The Procter & Gamble Company (P&G) is one of the world’s largest consumer goods companies. It markets more than 300 brands in the beauty, health, fabric, home, baby, family, and personal care product categories. The company operates in the Americas, Europe and Asia. It is headquartered in Cincinnati, Ohio, and employs about 135,000 people.
The objective of Procter & Gamble is that “They will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders and the communities in which we live and work to prosper”. (http://www.uk.pg.com/company/aboutPG/purposeValuesPrinciples.html)
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Procter & Gamble (P&G), one of the world’s largest consumer goods companies is also a pioneer in the use of mass media. The company has used newspaper advertisements, radio and soap operas to advertise its popular brands like Crest, Pampers, Pantene and Folgers. During 1990-2000, however, its rate of growth took a plunge. When AG Lafley took over as CEO in 2000, he gave P&G a complete makeover with the focus on innovation and advertising. Since 2000, P&G has been increasingly embracing targeted, viral and on-line marketing. (http://www.uk.pg.com/company/aboutPG/purposeValuesPrinciples.html)
Olay is a worldwide leader in skin care and have been trusted by women for fifty years. Graham Wulff, an innovative and entrepreneurial South African chemist developed the original formula at the beginning of the 1950s. Olay has eight global product lines offering a multiple of product. Product such as; Olay professional pro-X, Olay Definity, Olay Regenerist, Olay Total effect, Olay complete, Olay hydrate & cleanse, Olay clarity, Olay body lotion, Olay touch of sun and Olay body cleansing (http://www.docstoc.com/docs/14719894/Oil-Of-Olay-Products).
Skin care is evolving faster than ever with independent clinical trial and new standards in natural and organic cosmetics. Olay evolution will be a combination of Olay total effects (7 seven powerful anti-ageing in one) and Olay Definity (fight wrinkles, brown spot and discolouration). Many consumers want products that offer more than one benefit. So this product is expected to moisturize, fight free radicals and give the skin a more youthful appearance. This product would offer the costumer an ideal combination of the world most powerful skin care solution.
Anti-aging is the fastest-growing skin segment, standing at $567.6 million, now representing the biggest category in skin care, surpassing facial cleansers which stand at $559.2 million. (http://www.allbusiness.com/population-demographics/demographic-groups/5517853-1.html)
Women are very particular when dealing with their face. They need to be convinced the product will deliver all the promised benefits. Women are willing to try new things and spend more money to look better and younger. Skin care attracts customers from all income level as most women like to take care of their appearance. The increase number of women working equates women with more money to spend and skin care is one of the favourite avenues for their spending.
Based on Procter & Gamble F4Q10 (Qtr End 06/30/2010) Earnings Call Transcript, Female Skin Care grew volume double digits with positive share trends. In the U.S., Olay all-outlet value share of the Facial Moisturizer segment was up almost two points behind the continued strength of the Olay Pro-X line and the Olay Regenerist Roller ball Eye Treatment innovation. Olay also had strong results in developing markets, more than doubling shipments in India, Saudi Arabia and the Philippines. Organic sales increased 5%, driven by 8% organic volume growth. (http://seekingalpha.com/article/218380-procter-gamble-f4q10-qtr-end-06-30-2010-earnings-call-transcript)
Rate of Global skin care market 2002 and 2007
Source: Euro monitor international
Below are the analyses of the business environment to back up the proposal.
ANALYSIS OF BUSINESS ENVIRONMENT
Every Business operates within an environment, these environments directly and indirectly affects the way those businesses function. Competition in the skin care industry tends to be more intense and there are many changes that can be regarded as threat and opportunity that it is important for managers to cope with.
The political environment Relates to the pressures and opportunities brought by changes of the government and their views toward the skin care industry. Each government always have a mandate to regulate the use on non organic ingredients in most skin care product.
This Refers to economic factors and structures and such variables like the stock exchange, interest and inflation rates, the nation’s economic policies and performance, exchange rates, etc. Although P&G is based in the US, it earns revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the US dollar. As a result, increases or decreases in the value of the US dollar against other major currencies will affect the company’s net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies.
Middle-aged women are very interested in skin care items that help them retain a more youthful appearance and complexion. Observing social factors helps organisations maintain their reputation among stakeholders.
Changes in technology can affect a company competitive position. Industries merge; new strategic groups emerge; currents products improve and the cost of production gets reduced by process innovation. Because the skin care industry is very competitive, the company necessitate taking advantage of the latest technology and revolutionary substances to create new product in order to maintain customer’s interest and loyalty.
With global warming and carbon foot prints being big concerns, governments and scientists are encouraging companies and individuals to be more environmentally aware. P&G’s policy is to: Ensure its products, packaging and operations are safe for their employees, consumers and the environment. Reduce or prevent the environmental impact of products and packaging in their design, manufacture, distribution, use and disposal whenever possible. They support the sustainable use of resources and actively encourage reuse, recycling and composting.
Buyer Power; Consumer products companies face weak buyer power because customers are disjointed and have little influence on price or product. But considering the buyers of consumer products to be retailers rather than individuals, then these firms face very strong buyer power. One good example is the business relationship between wall-mart and P&G (see swot analysis).
Supplier Power; the company could face some amount of supplier power simply because of the costs incurred when switching suppliers. Notwithstanding, suppliers that do large amount of business with the company also are somewhat obliged to their customers; nonetheless, bargaining power for both the firms and their suppliers is probably limited.
Threat of New Entrants; Given the amount of capital investment needed to enter the skin care industry, the assumption is that threat of new entrants will be fairly low.
Threat of Substitutes; Within the skin care industry, brands thrive in helping to build a competitive advantage, but even the pricing power of brands can be scoured with substitutes. Threats to this product may arise from other anti-aging products such as; Avotone, Revitol, Ceramide C etc.
Degree of Rivalry; Skin care industry is a very competitive market, taking advantage of the latest technology and revolutionary substances to create new product in order to maintain customer’s interest and loyalty will be very important. In doing so it will increase the company’s competitive advantage over other top brands like Avon and Nivea Visage.
The internal environment constitutes variables and forces within the control of the organisation. These variables are; conditions, entities, events, and factors within an organization which influence its activities and choices, its philosophy, particularly the behaviour of the employees. Other variables include; the organisation mission statement, leadership style, and its culture.
SWOT Analysis; this is a planning method use to evaluate the strength, weaknesses, opportunities and treat to a business. It involves specifying objectives of a business at the same time identifying the internal and external elements that will affect the business both positive and negative in the race to attain its stated objectives.
Leading market position geared on a strong brand portfolio.
Significant R&D and market investment.
Robust cash productivity
Increase instances of product recall.
Excessive dependant on Wal-mart.
High product prices translated into sales volume decline and market share loss.
Future growth plans- Increase concentration on its core attractive businesses and enhancing its customer base.
Increase investment in manufacturing capacity in developing countries.
Acquisitions to expand portfolio
Changing global retail scenario and rise of private labels.
Commodity cost and currency exchange rate.
Rising cost of energy prices
Economic slowdown in US and Euro zone.
Leading market position garnered on a strong brand portfolio
With revenues of $79,029 million, P&G is the world’s largest consumer products manufacturer, with its products reaching 4 billion people worldwide. P&G is the 20th largest company in sales and the 9th largest company in profit among the Fortune 500 companies. The company’s market capitalization in 2009 was roughly $150 billion, making it one of the 10 most valuable companies in the US. P&G holds leading global market shares in a variety of categories, including baby care (33%), blades and razors (70%), feminine protection (37%), and fabric care (33%). The company’s leadership position is built on its strong brand portfolio. Strong brand portfolio enables the company to achieve economies of scale in distribution and retain a strong bargaining position with retailers. Leading market position provides P&G with significant competitive advantage as well as stabilizes the company’s financial growth
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Significant R&D and market investment.
Being a consumer products company, P&G relies heavily on innovation and continued marketing investments in order to establish a significant competitive advantage. As a result, the company has made significant investments in R&D and marketing. Over the last decade, P&G has invested more than $2 billion in consumer and market research (nearly twice that of its closest competitor, Unilever; and equal to the combined total of its other major competitors; Avon, Clorox Company, Colgate-Palmolive Company, Energizer Holdings, Henkel, Kimberly-Clark, L’Oreal, and Reckitt Benckiser). Virtually, all the organic sales growth delivered by P&G in the past nine years has come from new brands and new or improved product innovation. P&G also involves external innovation partners to boost its internal innovative capability, an approach it calls ‘Connect and Develop.’ Currently, more than half of all product innovation coming from P&G includes at least one major component from an external partner. P&G’s strong R&D capabilities and a marketing-driven understanding of consumer needs are backed by significant marketing investments. The company invests more than $7 billion in advertising annually, consistently making P&G one of the world’s largest advertisers. Strong focus on research and development allows P&G to renew its product line at regular intervals, which boosts customer loyalty and revenue growth. Significant marketing investments to support its brands and a broad product portfolio help P&G to remain at forefront in a competitive market.
Robust cash productivity
P&G’s cash productivity: the percentage of earnings converted into cash has averaged over 100% since 2001, consistently among the very best in the industry. This is primarily due to P&G’s strong focus on productivity, working-capital management and cost reduction. Furthermore, P&G is equally rigorous about managing costs. The company has reduced overhead costs as a percentage of sales by more than 300 basis points since 2001. The cash productivity allows P&G to maintain the company’s excellent credit rating, to pay strong dividends, and to have the flexibility to invest in the business organically or through mergers and acquisitions. Therefore, robust cash productivity ensures that P&G has the flexibility and the resources to invest in growth even in the most challenging environments.
P&G has been registering increasing instance of product recalls. One case in point is in November 2009, the company voluntarily recalled three lots of its Vicks Sinex nasal spray in the US, Germany and the UK. The recall was a precautionary step after finding the bacteria B. cepacia in a small amount of product made at its plant in Gross Gerau, Germany. In March 2010, P&G voluntarily recalled its Pringles Restaurant Cravers Cheeseburger potato crisps and Pringles Family Faves Taco Night potato crisps in response to a recommendation from the Food & Drug Administration (FDA) to the food industry to protect consumers from potential Salmonella exposure. Most recently in June 2010, P&G voluntarily recalled a small percentage of 1-liter bottles of Scope Original Mint and Scope Peppermint mouthwash with malfunctioning child-resistant caps in the US and Canada. Recurrent product recalls could affect the brand image of the company, which would lead to low customer loyalty and brand equity.
Excessive dependent on Wal-Mart
P&G is heavily dependent on Wal-Mart Stores (Wal-Mart) and its affiliates for generating major part of its revenue. Sales to Wal-Mart and its affiliates represented approximately 15% of its total revenue since 2006. High dependence upon a Wal-Mart reduces the bargaining power of the company. Also, Wal-Mart could use its bargaining power to impose unfavourable terms on the company. Any decrease in revenue from Wal-Mart could have a negative impact on the company’s businesses. Hence, the loss of this customer will lead to a sharp decline in P&G’s revenues and also a loss of its market share.
Future growth plans
In order to grow in a highly competitive environment, P&G is pursuing a clearly drafted strategy with focus on two areas: increasing concentration on its core attractive businesses and enhancing its customer base. The company is sharply focusing on its core attractive businesses (the beauty and health market segments and several household care categories) as these are fast-growing businesses. For instance, the global market for personal care products has annual sales of over $39.5 billion and is growing at a rate of around 5% annually. P&G intends to increase its customer base by acquiring under served and unserved consumers. In line with this, the company is targeting developing markets; extending its distribution systems; and expanding its brand and product portfolio. Developing and emerging economies are expected to account for 90% of the world’s population by 2010, and this is expected to drive demand for fast moving consumer goods.
Increased investment in manufacturing capacity in developing countries
P&G is planning the biggest increase in its manufacturing capacity in order to expand into categories and countries where it doesn’t have a brand presence. The company is investing 4% of sales in capital spending, including funding for new manufacturing capacity to support future growth. Over the next five years, P&G plans to add 20 new manufacturing facilities. Almost all of these facilities are in developing markets, and almost all will be multi-product category facilities. By focusing on developing markets, the company would reduce the cost of serving these markets while also being closer to regions with the greatest long term growth potential.
Acquisitions to expand portfolio
P&G has made significant acquisitions in the recent past. For instance, in June 2009, the company acquired the Zirh skincare brand. Zirh is a leading super premium, male grooming brand available in high-end department stores, specialty outlets and online. Later in May 2010, P&G entered into an agreement to acquire Natura Pet Products, a privately-held pet food business. Most recently, in July 2010, the company concluded its purchase of the Ambi Pur Brand from Sara Lee Corporation. Ambi Pur is a leading global air care brand with presence in 80 countries, and also has several toilet care products, with strong presence in Western Europe and Asia. These kinds of acquisitions will strengthen P&G’s presence across a range of categories and in turn augment its top line and bottom-line.
Changing global retail scenario and rise of private labels
P&G’s products are sold in a highly competitive global marketplace which is experiencing an increased trade concentration and the growing presence of large format retailers and discounters. With the growing trend toward retail trade consolidation, it is increasingly dependent on key retailers. Some of these retailers have a greater bargaining strength than P&G. They may use this leverage to demand higher trade discounts, allowances or slotting fees, which could lead to reduced sales or profitability. Commodity cost and currency exchange rate instability places tremendous pressure on P&G’s business. Not to mention the unexpected and dramatic devaluations of currencies in developing or emerging markets reduce profits.
Trade of counterfeits and pass-offs products is negatively affecting the growth of FMCG companies like P&G. The top two brands within any category be it cosmetics, detergents, or soaps are effected the most by counterfeit. It is estimated that the loss due to counterfeit products convert into around £6 billion ($8.5 billion). Furthermore, with the advent of digital channels there has been a surge in the sale of counterfeit products and online sales of these products increased by 9% in 2009. Besides revenue losses, counterfeits and pass-offs also affect the company’s brand as they are unsafe.
(Swot analysis Source: www.datamonitor.com )
The best strategies accomplish an organisation mission by exploiting an organisation opportunity and strength, while neutralizing its treat and avoiding its weakness.
Ansoff matrix highlight four possible market strategy for the propose product.
Product development: as this is a new product in the range, much emphasis will be to offer the product to the existing customer base. Using the competitive advantages and brand image of previous products to lunch the propose product. With the company’s focus on advertising, (world’s largest advertisers) it can use the advertising power to push the product to recognition. Sixty percent (60%) of the strategy will be on product development.
Diversification: One of the opportunities available to the company is launching into new markets and developing economies. Forty percent (40%) of the strategy will be to launch the propose product in an entirely new market.
Market Penetration: this occurs when the company sells its existing product in its existing market, perhaps through greater promotional efforts. As this is a new product this strategy might be considered in the future.
Market Development: this occurs when the company tries to sell it existing products in new and emerging markets. This strategy as well might be for future considerations.
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