Research Paper Undergraduate 2,679 words

Procter and Gamble Is One

Last reviewed: May 23, 2007 ~14 min read

Procter and Gamble is one of the largest companies worldwide and the largest U.S. manufacturer of household products. It is present in more than 140 countries with products such as: food, beverage, soap, detergent, beauty, health and paper. The company owns more than 250 brands that were sold to almost 5 billion consumers in 2005. Some of the most famous brands are: Pantene, Head & Shoulders, Ariel, Tide, Oil of Olaz, Pampers and the recently acquired Gillette. P&G also has strategic partnerships with companies in the consumer area, such as Wrigley Co, a giant gum and mint producer.

At year end 2005, the company employed almost 140,000 people all over the world and its financial results looked fantastic. The sales growth is shown in the charts below:

The success of P&G relays pretty much in its power to create successful brands. The company's purpose as stated on the corporate website is to "provide products and services of superior quality and value that improve the lives of the world's consumers." The company is one of the world's biggest advertisers with expenditure in this area of over $6 bn in 2006. At the turn of the century P&G was the world's second largest advertiser. The campaigns are all over the media: TV, radio, magazines and internet.

Procter was ranked number 24 by Fortune magazine in 2006, ahead of its competitors: Johnson & Johnson (32), Kimberly-Clark (140) from U.S., and Unilever and Nestle that are its competitors from abroad.

Marketing environment

This chapter will be divided into 2 major sections: macro and microenvironment.

The macro environment refers to factors outside the company and forces that can represent both opportunities and threats for the company, such as: political, economic, social and technological. A PEST analysis is required at this point.

Political factors.

Despite being a large multinational with 11 digits $ revenues, P&G is not a monopoly in its industry. Actually, the industry is organized as an oligopoly, where a few more companies with similar size compete against each other. Therefore, no monopoly regulation is applied to Procter either at home or abroad.

Safety laws to protect the consumer are applied to all companies in the industry and P&G's manufacturing process are complaint to those laws.

Economic factors.

The global wealth is increasing fast, with high growth rates in emerging markets:

Source: Sasi Group (2006)

Social factors.

P&G has to deal with a wide cultural diversity since it is present in more than 140 countries, selling products to around 5 billion consumers. Generally, the company is running consumer behavior studies at a global level, but it takes under consideration each nation's cultural identity. Therefore, some products have a local content or they are designed for a certain market niche (shampoo for African female consumers).

The world population is growing with more than 1% per year. This implies that the potential market is growing with at least 1%, but is also correlated to wealth growth rates.

The company is manufacturing products for all races and all age segments.

Technological factors.

P&G is one of the greatest innovators in its industry. The company invests millions of dollars in R&D every year. This strategy is somehow necessary to insure the competitiveness of its products, because the beauty and home care products are changing fast having to keep up with the frequent changes in the consumer behavior.

Besides product innovation, companies have to think of process innovation. Complex, high tech supply chain management systems are mandatory to insure a good relationship with suppliers and customers.

The microenvironment contains those factors that may come from inside or outside the company and influence its ability to serve the customer. Some of those are: the company's internal environment - various departments (i.e, financial, R&D, etc.), suppliers, marketing intermediaries, customers, competitors and publics.

P&G's internal environment changed a lot in late 1990s. That period was characterized by tough struggle to maintain competitiveness for all consumer products manufacturers. Supermarket and hypermarket chains developed their own brands for products similar to those of many famous consumer products manufacturers, thus increasing their negotiating power. P&G had to close 30 plants in the early 1990s and lay off 13,000 workers to reduce loss. In this period, the bureaucracy reached such high limits that most decisions made in the company had to go through superior management approval. The activity had to be pushed up all the time to reach growth objectives, so in order not to make mistakes while doing so, the company developed a risk adversity. The employees became more frustrated, less motivated and had less incentive to innovate. A change was required. In 1998, Durk Jager became the new CEO. One of his objectives was to bring back to life the entrepreneurial spirit. Thus, he switched the power from country-based managers to global product managers. He also, gave those more freedom to handle their financial resources. The resistance to change was quite high because most of the management staff had its functions redefined almost completely, which is why it took more than 18 months until the change results became visible. In the same period, P&G's pricing strategy changed a lot towards value pricing. The consumers paid around 20% more for its products and to maintain the brand awareness at the same level, the company increased its advertising expenses. On one hand, less P&G products were bought leading to a deterioration of the company's market share (16%) and the loss of market leader position and on the other hand efficiency increased because the company had superior gains per sold unit. Curiously, the competition - Unilever and Gillette joined this trend.

A good relationship with suppliers may turn out to be crucial for large companies and their efforts to gain competitive advantage through increased efficiency. In the past, companies and their suppliers did not correlate their activities to reduce costs, waiting time and increase productivity. Nowadays, they make intensive use of supply chain management. P&G teamed up with Wal-Mart to find out which are the products that are processed through their shared network and reached the decision that the Stock Keeping Units can be limited to those products that have a high demand from the customer. Furthermore, they worked together to develop a high-tech supply chain management system that besides improving efficiency through reduced stocks it also allows for increased visibility. Procter can check any time what products have been processed through any of Wal-Mart's systems. These two partners elaborate promotions together and feedback about the campaigns' results is sent to P&G suppliers. These suppliers take care that Procter's merchandise is always in Wal-Mart's shelves with no delay and no stock creation. A better communication helps them reduce overall costs.

The relationship between the company and its direct suppliers has improved a lot lately through an electronic platform that enables both parts to perform their tasks faster.

P&G's marketing intermediaries are part of its competitive advantage. The company distinguished itself through intense promotional activity for most of its brands, large scale distribution (its products are always in the supermarkets 'shelves) and almost all supermarkets have at least one of its products, which implies that the company covers a large part of the consumer market world wide. As presented before, the Procter has developed high tech management systems to deal with all these collaborators efficiently. Also, the internal organization of the company is made on products not areas, which makes decisions per each product to be consistent and quite fast due to the fact that managers have a lot of freedom when it comes to handling their budgets.

The company satisfies a wide range of customers coming from different market segments: mid-income (Tide), higher income (Ariel), male (Gillette), female (Always), normal hair (Herbal essences), special care (Pantene), special need (Head and Shoulders), etc. One of the strategies is to always diversify the product portfolio by adding new products, such as the recently acquired Gillette or by strategic partnership, such as the one with Wrigley Co. One other strategy is to innovate the existing products: new flavors, new recipes, new effects, new packaging, and so one. Finally, one other strategy is to maintain the customer's awareness permanently through promotional activity. Basically, every individual needs to buy the type of products manufactured by Procter, so the idea is to buy P&G brands instead of others.

P&G has a small number of competitors both at home and abroad, but those competitors are large companies, which makes competition tough. Abroad and at home, the main competitors are Unilever for most of the product range, Nestle for food products and Colgate-Palmolive for cosmetic products and at home the competitors are Johnson & Johnson and Kimberly-Clark for cosmetic products.

Basically, we can say that these large multinationals turn the consumer products industry into an oligopoly. The following table summarizes their market leadership:

Category

Brand

Companies

Tooth paste, whitener, brush, floss

Oral-b, Colgate, Signal