Business policy fundamentals and organizational strategy

Procter and Gamble (P & G), one of the largest creators of consumer products in the world is constantly seeking to improve its market share and consumer base. With global markets getting more integrated and with countries increasingly opening their markets, P & G. is constantly looking for new strategies that can engender for it a competitive edge. This study identifies some of the challenges as well as the opportunities that are available to the company. The Boston Consulting Group (BCG) model helps identify P & G's products that are cash cows and others that have not performed as well in the market.

Understanding the factors that affect the issues of product sales and market-capture can help P & G. identify the best road map in managing the different product line. Consumer goods sales are also dependent on the level of marketing and advertisements that are used. The fierce competition that exists for similar products in the market make product-substitution easy if the customer is not satisfied with the product. Establishing brand image and reputation in the market takes time; recognizing that a happy customer will be a repeat customer for life is critical. Many 'cash cow' products such as Tide, Bounty and Charmin, enjoy loyal support in almost every market in which these products are available.

G has competitors in all markets in which it operates. Many competitors support similar product lines; and, product differentiation ultimately defines the advantage that the company can enjoy. P & G. can control the internal factors that exist in the organization and modify them to best serve the market and the customer. Managing the external factors in the environment in which the company operates can however, be more challenging. In the age of globalization and multinational corporations, local cultures, beliefs and norms play an important role in establishing the image of the company within any given market.

Introduction

Procter and Gamble, the biggest consumer company is the world is considered for analysis in this report. P & G. is renowned for its ability to market products while building recognition at the same time. The company has been able to build brand names that gain recognition in any of the markets that the products are used in. Currently, P & G. markets over 300 branded products in more than 160 countries all over the world. The company is the number one U.S. consumer manufacturer and it ranked among the top three consumer producers anywhere in the world. The company has three major categories of products that are manufactured -- global beauty care; global health, baby, and family care; and global household care. Some of the major products of the company that are billion dollar brands are -- Actonel, Always/Whisper, Ariel, Bounty, Charmin, Crest, Downy/Lenor, Folgers, Head & Shoulders, Iams, Olay, Pampers, Pantene, Pringles, Tide, and Wella. In 2001, P & G. purchased Clairol. In 2005, the company is poised to acquire Gillette, a former rival and significant player in the consumer product industry. (Yahoo.com, 2005)

Discussion

G has adopted a new trend that is revolutionizing the consumer product industry. By "leading a P & G. strategy to jazz up those humdrum brands by placing them inside nifty new delivery devices," the company has been able to improve the brand image while at the same time it has been able to boost pricing on the products that are being sold. (Berner and Symonds, 2005) S.C. Johnson & Sons, Kimberly-Clark Corp, UniLever Group and Colgate-Palmolive are some of the industry rivals to P & G. P & G. competes with these companies in almost all the markets that it operates in. P & G. is committed to researching and developing new products in order to maintain its position as market leader.

Most P & G. products traditionally targeted women (home products, cleaning supplies, beauty products). By purchasing Gillette however, the company now also has an extensive range of products that are targeted to the male consumer. By diversifying into new products and markets, the company constantly ensures that it has the necessary product range to attract new customers. Any consumer-product company is greatly affected by the macro and the microenvironments that affect the industry and the market in which it operates. There are many factors and variables, both dependent and independent, which affect the strategies, and consequently, the sales of any product in the market. (Kotler and Armstrong, 2001) Many external factors may be common to all markets, while a few may be specific to a local or regional market. The ability of any company to understand these external factors and use the information distilled to attain success in marketing product is important in the current market.

In recent times, most companies have grown as a result of mergers and acquisition of either related or unrelated organizations. Chandler observed this trend of growth by mergers and acquisitions as far back as the turn of the 20th century in organizations such as Sears and Dupont. (Pearce and Robinson, 2003)

Advertisement and marketing also play an important role in establishing a consumer product in the market. Product knowledge and the terminology used have a significant impact on the success of the marketing and advertisement strategy. (Tellis, 2004)

Buying trends have also changed. Many customers comparison-shop. This is due to the relatively recent advent of the Internet. Buying habits also change with the use of this medium. (Court and Dayal, 2002) Potential customers have the option to buyer their requirements from a wide variety of sellers who are able to offer a wide variety of products at competitive rates. Buyers in this new environment can collect tremendous knowledge and can use this knowledge during the buying stage for any product. In the past, this knowledge-transfer was only possible through visiting of various sellers and being offered the information about the product.

Companies that have successful advertisement campaigns are able to "invent" a problem or "identify" an existing problem. Listerine (the mouth washing liquid, sold by Pfizer), for example, invented the "disease" called "halitosis" -- commonly known as bad breath. Lifebuoy (the bathing soap, a product of Unilever) identified the negative effects of body odor. Head and Shoulders (antidandruff shampoo) pointed out the obvious problems of wearing dark clothes when one suffered from dandruff. (Levinson, 1994) the ability of these companies to identify a target market and population (people with bad breath, dandruff and body odor) and associate a stigma with this fact -- a fact that the existing society might have lived with for years without considering it as a major problem.

Highly trained personnel are one of primary advantages enjoyed by a corporation. The ability to identify and create new products from ideas can help the establish product lines and markets for the company. Consumers are also the driving force behind any organization. The origin of dissatisfaction of a product in the market can be frequently traced to false perception. Consumer products that are not properly researched and developed and are managed through poor marketing and sales strategies can cause significant public relations issues for the company. From its inception, the company has kept its finger on the pulse of the market and creates products that are well received in the market. It has reacted quickly enough to trends and changes in the market. By understanding how brands get integrated into their products, packaging ideas has also helped the company stay ahead of the competition. The company has successful been able to develop brand loyalty among its customers. Constant use of new and innovative technology to achieve the desired results is observed in the organization.

The company is a multinational corporation that has branches worldwide (160 countries), and this can pose a problem. Controlling and monitoring the company can become complex. Centralized control structure and different laws and regulations for different markets can complicate the manner in which brands are advertised, marketed or sold. Product lines and brand names can also demand close attention especially when competition for the same product is intense. Not many new products are generated for marketing and sales; rather, many of the older products are just repacked into new containers and sold in the market. In recent years, P & G. is also aggressively acquiring different companies that it feels will help complement its range of products for different markets and demographics. The constant changes in the organization produced by mergers and acquisitions have created a workforce that is diversified and the constantly changing cultures can pose a problem for the organization.

Opportunities for the company are tremendous. The company deals with products that enjoy a great consumer market and this has helped the company maintain a good profit margins. The products over the period of time have also lived up to the market expectations and this is proving to be profitable for the company. Threats facing the company are also real. There are many competitors in the consumer product market and this has created a market where profit margins are low. All companies are also constantly striving to create products that are appealing to customers. There is also an inability to distinguish the product lines from that of the competitors, although the company has succeeded effectively in creating brand recognition for their products. Customer loyalty and brand loyalty of the past cannot always be counted upon to create the necessary profitability for the company.

This is obvious in the case of P & G. that the marketing strategy that the organization uses for different products differ considerably. The financial culture within an organization also affects the marketing culture in any market. Many established companies in the market spend considerable amount of time identifying the best mediums that can be used to market the products to the customer. Peter Drucker stated that markets are not passive entities beyond the control of the entrepreneur or organization. Rather, they are interlinked. They can also be influenced. (Drucker, 1954)

G when establishing manufacturing plants for its products in regional markets selects countries that enjoy political stability and possess the infrastructure and logistic capabilities for business. Depending on the stability of the market and the purchasing power of the population, the company markets different brands to satisfy the needs. Brands are also marketed based on the specific culture and values of the region. For example, the infrastructure for logistics and transportation needs are developed in countries like the U.S. And Western Europe however countries such as Russia and the Eastern block nations that are still developing their market infrastructure face these issues.

Cultures and society also play an important role in the way that the products are accepted in the market. For example, some societies like that of the U.S. And Western Europe might place great emphasis on clean and sanitized homes and might be constantly searching for products that are able to provide these features to them. Some societies on the other hand might use indigenous products to satisfy these needs and might be less likely to purchase a commercial product. Increasing the company's position in these new markets requires the ability of the company to 'create' the need for these products within the population of the region.

In the past, P & G. controlled almost every aspect of the product development and launch. In recent times however, the company is allowing more autonomy to its business managers and its collaborators to allow for greater flexibility of operations. (Knowldge-futures, 2003) P & G. is also motivating researchers in the product development field by allowing them to interact at all levels within the company. This, it is hoped, can help interaction can offer a medium for brainstorming and discussion. This interaction is generally through the company's Intranet and this has helped the employees interact more effectively. As with any established and mature organization, the size and the structure of the organization can cause it to respond more slowly to changes in the industry. By addressing and identifying ways to allow product autonomy and decision making to individual product departments, P & G. can react more quickly to new product launches, finding innovative ways to 'repackage' and launch existing products. "Organization 2005," a management strategy plan is supposed to restructure the company from four regional business units to seven global units divided according to product category and also reduce the workforce employed by the company.

The company actively also investigates the use of technology for reducing product or process failures, improving packaging and logistically distribution networks as well as optimizing facility production. Technology required for the consumer product market has also been evolving and keeping pace with the developments in the manufacturing sector over all. The volume and the scope of this market ensure that even a small savings or benefit made can significantly impact the overall profitability of the company. In more advanced markets, P & G. is constantly investing in R & D. To ensure that the products and upgrade or improvements being manufactured are well received by the population. P & G. has also helped small manufacturers develop devices that can be used in conjunction with the products being manufactured and has a profit sharing arrangement with these companies. Profits on these devices have helped the company offset some of the cost of rising raw materials. (Berner and Symonds, 2005)

The Boston Consulting Group (BCG) model for P & G's products

It is clear from the history of P & G. that initial and existing growth was as a result if incorporating new products and new location. (Ghemawat, 2002) in the consumer product industry there were approximately 16,000 consumer products launched in 2000. (Guen, 2001) in the global market, it is also estimated that approximately 80% of the products have a life cycle of less than 24 months. P & G, in recent times, has built significant brands using technology innovation as a differentiating factor. The BCG study used here is based on P & G's current products and some of its competitor's products in the market.

Using the Boston Consulting Group (BCG) model, it was observed that the growth in business occurred by combining the strengths of good national brand products that had a reputation for quality and reliability and obtaining licenses and sole distributorship for these products helped P & G. gain market share. P & G. needs to also constantly identify new products -- this can be challenging as the time to market factor determines the acceptance of the product in the market.

Product life cycle management and pricing strategies also help establish the product in the market. The tolerance of the market and the price flexibility also impact product acceptance in the market. The BCG matrix model has been used below to identify the strategies used for marketing of products in any of the markets. While BCG analysis has some limitations (accurate information about the market share and the market rate is important for the accuracy of this model) this model help identify the market share and growth rate of software products in the market. The BCG model also places great emphasis on market share and market growth. The BCG model can provide a clear indication of which product require resource-allocation to capture the market (rising stars) and products where any additional investment may not be necessary (cash cows). This model will also identify products (dogs) that the company markets that have not taken off as expected or those that do not generate enough of returns on marketing and support revenues that P & G. has made.

The Boston Consulting Group (BCG) Matrix (NetMBA, 2005) can become a useful tool for an organization. As the BCG model is always compared to the leader in the market, P & G. can identify other companies that are better in any specific market. Thus they can identify the strengths and weakness of that company in relation to their own. The BCG model makes the assumption that an increased relative market share for P & G. will increase the cash flow that P & G. observes. Question marks can be challenging. The fate of many "question marks" (business that are growing rapidly and need large sums of money but do not have the necessary market share to generate cash) depends on the product managers and the decision maker's strategy and planning. How companies decide to deal with question marks often determine the move of the question mark to either a cash cow or a dog. Cash cows are the best type of company product. These generate revenue for the company, which can be used to convert the question marks to the next cash cows.

The Boston Consulting Group (BCG) model can help identify areas where products may be failing. Additional, root cause analysis may help business units within the organization identify problem areas and constraints that are hurting the business. Allocation of resources in problem areas may help many of them stabilize and then generate profits. BCG cannot identify how products help or hurt each other. Consumer product sales often display high levels of cannibalism and sacrificing one product's success to manage another can pose a challenge.

The demographics of the population might also influence the products that are sold in the region. Asia and Southeast Asia, for example, place great emphasis on beauty products that increase the fairness of skin and as such many of the advertisements of the company emphasis on products that help achieve these results. The ability of the company to understand the local needs has help they tailor the same product to different markets.

Detergent "form" changes depending on the market in which it is sold. In societies that depend on washing machines, the use of liquid and powder detergents is common. There are some societies that still wash clothes by hand. For these societies, the company manufactures and distributes bar soap that can be used for the process of soaping the clothes. The company also addresses the needs of the various age strata of the population marketing different products for different ages and needs. Beauty products for example are targeted for different needs -- acne, fairness, and wrinkles. Consumer knowledge of the products differs considerable. In countries that have consumer watch groups and awareness agencies, the public is constantly educated by these agencies of the positive and the negative effect of the products. For example, a recent publication of consumer watch did a costing of Tide and a generic brand Kirkland, sold by wholesale club Costco's. Tide ultra with Bleach cost 39 cents per wash as opposed to the Kirkland detergent, which cost 11 cents per load and washed just as effectively. (Consumer Report 2005) Some markets might not have this form of awareness and the company might not be subjected to more stringent market conditions.

G's major product lines

Using the beauty and hair product line as an example, it is clear to see that many of the company's products face severe competition. Brand names such as Neutrogena, Clean and Clear and Aveeno (Johnson & Johnson product families) are all highly successful products that offer direct competition for P & G. product lines such as Noxzema, Pantene and Clairol. Similarly, product brands such as Dove and Ponds (Unilever) offer similar competition to the company's products.

The acquisition of Gillette has also helped the company with a product range that can help target all demographic of consumers. "Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit." (COMTEX, 2005) the merger would also make P & G. The largest revenue generator of the consumer product market -- $60 billion in revenues. By combining the expertise of both companies, P & G. will be able to reduce costs and improve the logistic options of the company. (Sutel, 2005)

G is also actively working with smaller entrepreneurial companies that are able to develop products that are innovative. Traditionally high innovative products arise in environments that are high risk taking. Small entrepreneurial companies generally fall into this category. P & G. restricts itself to R & D. In its core competency regions but constantly scouts for smaller developers with unique products that can complement some of the company's original products. Enjoying a great level of success in this field has also encourage the company to avoid acquiring companies out of the consumer product industry. Recently however, P & G. has also undertaken the task of incorporating technology into the routine product development. Standardization of operation and achieving economies to scale has help the company maximize profits of all the products that the company deals in.

Too much of a good thing can be a bad thing. Constantly restructuring and change can also be damaging. Learning Management Systems (LMS) can help P & G. identify tools that can help workers and employees extract the best information from the system and apply it to their operations as needed. (Karlsen and Gottschalk, 2004)

Knowledge management systems tend to demand attitude and mindset changes. The old ways of doing things do not apply any more. However, it is essential that companies like P & G. with years of experience do not replace the management systems that have served the company well over the years. The ability of individuals at different levels of the organization to retrieve necessary information as and when needed in a form that can be easily understood and applicable to the situation is important. Management systems and styles also evolve through different market and external and internal environmental conditions. Computerization and technology has also made the process of market analysis easier and faster. Managing with numbers has become a new reality. This management style is not always the most appropriate especially with consumer products that might take long to get market acceptance. The company spends a large percentage of revenues to develop and launch new products and any knowledge that can ensure the profits for the company is preferred. In P & G, "successful brand launches are attributed to the hard work and resourcefulness of the company's enterprising employees; failures are either put down to forces beyond management control or else are presented as valuable "lessons" that have enabled the company to learn and become stronger." (Miskell, 2004)