Procter and Gamble Case Study Essay

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Procter and Gamble Case Study

Contents

Executive Summary

Procter and Gamble (P&G), the largest multinational consumer goods company in the world, that markets more than 300 brands in over 180 countries, that is located in Cincinnati, Ohio, USA, and has been in operation for more than 175 years. P&G operates with a slogan: “We believe that innovation can solve the world’s sustainability challenges.” To do this P&G invests a lot in their innovations which the company brings to the market around the world. P&G has set specific strategies and goals to deliver continuous improvement toward each of their focus areas1: Products: delight the consumer with sustainable innovations that improve the environmental profile of their products;

Operations: improve the environmental profile of their own operations; Social responsibility: improve children’s lives through their social responsibility programs. P&G has three main product lines: household and personal care, food consumer, health care products. In this report I am going to explain main problem of the company, make some analysis of the company, industry and net sales to show the whole picture. In the end will be given the conclusion and recommendation of the P&G’s activity.

Company Introduction

P&G was founded in 1837 by William Procter and James Gamble with making soap and candles. Business began during nationwide panic and depression. But Cincinnati proved a sound business base because as a meat packing centre, it offered plenty of fat and oil for soap and candle making. In 1858-1859, sales reached $1 million. By this point, approximately 80 employees worked for Procter & Gamble. In the 1880s, P&G began to market a new product, an inexpensive soap that floats in water. The company moved into the countries, both in terms of manufacturing and product sales, becoming an international corporation with its 1930 acquisition of the Thomas Hedley Co., based in England. Procter & Gamble maintained a strong a strong link to the North East of England after this acquisition.

Procter & Gamble acquired a number of other companies that diversified its product line and significantly increased profits2. The world’s largest maker of consumer packaged goods divides its business into two global units: Beauty and Grooming and Household Care. The company also makes pet food, water filters, and over-the-counter acid-reflux medication. About two dozen of P&G’s brands are billion-dollar sellers, including Always, Braun, Crest, Fusion, Gillette, Head & Shoulders, Mach3, Olay, Oral-B, Pantene, and Wella in the beauty and grooming segment, as well as Bounty, Charmin, Dawn, Downy, Duracell, Gain, Iams, Pampers, and Tide in the household care segment. P&G’s hundreds of brands are available in more than 180 countries.

Methodology

To analyze the industry it is necessary to determine the competitive intensity and therefore attractiveness, profitability, of a market. Thus, Porter’s five forces analysis will be used. To show firm’s value proposition, infrastructure, customers, competitors, etc. it is convenient to use Business Model Canvas. It would assist the chosen firm in aligning its activities by illustrating potential trade-offs. It is sufficient to use this model for analysis because it helps to list the nature and sources of financing and the anticipated revenue streams of the business, and helps to point out weaknesses and strengths of the firm. Moreover, to show the last, it would be suitable to use SWOT-analysis, which at the same time shows threats and possible opportunities.

Industry analysis

Consumer goods industry is one of the biggest industries in the market. As McKinsey states, “in emerging markets the world over, multinationals struggling to get their products to consumers confront a bewildering kaleidoscope of strategic and operational challenges”. To analyze the industry it is better to use Porter’s model.

Threat of new competition

P&G has heavy impact on industry productivity. The biggest mergers and acquisitions are: Folgers Coffee, Norwich Eaton Pharmaceuticals, Old Spice, Max Factor, Gillette, etc.

Threat of substitute products or services

P&G has no huge impact on the industry. The only real substitutes are private labels and small label brands.
Competitive products replacement exists.
Bargaining power of customers (buyers)
The largest retailers are Wal-Mart and Kmart. This means that the company has large impact on the industry.
Bargaining power of suppliers
Raw materials can be obtained anywhere, thus P&G has no threat to the industry.

Intensity of competitive rivalry

Procter & Gamble’s products compared to the competitors are innovative (main field for investing), diverse, well-advertised, well-promoted, have good price. P&G provides excellent customer service and quality. Therefore the firm keeps industry thriving. To sum up, Procter & Gamble has heavy impact on the industry, although there are some weaknesses.

External environment

Technological environment

The firm focuses on technological changes which affect the industry. In 2007, P&G set a goal to develop $50 billion in Sustainable Innovation Products (SIPs), which are products that have a significantly reduced environmental footprint. By 2012 Procter & Gamble has developed and marketed over $52 billion in cumulative sales of SIPs. Main focus was on the biggest brands, which deliver significant environmental improvements due to their size and global reach—brands like Pampers, Tide, and Ariel. Most importantly, the focus of Sustainable Innovation Products is to achieve all this without any trade-offs for the consumer.

The products featured are a few of the Sustainable Innovation Products that P&G has launched over the past five years3. Main focus in technological environment is on renewable or recycled materials in all products and packaging (ex.: plant-based plastic for shampoo bottles), evaluating waste reduction pilot opportunities in developed and developing regions, designing products that conserve resources (cold-water washing and using less energy), packaging reduction (moving from plastic thermoform clamshells to a paperboard carton).

Economical environment

As it was mentioned above, the firm is focusing on reducing costs and wastes, concerning with nature and direction of economies in which the firm operates.

Social environment

P&G concerns with beliefs, values, opinions and lifestyles of people. Moreover, the firm has social responsibility program. This program can be found in over 120 countries. The focus of the program is on:

Improving babies’ lives in Africa (Pampers provides assistance to new mothers and babies in sub-Saharan Africa); Reaching a milestone with children’s safe drinking water;

Supporting the education of India’s children;
Promoting hand washing in Mexico;
Donating products;
Preventing pneumonia in Bangladesh.
SWOT-analysis

The company’s leading market position along with its strong brand portfolio provides it with a significant competitive advantage. However slowdown in global economic condition is making it increasingly difficult for branded product manufacturers like Procter & Gamble to maintain their sales volume and revenue growth.

Location of factor

Type of factor

Favorable
Unfavorable
Internal
Strengths:
-product variety and diversification;
-supply chain technology;
-strong focus on R&D;
-leading market position;
-strong brand portfolio.
Weaknesses:
-increasing instances of product recalls;
-dependent on Wal-Mart stores for the majority of revenue;
-constant innovation which increases prices for consumers.
External
Opportunities:
-expansion in developing markets, globalization;
-future growth plans.
Threats:
-private labels;
-regulatory environment;
-global economic conditions;
-counterfeit goods.

Analysis of competitors

Consumer goods industry manufactures and markets everything from food and beverages to toiletries and small appliances. But as we talk about Procter & Gamble, we should take into account that this firm has the biggest stake in the industry in toiletries, cosmetics and cleaning products sector. This sector is a solid category in the industry for foreseeable future. The competitors of Procter & Gamble in this sector are Clorox, Colgate-Palmolive, Revlon, Kimberley-Clark, Unilever and S.C. Johnson. P&G’s competitive advantages arise from several key factors, one of which is innovation. Spending $2B annually on R&D and deploying approximately 7,500 researchers in technical centers around the world, P&G is a leader in innovation.

Key to their success is knowledge sharing and cross-borders replication of innovations, reducing costs and quickly expanding the company knowledge and line offerings. Another factor contributing to their competitive advantage is their large scale operations and go-to-market capabilities that provide first mover advantage and limit the ability of competitor’s to copy ideas and replicate them. Additionally, economies of scale and scope in purchasing, distribution, business services and merchandising provide financial and trade advantages. Lastly, P&G is well known for its brand management and brand leadership capabilities, which are significant advantages for customer loyalty and market penetration.

Supplementing their innovations, facilitating their rapid go-to-market capabilities, as well as their customer and partner management is P&G’s significant use of IT and tracking systems, including CRM, EDI, and RFID, that improve R&D speed and capabilities, communications, information tracking and sharing, and inventory management. In order to sustain their competitive advantage, P&G must continue to utilize their acknowledged strengths, as well as continue to exploit international growth, especially in emerging markets, as P&G is currently overexposed in the US and Western Europe.4 Detailed comparison of the biggest competitors can be found in Appendices, Figure 1. Gap-analysis

During the first half of 2000 Procter & Gamble faced a slumping stock price and a crisis of leadership. Since the company was organized, the basic principle created by the first vice-president of overseas operations Walter Lingle was: “We must tailor our products to meet consumer demands in each nation. But we must create local country subsidiaries whose structures, policies and practices that are as exact a replica of the U.S. Procter & Gamble organization as it is possible to create.” During the 1960s and 1970s, P&G’s geographical scope and international sales expanded rapidly. This created the question of management and organization structure.

In the 1990s the organizational structure was divided among the groups of countries the company operated in. The structure was geographically organized which caused the overload of the heads. The structure was not productive. (See Figure 2) The new structure applied since 1994 strengthened P&G’s functional organization. Manufacturing, purchasing, engineering and distribution now were integrated into a single supply function headed by a senior vice-president. This function was intended to facilitate the end-to-end integration of the company’s global product supply. (See Figure 3)

The new structure resulted in some improvements in global coordination and allowed cross-border coordination of some activities and facilities. However, these improvements did little to stimulate growth. Thus, the gap of P&G was low growth of sales, and management needed to be restructured. In 2005 organization was focused on new processes to boost innovation, plant closures, extensive job losses, and changes in incentives and cultural norms.

Conclusion and recommendation

Since 1990 Procter & Gamble had to go through several changes in organization which did not show the stability of the company. Additionally, the company was not satisfied with the sales growth. In 2005 the firm had full reorientation of organizational structure. Primary profit responsibility shifted from P&G’s four regional organizations to seven global business units (GBUs). The GBUs were given worldwide responsibility for product development, manufacturing and marketing of the products within their categories. Moreover, the focus of the organization was on innovations. Currently, after analysis of the company’s structure in 2012, we can see that P&G’s main focus is still on innovations. And comparing net sales, we can see the growth with decline in 2009 in the case of the world financial crisis. (See Figure 4 and 5) To have further growth, I would advise the company to continue investing in R&D sector, mainly in innovations.

References

Hoovers, The Procter & Gamble Company Information, http://www.hoovers.com/company-information/cs/company-profile.The_Procter__Gamble_Company.89fae93ad9ab54d7.html McKinsey Deal Book, http://dealbook.nytimes.com/category/main-topics/mergers-acquisitions/ Yahoo Finance, Procter & Gamble Competitors Information, http://finance.yahoo.com/q/co?s=PG+Competitors Procter & Gamble Sustainability Report 2012, http://www.pg.com/en_US/sustainability/reports.shtml Procter & Gamble Annual Report 2012, Financial Highlights http://annualreport.pg.com/annualreport2012/files/PG_2012_AnnualReport_financial_highlights.pdf Robert M. Grant, The Case 8, Procter & Gamble’s Organization 2005 Project Procter & Gamble History, http://www.pg.com/en_US/downloads/media/Fact_Sheets_CompanyHistory.pdf

Appendices

Figure 1.Competitor Comparison
Figure 2. Organizational structure 1990
Figure 3. Organizational structure 1999
Figure 4. Net sales 1992-1998
Figure 5. Net sales 2008-2012

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