Procter and Gamble Company Case Analysis
This case study analysis focused on Procter and Gamble Company’s marketing plans and strategic options on its light-duty liquid brands (LDL). Procter & Gamble is the world’s largest producer of household and hygiene products. By 1981 P&G operated in 26 countries and sales totaled $11.4 billion with 90 consumer and industrial products manufactured in the United States. The case study provided some very detailed data analysis and reports in terms of the company history and background, organizational structure, key factors to its success in the marketplace, the relationship among advertising, sales, product development (PDD), manufacturing, and finance departments, and its light-duty liquid brands (LDL). Highlight of Company History, Organization, and Key Success Factors * In 1890, Procter & Gamble Company was incorporated with a capital stock value of $4,500,000. The capital allowed the company to build plans, buy new equipment, and develop new products. * Sales volume doubles every 10 years.
* Success factors are 1) dedicated and talented human resources, 2) a reputation for honesty and trust, 3) prudent and conservative management philosophy, 4) innovation in superior quality of products at competitive prices, and 5) substantial marketing expertise. * The company organized its products in terms of 8 categories: 1) package soap and detergent, 2) bar soup and household cleaning, 3) toilet goods, 4) paper products, 5) food products, 6) coffee, 7) Food Service and lodging products, and 8) special products. * Brand group planned, developed, and directed the total marketing effort for its brand through development of the annual marketing plan.
* Brand group worked closely with other four lines. Sales department provided important perspective on consumer and trade promotion acceptance, stock requirement to support competitive pricing. * Product development department ensured continued improvement on brand’s quality through extensive consumer and laboratory tests. * Brand group worked with manufacturing department on detailed brand volume estimates. Their interaction was crucial to new product development process. * Based on the volume and marketing expenditure forecasts provided by the brand groups, financial/cost analyst developed and fed back brand profit and pricing analyses as well as profit and rate of return forecasts on new products and promotion.
Using the information, Mr. Chris Wright, associate advertising manager of the Packaged Soap and Detergent Division (PS&D) of the Procter & Gamble Co., was trying to determine how the division could increase volume of its light-duty liquid detergents (LDLs), capture more shares from the market, and increase long-term or short-term profit. The three options that Wright considered are new brand introduction, product improvement on an existing brand, and an increase in marketing expenditures on existing brands. Each option is analyzed as follows: New Brand Introduction:
* P&G’s current LDL played a leading role in the market place. The success of its Dawn brand clearly indicated a likelihood of another new brand with a distinctive benefit could increase further P&G’s LDL Volume. * Wright saw new product potential in all three market segments (performance, mildness, and price brands) * For performance brand, market research indicated that 80% of U.S. households scour and scrub their dishes at least once a week. H-80 invented by new technology as a high-performance product which can fulfill a clear consumer need based on research. The 4-week blind in house use test of H-80 and established competitive LDL, was a strong indicator of its potential success. * For mildness segment, a new brand which differentiates its mildness benefit can help the declining segment recapture the consumers. * Although P&G’s’s price segment had been in decline, it was expected to stabilize at its current share level due to the increasing consumer sensitivity to price resulting from the depressed state of economy. * Wright considered the potential of producing a brand with parity performance benefits to existing price brand competition at a cost that allowed PS&D to maintain a good profit. Cons:
* The new brand would require $20 million in capital investment to cover additional production capacity and bottle molds. * The new LDL brand also needs at least $60 million for first-year introductory marketing expenditures. * The introduction of new product would take about two years plus one year if test market was needed. So three years indicated that the profit return would be a long-term investment. Product Improvement on an Existing Brand:
* Unlike new opportunity, product improvement such as introduction of H-80 formula to one of the current LDL brands would require less investment. It would cost $20 million for the improvement and $10 million as incremental marking expenditures, which was $50 million less than a new brand. * On top of it, Joy brand could cut its cost of goods by $3 million per year if this new formula was introduced. The brand relaunch would cost $10 million in marketing expense with no capital investment. Cons:
* Although there is a data supporting how H-80 formula would capture the market, there was lack of data of the introduction of H-80 formula to the existing current LDL brands. * If consumers have already established a certain image of Joy brand group, can the change of formula attract new consumers and retain the existing consumers? * The introduction of new product would take about one year plus two year if test market was needed. So three years indicated that the profit return would be a long-term investment. Increase Marketing Expenditures on Existing Brands
* Since the market has been static with the LDL category, Wright might avoid increasing the capital investment and reduce investment risk. * Wright could expand the overall profits by capturing larger market shares using extra advertising and promotion techniques. Cons:
* There was lack of data supporting the increase in marketing expenditures on existing brands could produce the desired market share increase. * For some segments such as price brands, increasing advertising and promotion would not increase sales and market share if the price didn’t decrement accordingly. This was especially true in the depressed state of economy. Recommendations:
The recommendation was to go with the combined feature of having both long-term and short-term investment. Introduction of a new product such as H-80 appeared to be a too costly investment. In such a depressed state of economy, it was not a smart decision to invest $80 million for the new product. Out of $80 million, $60 million was only used to cover the cost of the first year, not to mention incremental cost for the next few years. The product would require 3 years in order to be introduced to the market. Using the cost/benefit analysis, I think the first option of new brand introduction was too risky. We could combine option 2 (product improvement) as a long-term investment with the option 3 (increase marketing expenditure on existing brands) as the short-term investment. Combining these two options could increase the sales volume with very minimum capital investment. In return, it meant less risk for Procter & Gamble. The timeframe with one long-term investment and one short-term investment allowed Procter & Gamble the time, resources, and capital to focus on two endeavors strategizing more efficient plans to tackle the charging and competitive market. Especially the case also indicated that increased marketing expenditures could be approved almost immediately if the plan was financially attractive.