purpose and Values.
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P&G’s policies for business conduct flow from its Purpose, Values and Principles. Their policies are aspirational statements of the application of their Principles, Values and Purpose to broad, major issues and societal expectations. While P&G competes hard to achieve leadership and business success, the Company is concerned not only with results, but with how those results are achieved. They will never condone nor tolerate efforts or activities to achieve results through illegal or unethical dealings anywhere in the world.
P&G is committed to meeting or exceeding all laws and regulations wherever they conduct their business activities. The Company expects every employee to know the laws and policies that apply to their P&G activities, and to conduct them with uncompromising honesty and integrity.
Of course, some business activity is not governed by any law, and some laws and regulations set unacceptably low standards of behavior, far lower than P&G sets for itself. In these situations, an employee should be able to answer “yes” to the following questions before taking action: Is this action the “right thing to do?” Would this action withstand public scrutiny? Will this action uphold P&G’s reputation as an ethical company?
If the answers are not an unqualified “yes,” they should not do it.
A large number of forces shape the marketing environment. To help organize our overall thinking, it’s useful to classify the various forces as falling into either the direct market environment or the external market environment. The direct environment of any generic market or product-market includes customers, the company, and competitors. The external market environment is broader. The variables of the external market environment fall into four major areas: Economic environment, Technological environment, Political and legal environment, Cultural and social environment.
Analysis of Macro-Environment:
In a macro-marketing sense, consumers in market-directed economies have granted businesses the right to operate and to make a profit if they can. With this right comes the responsibility for businesses to be dynamic agents of change, adjusting their offerings to meet new needs. Competition is supposed to encourage innovation and efficiency. A business firm should develop an organization that ensures these consumer assigned tasks are carried out effectively and that the firm itself continues to prosper.
The economic and technological environment affects the way firms and the whole economy use resources. The economic and technological environments are treated separately to emphasize that the technological environment provides a base for the economic environment. Technical skills and equipment affect the way companies convert an economy’s resources into output. The economic environment, on the other hand, is affected by the way all of the parts of a macro-economic system interact. This then affects such things as national income, economic growth, and inflation. The economic environment may vary from one country to another, but economies around the world are linked.
The economic environment can and does change quite rapidly. The effects can be far-reaching and require changes in marketing strategy. Even a well-planned marketing strategy may fail if a country or region goes through a rapid business decline. As consumers’ incomes drop, they must shift their spending patterns. They may simply have to do without some products. Changes in the economy are often accompanied by changes in the interest rate the charge for borrowing money. Interest rates directly affect the total price borrowers must pay for products. So the interest rate affects when and if they will buy. This is an especially important factor in some business markets. But it also affects consumer purchases of homes, cars, furniture, computers, and other items usually bought on credit.
The attitudes and reactions of people, social critics, and governments all affect the political environment. Consumers in the same country usually share a common political environment, but the political environment can also have a dramatic effect on opportunities at a local or international level. Some business managers have become very successful by studying the political environment and developing strategies that take advantage of opportunities related to changing political dimensions.
Changes in the political environment often lead to changes in the legal environment and in the way existing laws are enforced. The legal environment sets the basic rules for how a business can rightfully operate in society. The legal environment may severely limit some choices, but changes in laws and how they are interpreted also create new opportunities. However, it is mostly required to keenly realize and understand the fact that laws often vary from one geographic market to another especially when many different countries are involved.
The cultural and social environment affects how and why people live and behave as they do which affects customer buying behavior and eventually the economic, political, and legal environment. Many variables make up the cultural and social environment. Some examples are the languages people speak, the type of education they have, their religious beliefs, what type of food they eat, the style of clothing and housing they have, and how they view marriage and family. Because the cultural and social environment has such broad effects, most people don’t stop to think about it, or how it may be changing, or how it may differ for other people. A marketing manager can’t afford to take the cultural and social environment for granted. Although changes tend to come slowly, they can have far-reaching effects.
A marketing manager who sees the changes early may be able to identify big opportunities. Further, within any broad society, different subgroups of people may be affected by the cultural and social environment in different ways. In most countries, the trend toward multiculturalism is making such differences even more important to marketers. They require special attention when segmenting markets. In fact, dealing with these differences is often one of the greatest challenges managers face when planning strategies, especially for international markets.
Analysis of the Micro Environment:
P&G faces weak buyer power because customers are fragmented and have little influence on price. But if we consider the buyers of P&G products to be retailers, rather than individuals, then P&G faces very strong buyer power. Retailers like Wal-Mart and Target are able to negotiate for pricing with P&G because they purchase and sell much of P&G’s products
A co-dependent relationship exists between P&G and its suppliers. In order to generate above average revenues, the company needs various quality materials for product production at the best prices available. Suppliers of these materials also need key customers like P&G for profitable revenue generation but will most likely have little bargaining power because of its size.
The sheer scale of products that are distributed under Procter & Gamble’s name creates a challenge for new entrants. Since the company has a significant amount of many market shares around the world, a company without the capital for heavy marketing or research and development, would hardly be able to compete. However, there is concern about firms that specialize in specific markets. This type of company could become a threat to P&G’s corresponding business segment. A small manufacturer could develop a superior product and compete with Procter & Gamble. The real test is whether the small manufacturer can get its products on the shelves of the same retailers as that of its much larger rivals.
There are considerable substitutes for all of P&G’s product offerings, creating an intense competitive environment. In order to differentiate itself, the firm must continue to provide new, innovative products and branding to the customer. Furthermore, the pricing power of brands can be eroded with substitutes such as store branded private label offerings. In fact, some of these same store brand private label products are manufactured by the large consumer products firms. The firms believe that if they can manufacture and package a lower price alternative themselves, they would rather accept the marginal revenue from their lower priced items than risk completely losing the sale to a private label competitor.
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While P&G enjoys exceptional brand name recognition and commands a considerable market share, the truth is that switching costs in the industry are quite low. It does not cost anything for a consumer to buy one brand of shampoo instead of another. That, combined with the size of other competitors such as Unilever, makes this a highly competitive industry. Significant competitors include: Unilever, Colgate Palmolive, Playtex, Avon and Estee Lauder.
There are some threats to P&G, including the growth of large retailers’ higher margin private label brands in competition with P&G. Stiff competition from private label brands or “store brands” of large retailers such as Wal-Mart, Target, and supermarket chains is a significant threat. In terms of the Industry Life Cycle, P&G’s North American and Western European operations could be said to be in a Mature Industry, yet in the Emerging economies, the industry resembles more that of a Growth Industry
P&G’s formidable success to date is attributable to a number of distinct competitive advantages: P&G is the innovation leader in the industry. Virtually all the organic sales growth P&G delivered in the past years comes from new brands and new or improved product innovation. P&G spends almost twice as much on research and development spending as its closest competitor.
In addition, the Company multiplies its internal innovation capability with a global network of innovation partners outside P&G. More than half of all product innovation coming from P&G includes at least one major component from an external partner. P&G is also the brand building leader of its industry. The Company has built the strongest portfolio of brands in the industry with 23 Billion dollar brands and 20 half billion dollar brands.
These 43 brands account for 85% of sales and more than 90% of profit. Twelve of the billion dollar brands are the number one global market share leaders of their categories. The majority of the balances are number two. As a group, P&G’s billion dollar brands have grown sales at an average rate of 11% per year (P&G 2009 Annual Report). P& G has also established industry leading go to market capabilities. P&G is consistently ranked by leading retailers in industry surveys as a preferred supplier and as the industry leader in a wide range of capabilities including clearest company strategy, brands most important to retailers, strong business fundamentals and innovative marketing programs.
The Company has also established significant scale advantages as a total company and in individual categories, countries and retail channels. P&G’s scale advantage is driven as much by knowledge sharing, common systems and processes, and best practices, as it is by its size and scope. These scale benefits enable P&G to deliver consistently superior consumer and shareholder value (P&G 2009 Annual Report). By leveraging these core strengths consumer understanding, brand building, innovation, go to market capability and scale P&G can execute its growth strategies. These strengths create significant competitive advantage for P&G.
In P&G’s SWOT analysis, the company experiences strengths like, industry innovation leader or Brand Building leader in the Industry. Formidable R&D spending and budget. Solid financial strength with significant free cash flow for possible acquisitions of mergers and joint ventures. Huge economies of scale significant distribution channels considerable sums spent of advertising and marketing, which serve to further solidify Brand recognition. Successful cost cutting yet with no downside on R&D spending.
The weaknesses include, at the mercy of large retailers (Wal-Mart, etc.), which can Squeeze margins and also have private label products which compete directly with P&G.
P&G’s opportunities are a demand for greater beauty products designed for Men and significant demand for natural or organic ingredient products. P&G can increase its presence in developing countries. It can also market to Lower Income consumers in both developed and developing countries, especially in order to diversify its customer base and to capture greater market share, especially in emerging markets such as Russia, China and India. Increasing the depth and number of distribution channels in emerging markets also provides great opportunities to expand market share and customer reach. E-commerce also offers further revenue streams and customer penetration.
Threats that P&G experience include, rising commodity prices, which could put a real squeeze on P&G as it can only pass on the added costs to the end consumer for so long without risking consumer attrition. The highly competitive nature of the business means that P&G must constantly price its products competitively and continually strive to develop innovative products. The existence of smaller corporations focused on a market niche that operate regionally or even locally still poses a challenge to P&G’s sales.
This a highly attractive strategic option given that P&G is constantly innovating ways to reach more consumers, and the Low-Income consumer group is one that P&G greatly covets. Further, by targeting such a specific niche, this strategy helps shield the Company somewhat from economic downturns in mature markets such as the USA. Additionally, though, this is a Win-Win scenario given the huge numbers of Low Income consumers in markets such as Africa, Asia and South America, as well as Eastern Europe, Russia, Indian and China specifically. Furthermore, P&G is strong in products tailored to meet the needs of this market segment, especially in terms of brand recognition, mass market presence, and brand loyalty. P&G’s top notch distribution system in the mass market segment gives it a strong competitive advantage, especially in markets where big store names like Wal-Mart, Tesco, Target and Costco operate.
Such a Strategic option does not of course result in creating new revolutionary products for mature and expanding markets. Furthermore, simply altering products to suit the low income segment means a lack of enough prestigious products, such as very expensive fragrances. This strategy also does not address those consumers who desire products that contain natural ingredients.
Joint Ventures in countries such as China and India create a unique foothold for P&G in a vast consumer market while also minimizing the risk of a full-blown acquisition or setting up new manufacturing plant facilities and having to source materials, etc. Such JV’s also ensure adequate political and governmental cooperation and facilitation, and usually are accompanied with favorable tax treatment and other incentives. A precedent has already been set with P&G’s JV arrangement with China since 1998.
There could be a lack of control over the technology and an inability to realize location based and scale-based economies. Other issues such as span of control, amount of decentralized decision-making, corporate culture, leadership, and training are all issues at hand.
The Recommendation is to go for a combined Low-Income segment and new natural product strategy as this facilitates P&G’s need to capture a greater slice of the low-income consumer market both in mature and developing markets, which also capturing a greater slice of the natural ingredient market and the growing men’s market. Unlike in the case study, the author advocates new natural ingredient product development in multiple segments, and not just confined to the skin care segment of the beauty of feminine care segment. Such a combined Strategy will require the creation of new products and the expansion of existing ones, combined with related diversification via acquisition if suitable acquisition targets are identified and can be purchased at an attractive price. P&G can well afford this combined approach, and is sitting in an elevated position given its financial clout and ability to “cherry pick” potential Acquisitions.
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