Proctor and Gamble

Strategic Management

Zohaib Anwar
Athabasca University

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 Table of Content

Executive Summary 3

Introduction 4

Company Overview 4

Mandate 5

External Analysis 6

Internal Analysis 8

Strategic Options 10

References 15

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EXECUTIVE SUMMARY

Proctor and Gamble (P&G) over its journey of about 175 years has become one of the worlds
largest consumer goods Company with sales of nearly $80 billion and a net profit of about $10
billion. P&G has a presence in more than 180 countries with brands that accumulate to in excess
of $25 billion.

The company has achieved success by creating high quality brand recognized products that are
sold on multinational level. It enjoys one of the largest brand names in household products like
Pampers, Gillette, Tide, Ariel, Downy, Pantene, Head & Shoulders, Olay, Oral-B, Crest, Dawn,
Fairy and Always and segments like household care, beauty, grooming, and personal health care.

Although, P&G has world renowned brands, P&G needs to adopt strategies that enable it to
maintain its competitive advantage over its rival. Consumer Goods industry where P&G operates
has matured reaching the consolidation stage and competition amongst rivals is intense.

P&G has many strategic options create competitive advantage over its rivals such as further
market penetrations by rebranding its current line of products and selling them at a lower price.
Another option for P&G is to expand in the emerging markets by collaboration or alliances with
local businesses in various geographical regions. Lastly, P&G can specialize in skin care/beauty
segment of consumer industry. P&G can provide consumers with products that are made with
natural ingredients as trend in health and wellness is growing along with providing specialized
products for men.

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INTRODUCTION

P&G is a part of a competitive industry, and as such faces very stiff and fierce competition from
its rivals. The competition faced by the company is virtually on every front like, market share,
product line up, innovation of new products, R&D for new and existing products. It has
witnessed a drop in market share and revenue from the developed market and but sustained
appreciable performance in the developing markets.

This report provides a thorough internal as well as external analysis of P&G, identifies its
mandate, along with certain strategies that would help it increase its profitability, profit growth
and sustain its competitive advantage in both developed and developing markets. The limitations
of this report are due to the fact that it primarily relies on the information and facts as presented
in Case 27, Proctor & Gamble: The Beauty/Feminine Care Segment of the Consumer Goods
Industry. External references were also used and information was sought from the Proctor &
Gamble Company 2012 Annual Report and the Proctor & Gamble website.

COMPANY OVERVIEW

Procter & Gamble was founded in 1837, by William Procter and James Gamble, who laid the
foundation of P&G by initially making and selling soap and candles. By 1879, founders of P&G
developed Ivory soap and established their own laboratory, and by 1935 the company established
another factory in the Philippines after its acquisition of the British soap manufacturer, Thomas
Hedley & Sons. In January 2005, P&G announced an acquisition of Gillette, forming the largest
consumer goods company and placing Unilever into second place. At present, Procter & Gamble
sells more than 300 leading brands, such as Pampers, Tide, Pringles, Ariel, Downy, Pantene,
Head & Shoulders, Olay, Cover Girl, Pantene, Crest, Duracell, Secret, Folgers, Hugo Boss, Mr.
Clean, Oral-B, Old Spice, Clairol and Zest. The company markets its products through mass
merchandisers, grocery stores, membership club stores, drug stores, high-frequency stores,
department stores, perfumeries, pharmacies, salons, and e-commerce. It markets its products to
over 160 countries, and operates a total of 115 plants in more than 80 countries all over the

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world. Procter & Gambles headquarters are located in Cincinnati, Ohio and it employs more
than 98,000 employees worldwide.

Off late, the companys performance has dwindled as the company has been shuffling its strategy
and has not been able to keep competitors at bay (Chung, 2012). Recently the companys Board
has unanimously accepted CEO McDonald, who had joined in July 2009, as the one who would
plan and head the companys turnaround of performance (Chung, Jul 2012). As such the
company has adopted a multi-fold strategy to cut costs by a big chunk and bring up new and
innovative products to shore up sales and profits. Example being the fact that the company will
launch at least nine new products in the next four months, many of them priced at a premium to
generate higher profit margins (Monk, 2012).

MANDATE

The mission of the company is to provide branded products and services of superior quality and
value that improve the lives of the worlds consumers, now and for generations to come. And
this would automatically generate value for all its stakeholders in form of higher sales and
returns.

The vision of the company is to be recognized as the best consumer products and services
company in the world. P&G has kept is vision powerful and yet pretty clear. This vision of the
company is simple enough be easily comprehended by all its stakeholders.

The core values of the company rotate around the consumers, its brands and its employees.
These values are leadership, ownership, integrity, passion for winning and trust. The company,
through all its core values, has tried to address the fact that they seek to work and deliver a trust
to their consumers with the help of their employees, who are expected to work with leadership
and ownership and must have a passion for winning so that they can together work to strive to
achieve the vision of the company. Just like the vision of the company, the core values also are
very clear and straight forward that define the reason for the existence of the company.

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P&Gs stakeholders are its customers, shareholders, employees, suppliers and communities in
which it operates. P&Gs customers are the ones who ultimately use the products and given the
fact that the industry is highly customer oriented and demand driven. The shareholders invest in
P&Gs shares providing the company with capital and the company rewards them by
consistently creating and increasing the shareholder value.
Proctor and gamble employees worldwide are considered its most important asset who are the
back bone of this giant corporation, they expect ethical treatment along with fair wages and good
working conditions. Another important stakeholder of P&G is its suppliers whose organizations
heavily rely on the business agreements with P&G, and the businesses who sell and distribute
P&G products. Also, different communities all over the world from Cincinnati, Ohio to the many
communities around the world who are provided with jobs, employee education, stability and
who pay taxes because of Procter & Gamble.

EXTERNAL ANALYSIS

1. Competitive Rivalry: The industry that P&G operates in is highly competitive and it has
emerged as one of the leaders in the industry. This industry has five major competitors
and has reached the stage of consolidation. Due to industry consolidation, changes made
by one company forces other competitors to react and follow suit. This increases rivalry
and might lead to price wars. The demand for beauty and personal hygiene products is on
the rise due to many factors such as; the growth in the economies of developing world
has improved the standard of living of people in those regions; men are becoming more
interested in beauty and skin care; and also due to the growing demand for products made
with natural ingredients and raw materials. This increase in demand and potential for
growth has provided stability in the industry.

2. Threat of New Entrants: Five major competitors in this industry have captured most of
the market share through economies of scale and brand loyalty. The wide range of
products in major competitors portfolio makes it extremely difficult for the new entrants
to compete and gain any significant market share. Potential entrant would require an

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 enormous amount of capital for manufacturing alongside a huge budget for marketing
activities, R&D, supply/sales channel in order to compete at the same level as major
competitors. This creates a very high barrier to entry in the industry that makes the threat
of new entrants, very low for the industry. The patents held by the company on various
products also act as barriers to entry.

3. Bargaining Power of the Buyers: Businesses in this industry rely heavily on its buyers
to generate a considerable portion of revenue. Buyers of this industry are mainly
distributors like Walmart, Macys, Target etc. These distributors buy in large quantities
which increases their buying power allowing them to bargain lower prices. As a result,
over exposure of sales to any single buyer could pose a serious threat to this industry if
competitors do not have their own customized distribution network.

4. Bargaining Power of Suppliers: There are almost no substitutes for raw materials being
used in products manufactured by this industry which is a cause of concern. Suppliers
seem to enjoy high bargaining power but the sheer size and quantities purchased by major
competitors in this industry tends to scale back the supplier power as competitors can
move towards vertical integration. Hence, the buying power of suppliers is medium.

5. Threat of Substitutes: There are no known substitutes for this industry which places the
threat of substitutes at a very low level.

Macro Environment
The raw materials used to manufacture products in various segments of Fast Moving Consumer
Goods (FMCG) industry are regulated by governments in many countries. There is a risk that
currently used raw materials may be considered potentially dangerous and therefore restricted in
their use due to the increase in health consciousness especially in western markets. Product
testing can take months even years before getting an approval for consumption and during this
time regulations can change preventing a product from ever being introduced to the market
resulting in large R&D expenses which may never be recovered.

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Social forces can have an effect on this industry such as the desire for organic products as
consumers become concerned that chemicals currently being used can cause long-term health
ailments like cancer and skin diseases. Men are also fast becoming more interested in beauty and
hygiene products and populations in developing countries are also turning towards beauty and
personal hygiene products as their living standards improve. The future for this industry is bright
with potential for growth but for some companies this can be a threat if they fail at product
innovation and strategizing their business as per the changing trends.

Technological changes such as exponential growth in internet and ecommerce provides a great
platform to this industry to market its products directly to target demographics and also to raise
awareness of personal hygiene. On the internet, there is a massive potential to target consumers
based on their web searches, previous online purchases, etc. Advancement in technology can also
help this industrys distribution systems such as emergence of real-time inventory systems allows
inventory levels to be replenished on time and prevent excessive inventory on-hand in factories
or warehouses.

The reduced barriers to international trade give companies in the industry the opportunity to
expand into various regions of the world. Many regions like China, India, and South America are
opening up to the world providing an excellent opportunity for expansion. However, the reduced
barriers to international trade can also be considered a threat if international companies expand
into home bases such as Europe and North America which will in turn give rise to the local
competition.

INTERNAL ANALYSIS

P&G is the industry leader because of its ability to maintain a competitive advantage over its
rivals resulting in higher than average profitability. P&G has many resources that contribute
towards gaining and maintaining competitive advantage over the rival. One of P&Gs main
strength is its strong financial position which allows it to acquire other companies. P&G has
acquired Gillette boosting its competitive advantage over its rivals as Gillette mainly caters to
Men which is growing market. Strong financial position also allows P&G to incur high R&D

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costs i.e. in excess of 2.2 billion dollars. P&G is constantly investing in product innovation and
improving its current line of products. The company over the past many years has successfully
launched and managed new products. As such, P&G has the ability to push for innovation and
ensure faster commercialization than any of its competitor in the industry. This investment in
improving brands and innovation also promotes brand loyalty.

P&G operates in various segments of FMCG industry such as Personal hygiene, Household care,
and Beauty. This variety of products offerings from P&G caters to almost all demographics;
throughout different ages, genders, countries and cultures. P&G operates in various regions
across the globe and has successfully managed to establish itself as a leader in these markets
across many segments. This diverse range of product offerings along with its operation in
various geographic regions allows P&G to reel through the recessions in the economy and
maintain its profitability. Any slowdown in the economy of anyone region or segment is
countered by growing economy and segments in other regions. Also, type of products offered by
P&G are considered to be recession proof as they considered to necessity such as soaps,
shampoos, personal health products etc.

P&G derives its strengths from its various capabilities. First of all is that P&G has the marketing
of its products in the industry. This enables P&G to convince its consumers to buy products and
also keeps them up to date with new products as well as about any improvements in the current
line of products.

P&G also has an efficient distribution system which allows it to distribute its products in various
region of the globe at a lower cost than its competitors. P&G also collaborates with distributors
like Wal-Mart, Target etc. to keep supply chain functioning efficiently. This allows restocking of
shelves at distributors much easier as it provides real time data to P&G as stock levels deplete.
This allows P&G to save costs associated with huge inventories and warehouses. Also, P&G
owns and operates almost 115 manufacturing facilities across 80 countries around the globe. This
is a great asset of the company which provides it with the capability of saving on cost of shipping
products from one region to another. All these sets of co-related resources and capabilities allow

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P&G to save on costs and provide high quality products at a reasonable people which in turn has
generated above average profits in the industry making P&G the industry leader.

Along with strengths, P&G also has certain weaknesses and threats that can offset its competitive
advantage and affect its profitability. In the current global down turn commodity prices across
the globe are increasing due to transportation costs associated with higher oil prices. This will
force P&G to raise prices on many of their products which might affect market share because
some consumers may switch to cheaper low quality products. This is further exacerbated by the
fact that switching costs for consumer are quite low between the competitors in many segments
of this industry.

While P&G has great collaboration with Wal-Mart, which allows it to maintain an efficient
supply chain management but this is also one of the weaknesses of P&G as Wal-Mart is its
number one buyer as considerable amount of P&G sales are accounted to Wal-Mart and followed
by other major retailers like Target, Zellers, etc. This provides buyers with immense buying
power and any decrease of sales at any of the top customers can affect P&G effecting its
revenues and subsequent profitability. P&G is also exposed heavily towards the matured markets
of Europe and North America.

STRATEGIC OPTIONS

Further Market Penetration In this strategy, P&G should increase market penetration its
current skin care and personal hygiene segments. P&G should look towards in its customer base
and specifically targeting low income consumers in mature markets. P&G can achieve
economies of scale in its current product mix by rebranding such as packaging or size/volume of
the product. This way P&G will be altering its existing products at a low fixed cost. By
harbouring this strategy, P&G will be able sell its products at a cheaper price and increase its
revenue and subsequent profits.

This is low risk strategy because P&G has managed to achieve strong brand recognition and
customer loyalty so P&G does not have to incur huge marketing costs in order to introduce its

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products to the market. P&G already and effective supply chain management and it has good
relationship with mega distributors like Wal-Mart, Target etc. so it will be much easier for P&G
to introduce these rebranded products to consumers. Furthermore, P&G has a strong financial
position which is essential in case the strategy fails to garner expected results.

Further Market Penetration

All markets where P&G currently has a presence

Arena

Price, Quality
Differentiator

Vehicles Rebranding, marketing

Rebrand products in different packaging with less volume

Staging
quantities
Sell rebranded products at lower price to the low income
Economic Model
consumers
Enhances existing capabilities and resources
Pros
Low Risk
Short to medium term solution
Cons Brand loyalty is scarce in consumers looking for lower
priced products
Table 1

There are some drawbacks in this strategy which must be considered such as the lack brand
loyalty in low income consumers. Low income consumers tend to prefer products that are
competitively priced so if another competitor implements the same strategy they can take away
P&Gs market share. Hence, this strategy is only viable from short to medium term.

Global Expansion in Emerging Markets P&G derive most of its revenues from matured
market of North America and Europe where market has reached the saturation point and revenue
growth is stagnant. Unlike the mature markets, emerging or growth markets have a lot of
potential for growth and there is a lot of market share up for grabs.

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As P&G looks to gain greater share in the developing countries, it needs to adjust its planning
according to the demographics of such country i.e. ethnic groups with different skins, hair types
etc. As P&G already has a strong set of products, it must be relatively easier for P&G to
penetrate into emerging markets especially in terms of brand recognition, mass market presence,
and brand loyalty. P&G can avail this opportunity by introducing quality products based on the
specific needs of the local population or by acquisition of businesses who produce such products.

This strategy would help P&G in the long run as it would allow P&G in keep its revenues up
during the economic downturns in mature markets as sales in emerging markets will offset the
recessions in the mature markets.

Rules and regulations vary country to country so some countries can have stringent rules for
Multi-national Corporation to protect its local businesses. Global Strategic Alliance or
collaborations with local businesses will enable P&G to expand in to the local market in areas
such as China, India or South America. The extensive knowledge of consumers, market trends,
laws and regulations that Partner Company brings to the table can be considered an excellent
distinctive competency.

Global Expansion in to emerging Markets

Arena Emerging Markets

Differentiator Price, Quality

Vehicles Collaborations (Global strategic alliances), Acquisitions,

Collaboration with local businesses and then move towards

Staging
acquisition of the same.
Provide quality product at reasonable price to consumers in the
Economic Model
emerging markets

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 Great long term potential
Diversification through operations in various regions which
Pros
provides an opportunity to keep revenues up during recession in one
region
High risk involved in collaboration/acquisitions along with the
Cons instability of economic growth in emerging markets
Company can lag behind in innovation
Table 2

P&G should select it partner carefully in emerging markets keeping in mind the risks associated
such as rules, regulations etc. P&G must form a structure where the share, responsibilities of
each party is clearly defined along with contingency plans to mitigate various risks involved.
P&G should protect its trade secrets and product formulas so manufacturing facilities must have
separate units, and PG should also get all its patents recognized in the region where it will
operate.

Some of the cons of this strategy are embedded with the collaborations with local businesses and
the instability in the emerging markets. Also, P&G will essentially be rebranding most of the
products it sells in mature markets along with selling some products of its partners which means
there will be less spending on R&D and company might lag behind in innovation of new
revolutionary products.

Differentiation in Beauty/Skin Care Segment In this strategy, P&G will offer unique and
innovative products that address special needs of various market segments and demographics
such as products with natural/organic ingredients, products for certain demographics such as
men, ethnic groups etc. Beauty/skin care segment of consumer goods industry is growing as
consumers are more interested in grooming themselves with better products and growing trends
in health/wellness. P&G can create a competetive advantage by specializing in products made for
men and products made with natural/organic ingredients.

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This strategy will require acquisition of products or spending in R&D to innovate such products
in house. This will also require aggressive marketing and branding of such products to introduce
them to the consumer. These products must be priced at a premium price based on the
advertising costs, acquisitions and R&D spending. Many features of the products along with
quality will offset and justify the higher price for such products. With continuous R&D spending
over time, advancement in technologies and increasing competition, prices will eventually
reduce. If P&G is able to acquire or create new line of specialized products which caters to
certain market segments or demographics, it will be a competitive advantage for P&G over its
rivals.

Differentiation in Beauty/Skin Care Segment

Mature Markets first and move into growth/emerging

Arena
markets

Differentiator Selection, Quality

Vehicles Acquisitions, Signalling

Acquisitions of major business involved in organic and men

Staging
beauty/personal hygiene segments
Sell specialized products targeting certain customers with
Economic Model
premium prices i.e. organic products
Leverages existing resources and capabilities
Pros
Long Term potential
High Risk with acquisitions
Cons
High costs associated with R&D spending
Table 3

This strategy has some disadvantages as well such as it requires a lot of capital investment either
for acquisition or R&D to create new products.

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 REFERENCES

Mockler, R.J. (2007). Procter & Gamble: The Beauty/Feminine Care Segment of the Consumer
Goods Industry In C.W.L. Hill & G.R. Jones, Strategic Management: An Integrated Approach,
6th Edition. Boston: Houghton Mifflin

Chung, J. (2012). P&G's Board 'Unanimously Supports' CEO McDonald Retrieved from
http://online.wsj.com/article/SB10000872396390444464304577534930564069566.html

Monk, D. ( 2012) Procter & Gamble planning nine new product launches Retrieved from
http://www.bizjournals.com/cincinnati/blog/2012/09/procter-gamble-planning-nine-new.html

Annual Report (2012) Retrieved from

http://annualreport.pg.com/annualreport2012/files/PG_2012_AnnualReport.pdf

P&G History (2012) Retrieved from

http://www.pg.com/translations/history_pdf/english_history.pdf

P&G Purpose, Vision and Principles. (2012) Retrieved from

http://www.pg.com/translations/pvp_pdf/english_PVP.pdf

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