Paolo de Cesare heads to Japan to make a decision on one of P&G’s most successful and fast growing products – SK-II. SK-II was a high end product that had developed a strong following among Japanese women, who were increasingly conscious about skin care and willing to spend a significant amount of their income. Cesare must decide among three options: continue to focus on the Japanese market, introduce the product in china, or introduce it in Europe. Decision After careful consideration and analysis, I would recommend that Cesare pursue a strategy that prioritizes a focus on the Japanese market and eventually transitions into China.
SK-II is a proven product in a market that is has yet to be fully tapped. With a penchant for numbers and analysis, Japan’s consumers are some of the most sophisticated easiest to target in the world. However, China’s expected prestige-beauty segment growth cannot be ignored. Intense rivalry from companies that have already set up camp in China is to be expected, but core cultural similarities can be extracted from the success of SK-II in the Hong Kong and Taiwanese markets. A table with pros (+) and cons (-) is listed below for each country:
CAGE Analysis of the Decision
A CAGE (cultural, administrative, geographic, and economic) analysis was performed to support this decision. Cultural – As far as cultural distance, staying in Japan poses the least amount of threat as P&G would be staying in a market that they are familiar with and have established a strong understanding of consumer needs through massive amounts of market research. China has close ties to Hong Kong and Taiwan, which are countries where SK-II has also been established strongly, however, the European cosmetics market is still in an infancy stage for P&G.
Administrative – P&G is a global company with administrative support available in various regions. The brand in Japan is well established and makes distance visible for managers. P&G’s presence in European also well established and would not pose much administrative difficulties in setting up. China is still a new market to P&G in terms of political/governmental systems and building administrative support would be difficult. Geographic – Geographically, Europe is the closest to P&G’s headquarters in the US, however, a strong establishment of R&D facilities in Japan would arguably remove any worries about physical remoteness.
Again, China is still a new market and has only recently accepted foreign retailers. Economic – Japan’s economic climate is in stagnation, however, Japan’s target market for SK-II is strong as women are willing to spend up to $1,000 of their yearly income on the product. While the economic climate of European markets is strong, a high concentration of high-end cosmetics producers are already established and create high bargaining power among buyers. China is the most attractive in terms economy and the prestige-beauty segment is growing significantly faster than that of Japan and Europe.
However, high economic trade costs do slightly offset China’s potential. Based on the CAGE analysis, Japan is clearly the best choice as it provides the least distance for P&G. China is attractive as it can take advantage of the cultural similarities to the established markets in Hong Kong and Taiwan and provides the most robust growth opportunity in terms of economic prowess. Adding Value Scorecard Analysis In order to establish a more robust analysis, an Adding Value Scorecard was used to evaluate Japan, China, and Europe.
Adding Volume – In terms of value creation and economies of scale, adding volume may very well reduce product costs when expanding into all three markets. Further information such as proximity to inputs and raw materials would provide a better view of this perspective. Decreasing Costs – In terms of decreasing costs, China would have the highest integration costs as P&G would have to set up a business in a completely new market. Japan and Europe are already well established. Differentiating – Differentiating SK-II in Japan is one of the leading reasons for the product’s success.
Consumers value the analysis of scientifically proven benefits that the product provides. Establishing this ideology in China will be difficult for P&G but the success of the product in Hong Kong and Taiwan may help alleviate the issue. European markets are saturated and have a high level of competition with various established products, and thus, differentiation in this market will be difficult. Improving Industry Attractiveness – De-escalating or escalating the degree of rivalry will be a crucial factor when deciding which market to prioritize.
Focusing on Japan will further strengthen P&G’s foothold among competitors such as Shiseido, Lion, and Kao. Companies have already been in China for three years (at the time the case was written) and a quick entry for SK-II would foster early entry benefits. European markets are too highly competitive – prioritizing this market may induce price wars. Normalizing Risk – International operations can provide geographic risk reduction but can also create new sources of risk.
While China will provide a new market to diversify P&G’s portfolio, it has still only recently opened its borders to foreign retailers. Strict governmental regulations and lack of transparency in economic predictability may actually increase risk. Europe and Japan’s economies, while slow in growth, are established and can be considered low risk. Generating and Upgrading Knowledge/Capabilities – Utilizing Japan’s strong R&D foundation, SK-II’s proven success can help the product line as it expands to capture more market share.
For Europe, P&G does not have the expertise to deal with the perfumeries in Germany and France, two of the largest markets in the region. Developing SK-II in China may very well provide additional research findings in a new and growing market. Based on the above Adding Value Scorecard analysis, P&G can capitalize on its competitive advantage and enter the Japanese market in full force. Further research and developments in Japan may possibly fuel a new strategy for entering the Chinese and European markets.