P&G: Company Strategies and Challenges PDF

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MKT1003 Case 2 Sectional B6 Group 1 Alaric Ng Mao Xuan Ang Xin Yi Marjorie Chua Han Hong Sebastian Ernest Sim Chun Kiat Justin Wong Yu Quan Li Cheuk Kwan Jeremy Ng Hui Ting Michelle 1. Introduction The Procter & Gamble Company (P&G) is a multi-billion dollar MNC which specialises in consumer...

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MKT1003 Case 2 Sectional B6 Group 1 Alaric Ng Mao Xuan Ang Xin Yi Marjorie Chua Han Hong Sebastian Ernest Sim Chun Kiat Justin Wong Yu Quan Li Cheuk Kwan Jeremy Ng Hui Ting Michelle

1. Introduction The Procter & Gamble Company (P&G) is a multi-billion dollar MNC which specialises in consumer packaged products. Its business units encompass a variety – from Beauty & Cosmetics to Baby Care to Fast-moving Consumer Goods – and its operations serve more than 4 billion people in 180 countries. It generated USD$ 83.68b in revenue in 2012 (P&G Corporate Newsroom, 2012), 1.3 times that of its closest competitor, Unilever, at USD$66.33b (Yahoo Finance, 2012). With 26 billion-dollar brands (P&G Corporate Newsroom, 2012) including household names like Gilette, Tide and Pantene, P&G is certainly the market leader across various product categories. This explains why of the Fortune 50 firms which first made the list in 1955, P&G is one of only 10 still in existence today. However, since 2009, P&G has suffered from a declining growth rate, being outdone by its few competitors in terms of growth rate. (The Motley Fool, 2013) In answering the 3 questions in the case, it is important to get a more holistic view of the marketing environment of P&G to understand its challenges going forward in the long run. 1.1 SWOT Analysis In order gain a deeper understanding of P&G’s internal and external environment, a SWOT analysis can be done to look at the company’s Strengths, Weaknesses, Opportunities and Threats. Strengths i)

P&G is dedicated to understanding its consumers, spending $350m annually on market research (Neff, 2011)

ii)

Invests heavily in R&D for product innovation. In 2012, spent $2b on research (P&G, 2012), 50% more than its closest competitor, Unilever (Brown, 2011).

iii)

Its core business is in Home Care and Fabric Care which constitutes 32% of Net Sales and 26% of Net Earnings (P&G, 2012) e.g Febreeze, Tide, Duracell. These products are non-cyclical consumer goods; the price elasticity of demand is consistently high.

iv)

Great brand outreach with huge public visibility, with 250 brands in at least 6 main product categories. (Corporate Watch, 2012)

Weaknesses i)

Declining expenditure on innovation, one of P&G’s core competencies. (ColemanLochner, 2012)

ii)

Sales of new launches decreased by half between 2003 and 2008; the “big product breakthroughs” fell to an average of 6 per year. (Severin, n.d.)

iii)

Net earnings from core product category (Home Care and Fabric Care) fell 6% from 2011-2012 (P&G, 2012)

iv)

14% decline in Operating Income and 20% decline in Net Earnings from Continuing Operations from 2011-2013 (P&G, 2012)

Opportunities i)

Emerging markets with rapidly rising incomes: great demand potential. Sales from developing markets represent 32% of P&G’s $78b annual revenue, up from 23% 4 years ago; these sales are doubling every 4 years. (Seeking Alpha, 2013)

ii)

By 2020 the collective GDP of the emerging markets will overtake that of the developed economies. Consumer spending in emerging markets is expected to grow thrice faster than that in developed nations, reaching $6 trillion by 2020. (Cincinnati.com, 2012)

iii)

Growing global populations present greater demand for non-cyclical consumer products which P&G specializes in.

iv)

The rise of social media provides a new platform for marketing

Threats i)

Competitors e.g. Unilever & Colgate are eyeing the same markets. (Ziobro, 2011)

ii)

Increasing availability of generics store brands of consumer products, making it harder for P&G’s brands to compete.

iii)

Rising commodity prices and costs of production.

2. P&G’s impressive portfolio includes some of the strongest brand names in the world. What are some of the challenges and risks associated with being the market leader in so many categories? P&G adopts a multi-brand approach – a portfolio of over 300 brands, with 25 brands making over US$1billion in annual sales in 2012 (P&G, 2012). With upward stretching brands like Dunhill and Lacoste Fragrances, to brands targeted at mass consumption like Pantene, P&G has claimed market leadership in numerous consumer product categories worldwide.

In attempts to gain foothold in already existing markets P&G has not entered, P&G engages in heavy product development

and

innovation,

creating

innovative

products with unique selling points, attracting consumers to switch from the incumbent brands. Once P&G gains market presence, it uses the market penetration strategy to maintain or increase market share of current products, secure dominance of the market, and attempt to drive out competitors, using a combination of advertising, sales promotions, and competitive pricing strategies. These have brought P&G massive success thus far. But moving forward, how does a market leader grow further? One answer according to the Ansoff Matrix would be Market Development – New Markets with Existing Products. Whether through new geographical or demographical markets, or new distribution channels like online retail, it can sell already successful products. Another way is Diversification into new markets with new products. Engaging in heavy R&D to create new products for new markets, is a way for a dominant market leader to secure growth outside of the already mature markets it has dominated. 2.1 Rigidity in changing product portfolio to enter new markets (Over-Centralization) Being a multi-billion dollar MNC with a high degree of diversification in its products, P&G runs the risk of over centralization in its management. Recently, P&G’s product portfolio is largely skewed towards the high-end markets, with upward-stretching brands like Dunhill Fragrance and SK-II, looking to obtain higher margins. This seems like a logical development, with 62% of its operations sited in more lucrative developed markets. (P&G, 2012) However, it puts P&G at a disadvantage during times of economic weakness, when consumers are forced to switch to cheaper options. (Brewer, 2012) Being a market leader with such a diverse portfolio, P&G has been inflexible due to the size of its organization and extensive bureaucracy (Bernard-Kuhn, 2012) in shifting to emerging markets. This ill-timed shift in focus meant that P&G forgone the opportunity to engage in either a market development strategy (selling existing products to new markets), or a diversification strategy (new innovative products brought into new and growing markets). To make up for this strategic productmix mismatch, P&G has to reposition their products and increase decentralization of management, ensuring that they have the required marketing intelligence, in order to better understand and

customize for the local needs and preferences of each emerging market. Despite efforts that have been made to penetrate these markets, with sales from developing markets making up 37% of P&G’s total sales in 2012 (Ziobro & Glazer, 2012), an increase of 20% from 2000, it still trails behind competitors Unilever (55% of sales) and Colgate (50% of sales) (Daltorio, 2012). Lack of price sensitivity also hampers the company’s long term growth, since a growing middle class might not be willing spend on premium household products despite higher disposable incomes, with cheaper local alternatives available (Brewer, 2012). Slipping market shares and profits in leading segments have been the consequence P&G has borne (Daltorio, 2012). 2.2 Prioritizing market share over profits P&G’s main strategic focus is the retention of its market share; it is difficult to get it back once it is lost. (Hrebiniak, 2012). Despite a steady increase in net sales from 2010 to 2012, diluted net earnings per common share experienced a steady drop from 4.11 to 3.66 (P&G, 2012), suggesting a compromise in profits through price reductions to maintain sales and market position (Hrebiniak, 2012). This strategy is only effective if major rivals are financially constrained and are unable to keep up with the price cuts undertaken by P&G (Hrebiniak, 2012). However, this is not the case as key competitors like Unilever have adequate financial resources, resulting in extended price wars. As the market leader, P&G will sustain greater losses in profits. Also, other firms are able to invest in research and innovation to develop new and improved products to increase their brand value (Hrebiniak, 2012), like the case of Unilever and Colgate, with successful innovation efforts. They have created unique selling propositions for their products; this allows them to place their products (against P&G) in value propositions that bring more benefits for the same at a lower price. E.g. Colgate has continued to position many new products, like the Colgate Sensitive Pro-Relief (toothpaste to treat tooth sensitivity), aggressively by playing up their unique Points-of-Differences against P&G’s competitors. As such, Colgate has been experiencing a steady increase in its brand value throughout the years (Best Global Brands 2012, 2012) P&G’s competitors are rapidly increasing the Brand Equity that consumers receive from their products. Exacerbating the issue, P&G has slowed innovation efforts by relating research expenditure to immediate revenue concerns. By 2009, the number of big breakthroughs invented for the company had decreased to an average of less than six per annum, as greater emphasis was placed on short term results and small inventions (Hymowitz, 2012). Consequently, P&G has lost its customers in

developed countries like Europe to cheaper and equally capable products made by rivals such as Unilever (Hymowitz, 2012). As such, rivals have gained significant market share with more successful innovations and improved their market positioning, threatening P&G’s market leadership. 2.3 Brand Erosion and higher profile of company mistakes As the market leader, consumers pay closer attention to the company; as such, mistakes committed by the company would usually gain more negative publicity. This can be classified as an external threat in SWOT analysis. The sheer size of P&G means any mistakes are magnified and exposed to be larger than they really are. E.g. the six-month delay of Tide Pods and supply problems with Fusion ProGlide razors and Old Spice body wash has gained greater attention than a normal company would warrant. (Neff, 2012). P&G uses a multi-brand strategy, creating new brand names in existing product categories. It allows P&G to dominate a reseller’s shelf space with multi-brands. However. there are drawbacks: with this multi-brand strategy, one brand could easily affect another through association. A scandal relating to another P&G brand could undo all the good customer relationships built by another brand with a customer. This is potentially disastrous, because if one or more of P&G’s brands erode significantly, their financial status and market positioning will be adversely affected. (P&G, 2012) 2.4 Limited Room for Growth P&G’s major brands are in the fast-moving consumer goods, e.g. shampoo (Head & Shoulders), baby products (Pampers), household

cleaning

(Tide), beauty products (Olay).

The

markets

these products are in are characterized by frequent sales per consumer, low

Mature Markets: The bane of growth?

margins and low brand loyalty. Also, these markets are relatively mature. Innovation on these goods have very much been in stasis, and given that these products are targeted at fulfilling the lower layers in Maslow’s hierarchy of needs (Safety, Physiological), it also means that there is an absence of significant growth in the market size as it already encompasses almost every consumer.

P&G, as the market leader for most categories, has limited room for growth – it can only try and maintain market share. Even that is a daunting task, against well-heeled competitors such as Unilever and L’Oreal in hair products. To overcome this threat of reaching a growth ceiling, P&G must look to expand its marketing strategies, to move beyond the marketing concept; to meet the needs and wants of the consumer better than their competitors – P&G must employ a societal marketing concept to deliver value to the consumer and also improve society’s well-being. Their marketing mix must adjust to fulfil these, and allow them to build relationships and brand loyalty through the fulfilment, in the customers’ eyes, a “higher” and noble need. 2.5 Lack of a P&G Identity Adopting a multi-brand approach does mean that P&G is practically everywhere in everybody’s lives – that has its advantages, as evident in P&G’s strong numbers in many markets. However, being everywhere at one time could well dilute P&G’s identity in the eyes of the consumer. To the average consumer, P&G is remembered as a multinational conglomerate that “makes many household items we use”. The sheer number makes it difficult for one to associate brands with P&G. The lack of identity may lead to low brand equity, with consumers failing to understand the values of the P&G brand positioning. Huge diversification has resulted in P&G’s market leadership in many markets, but with that it has lost the ability to build a strong, singular identity. 2.6 First-Mover’s Disadvantage P&G is a market leader that prides itself on product innovation, spending $2billion annually on R&D alone (60% more than its closest competitors (Neff, 2012)), resulting in about 3,800 applications for patents per year. One of its innovations is Cascade – packets of detergent powder and gel mixture designed to get rid of stains without pre-soaking. These are “Stars” in the BCG Growth-Share Matrix. With this dare to innovate and invest into new possibilities are risks of freeriders. For example, Finish Quantum is a competitor to the Cascade Complete Pacs, positioned and designed very closely to P&G’s product; it performed well in the US market. As market leader of saturated markets, the way to expand a leading brand is through product innovation. However, competitors have the opportunity to make similar improvements to their products, without incurring nearly as much R&D cost. This causes P&G to suffer in terms of market share and profits than what they should have, as a result of free-ridership. Yet, not innovating could leader to erosion of market share through price competition from rivals. 3. Managing Brands Amidst Growing Popularity of Social Media P&G must continuously communicate its brands to consumers in order to maintain its strong brand positioning. It has been spending a lot of capital on advertising (Neff, 2012) to create brand awareness, build preference and loyalty. In many societies worldwide, social media has become

increasingly more popular than television, amongst not only the young, but also the mature populace (Heaney, 2012). It is therefore unsurprising that P&G has gradually shifted a larger portion of their advertising budget onto social media (Coleman-Lochner, 2012). It now boasts a significant presence on major social media websites such as Twitter, Facebook, Youtube (P&G, n.d.), as well as niche sites like Pinterest (Edwards, 2012). Yet the question remains if P&G could further leverage on this growing trend to build strong brand images. 3.1 Status Quo of P&G’s Marketing Policy on Social Media P&G’s social media efforts are mainly targeted at 25- to 54-year old women (Coleman-Lochner, 2012). This is due to two reasons. Firstly, this is the most active group of social network users, making up 70% of all women accessing social networks from their phones (Twittown, n.d.), thereby making social media a viable option. Secondly, this group coincided with the majority of P&G’s customer base, since many of its products are household items or personal hygiene products, which are purchased by women. In addition to targeting women, P&G also organises specific marketing campaigns online to target other market segments. For instance, P&G hired Antonio Rosales, one of the top ten Hispanic hairstylists in the US, as its brand ambassador on the Head and Shoulders scalp care blog. This was noted as an effort to target the growing Hispanic market (Bird, 2008). P&G continues its brand position based on beliefs and values in its social media marketing, emphasizing on its care for consumers. E.g. The brand positioning of Pampers used to be just its physical attributes and benefits, now it is positioned as an aid in helping mothers manage babies’ development; that every baby deserves the best. The current social media efforts reflect this shifting brand positions to reflect P&G’s increasing care for its customers. For instance, the promotion for its Secret deodorant goes beyond the product itself, in a campaign coined “Mean Stinks”, to rally netizens behind the issue of bullying that is often faced by the mainly teenage girl users of the product (Ukman, 2011). In doing so, P&G aims to build the self-confidence of its users beyond the self-confidence boosting effect of the deodorant itself. Such a personal touch enables P&G to engage its customers on a deep, emotional level, building stronger brand images. One issue faced is that P&G’s products are mainly convenience products for which consumers spend little effort to compare and research, and therefore are unattractive topics for conversation on social media. In response, P&G organised online advocacy campaigns, such as the aforementioned “Mean Stinks”, to spark activity on its social media pages. Another method frequently used by P&G is to use ambassadors, with the aim of using the character’s appeal to promote their products. For instance, in 2005, P&G created a blog for Tyler, a rescue-shelter dog to promote its Iams Pet Food. Its Cover Girl makeup, on the other hand, was promoted using celebrities such as Sofia Vergara (Coleman-Lochner, 2012).

Another issue is the difficulty of breaking through the advertising and promotion clutter on social media. Social media is increasingly seen as an important outlet for advertisements by companies, resulting in consumers often either tuning out to the advertisements or being diverted to other companies’ advertisements, sometimes its competitors’. For instance, while P&G’s “Thank You Mum” campaign was highly successful on the website Pinterest, the very same website has large numbers of users pinning up Unilever’s products (Edwards, 2012). 3.2 Recommendations P&G uses the major social media sites Facebook, Youtube and Twitter. It has only a minor presence on other sites such as Pinterest and Google+. Also, none of the Chinese sites are used, despite China being a big market for P&G, and that the Chinese have no access to the three sites due to government ban. Therefore, P&G has to channel more resources towards the other major sites such as Google + as well as Chinese sites in order to achieve enough reach. Also, inherent in online advertising is the lowered media impact. Although social media allows P&G to interact with its customers, the degree of exposure remains controlled by the user. For instance, it is up to the user to decide to join P&G’s Facebook group and thereby be a target of P&G’s marketing. As such, P&G needs to raise the media impact beyond using ambassadors or advocacy campaigns. For instance, it can

link

the

online campaigns to offline activity. The purpose of social media is to allow sharing of events in life with friends.

P&G’s

current catalogue of largely product advertisements is poor sharing material and may portray a negative, overly monetarily-oriented brand image. Instead, it should harness this desire of users to share experiences to sculpt positive brand experiences. Through the websites, it can invite users to real-life product-related events, and subsequently post positive images of customers in the event. In this way, the event material becomes personal for the u...