SK-II’s success is not only prestige skin care product or advanced technology but also its marketing approach to build the new brand. P&G succeeded to connect between the core technology or product concept and local market. Through Japanese market among the world’s toughest competitors, P&G developed potential source of innovations. In addition, SK-II’s marketing strategy built a new approach, Market research, Concept, Packaging, Positioning, Communications strategy. It was a big challenge that P&G shifted from Mass marketing, such as Olay brand, to Class marketing. SK-II’s marketing strategy. The primary issue concerning the case is the transformation of “SK-II” from a local brand to a global brand. This case allows us to evaluate how companies can “internationalize” their brands, and the obstacles and issues that they face while addressing this issue. Until now, SK-II can be characterized as local product in Japan with a sizable regional customer base in Taiwan and Hong Kong.
SK-II brand is positioned at the high- end of skin care and provides high margins for the P&G. To adopt Japanese independent sales style for skin-care, they were sold through special stores by well- trained beauty counselors. At first, to examine the underlying reasons behind the difference between Japanese and other corporate management, I sum up the significant reasons why P&G’s Japanese operation was a failure until 1984 as follows: 1. P&G did not take the time to determine the local needs based on the culture and common practices among Japanese customer. The product development was based on Western markets and it was assumed that it would streamline itself to other areas of the world. 2. Stagnation in innovation is a failure for almost any business. With technology always moving forward at a fast rate, it is imperative for all retail products to constantly put forth effort in research and development.
R&D is one of P&G’s strong points, yet the mismanagement of the division led to complacency in the development work. Due to the lack of improvements and the time lost, it allowed other competitors to release superior products quickly and efficiently. This ultimately led to a significant decrease in market share for P&G. 3. The Japanese distribution system is complex and difficult to assimilate to. P&G did not research and strategize to form new efforts in distributing the products efficiently and take advantage of the benefits of the distribution system commonly used. Instead of fixing the problem, P&G turned towards reduced pricing which drove the distributors away and caused sales to drop. Corporate management methods and the actual managers at headquarters in US and EU have certainly won many achievements in the US and Europe and elsewhere. In many cases, however, Western managers and Western management teams are ill prepared to succeed in Japan.
In many cases, like P&G, drastic changes in thinking and management methods and personal changes at headquarters would be necessary to succeed in Japan. However, there are not many Western companies, which act on this knowledge. In this case, there were two major changes that P&G implemented to improve its operations to increase its profitability. Firstly, P&G increased R&D budget and secondly, they restructured with a plan called Organization 2005. Organization 2005 dealt with corporate cultural changes in becoming less risk averse and more productive with use of time. They encouraged innovation and creative high risk decisions with new products at a rate of more than once a month. Process changes included compensation reform with greater incentives based on performance, stock options to all employees, streamlined administrative aspects of marketing, payroll, and budgets on a more global/regional level.
Structural changes included changing from 4 regional units to 7 global business units (GBUs) that were responsible for executing the global strategies of the company. Each GBU were tasked with creating a uniform production process for all their regional products so that they can be more cost effective and more open in new product rollouts. They also reduced the number of brands and only kept the ones with high sales and global potential. More power was given to lower level managers and the levels of bureaucracy were reduced by eliminating the amount of steps to the top. Among the human resources organization corporate cultures that have changed Japan, foreign companies such as P&G has been the most influential. In fact, deregulation of labor aimed at strengthening international competitiveness and increasing the fluidity of employment has steadily eroded the traditional system of lifetime employment, seniority-based wages, and enterprise welfare at Japanese businesses.
Many Japanese companies are now moving more toward a performance- based system when it comes to rewarding and promoting employee to be global company. In order to figure out whether SK-II is a product that can be global brand, we need to identify reasons for SK-II’s success in the Japanese market. First, by based on research of Japanese market, P&G made clear targeting and positioning, and developed new products which fulfilled customers’ needs, built the effective distribution. As a result, P&G could establish differentiation advantages for the following.
• Product: “Foaming massage cloth”, Elegant dispensing box “Foaming massage cloth” increase skin circulation through a massage while boosting skin clarity due to the microfibers’ ability to clean pores and trap dirt.
• Price: Premium price
• Place: Luxury and counter at department store
• Promotion: Counseling by beauty counselor, TV advertising, Beauty magazines P&G utilized and rebuilt its distribution channels of using trained personnel at beauty counters throughout Japan. SK-II’s success had been achieved in a culture where the customers, distribution channels, and competitors were different from in other countries. For example, Japanese customers more educated, average Japanese women spent 4.5 minutes on her face cleansing, and most sophisticated users of beauty products in the world. On the other hand, in China customers due to Olay’s education recently moved from a one-step skin care process to a three-step cleansing and moisturizing process. However, unlike China, Europe had a large and sophisticated group of beauty-conscious customers who is already practiced a multistep regimen.
As we see it is model is transferable but they have to modify some of models characteristic depending on customers behavior, competitors and market factor. P&G Japan’s competitive advantage is firm-specific but SK-II’s advantage is country-specific. I would suggest that de Cesare would be to expand SK-II brand within Japan. The company should continue to build on SK-II’s success in Japan. By building on brand’s success in the proven domestic market, Procter & Gamble would be able to fully utilize the company’s competitive advantages. In this case, the company has achieved only 3% of the market share of the $10 billion beauty product market, and in addition the Japanese skin care market is forecasted to grow at 28% two-year growth rate. Given these opportunities, de Cesare is well advised to strongly expand SK-II brand within Japan.
There are other attributes that make Japanese market attractive; these include brand name recognition and development of new products such as anti-aging and skin whitening that could expand the SK-II product line. Since the Japanese market is highly competitive and requires constant innovation, the Japanese division need to constantly introducing new products that could possibly be introduced to other markets as well. Increased market share and profitability of SK-II brand would also increase the brand’s standing among various Procter & Gamble brands; this increased awareness of SK-II brand could potentially pave the way for brand’s internationalization later on. The Japanese market is also one of the biggest markets for prestige skin care products, not only that, the country is also expected to see the skin care market (both main and prestige) grow by 28% over the next 2 years. However, there are some risks if the de Cesare chooses to only expand into the Japanese market.
This could potentially make P&G Japan isolated from the rest of the world markets. P&G Japan could be oblivious to changes in the world market, and miss opportunities that could have allowed collaboration in R&D with other divisions that could have led to introduction of new and innovative products. To remain a major market player, P&G needs to keep expanding its products at a global level. I do not believe that the choices between expansion into China or Europe or increasing sales in Japan are all mutually exclusive with each other. All three of the markets can be critical to the successful globalization of P&G and its brands. The European market will probably prove to be the most difficult to penetrate, yet by concentrating on specific cities and markets, there is still potential for P&G’s superior product to prevail.
This option would be the lowest priority of the three. P&G will need to keep up with technology and continue with new developments if they want to remain a leader in the prestige market in Japan. In terms of short term profitability, the Japanese market is unmatched. Cesare has forecasted an earnings growth potential of 200% in 6 or 7 years based off a $150 million sales level. However, the focus should be on the Chinese market based on the long term potential for growth and profitability. All the other major market players are already present in the market so P&G don’t want to fall too behind with their competitors.
Although China has a relatively small subset of their population that can afford the expensive SK-II product, it also has the highest growth rate of skin care use at an astounding 28%. With China’s economy and GDP growing at a fast rate, the potential for more able consumers of the 1.2 billion residents is seemingly limitless. In my conclusion, the first priority is they would be to expand SK-II brand within Japan to keep expanding its products at a global level. The next, they should be focus on the Chinese market based on the long term potential for growth. As the lowest priority, the European market will probably prove by concentrating on specific cities and markets.