Department of Commerce: Assignment On SWOT, PEST & Porter's Five Forces Analysis of Procter & Gamble Co
Department of Commerce: Assignment On SWOT, PEST & Porter's Five Forces Analysis of Procter & Gamble Co
Assignment
On
SWOT, PEST & Porter’s Five Forces
Analysis of Procter & Gamble Co.
Submitted To:
Sir Fahad Munir
Submitted By:
Khadija Liaquat 37
Sehar Saeed 02
Nimra Ahsan 38
Subject :
International Business
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Procter and Gamble
Company Background
P&G is the world's largest consumer goods company that markets more than 300
brands in over180 countries. Started in 1837 by William Procter and James
Gamble. Main Headquarter in Cincinnati, Ohio. First products were soaps and
candles. Employ 138,000 people. The company is engaged in producing beauty,
health, fabric, home, baby, family and personal care products. The company's
product portfolio also includes pet health products and snacks. 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 P&G to maintain their sales volume and revenue growth.
History of Procter & Gamble
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The
1879
The inexpensive, but high-quality Ivory soap is introduced
1924
P&G is one of the first to create a market research department to study consumer
preferences and buying habits
1955
Crest, the first toothpaste with fluoride clinically proven to fight cavities, is
introduced.
1961
Pampers is introduced and replaces cloth diapers.
2005
P&G and Gillette merge into one company develop Gillette and Braun's shaving
products, Oral-B dental care line and Duracell batteries.
Today
P&G operates in 80 countries worldwide, employing more than 100,000. Has 13
billion dollar brands in its portfolio: Charmin, Tide, Pantene, Iams, Folgers, Crest, 5
Olay, Always, Ariel, Bounty, Downy, Pringles, Pampers.
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Family of Products
Personal & Beauty
- Cosmetics, Oral Care, Hair Care
House & Home
- Laundry care, Dish Soap, Snacks & Coffee
Health & Wellness
- Prescription drugs, Health Care
Baby & Family
Pet Care & Nutrition
Main Competitors
Target Markets
Homeowners
Stay-at-home parents
Women
B2B
SWOT Analysis
“SWOT is an acronym for the internal Strengths and Weaknesses of a firm
and the environmental Opportunities and Threats facing that firm. SWOT analysis
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is a widely used technique through which managers create a quick overview of a
company’s strategic situation. The technique is based on the assumption that an
effective strategy derives from a sound “fit” between a firm’s internal resources
(strengths and weaknesses) and its external situation (opportunities and threats). A
good fit maximizes a firm’s strengths and opportunities and minimizes its
weaknesses and threats. Accurately applied, this simple assumption has powerful
implications for the design of a successful strategy.
Strengths
New Management
Leading Market Position
Strong Finances in past years
Gross Margin 15 Times the Industry Average
One of the best marketers in the world
Diversified brand portfolio: more than 300 brands with more than 79
billion in Revenue
Strong brand portfolio
Tightly integrated with the largest retailers in the US and around the world
Product innovation
Talented management
Distribute to 180 Countries
Distribution channels all over the world
New Billion Dollar brands
Offers multiple products in each category along with more than one brand
Retains strong bargaining positions with retailers
Global leader in health and beauty care products, detergents, diapers and
food
P&G has over than 170-year industry experience and over than 25-year
international operations
The new acquisitions of companies that are leader in the market of health
and beauty care products in Europe.
Effective brand management system and brand management team for its
brand to plan, develop, direct their brand in its market
Strong focus on Research and development
Diversified product portfolio
The company has a vast experience in oral and personal hygiene products
as they are working since 1837
Well-known brands with extensive products line that positions the
company to obtain better brand image as home and personal care
providers.
Weaknesses
Top Brands Losing Market Share Health and Beauty Women Only
Lagging behind in online media presence & leadership
Missing opportunity: Refuses to manufacture private label products for its
retail customers
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Slow Process Heavy Culture
Views Product Performance only
Expansion for brands is limited
Increased promotional spending to keep healthy sales
Production cost
Production capacity for the demand on the first years
Leads times for alternative pack sizes and designs
Work capacity
Different culture, wants and needs of customers
Unable to protect imitation P&G’s innovative products and marketing
strategies of competition
Competitors had pre-empted them in national markets where the local
subsidiary was constrained by budget or organizational limitations
Increasing instances of product recalls
Dependent on Wal-Mart Stores for majority of its revenue
Quality control Problem
Decreased Revenues in their Northeast Asian Market
The company has not already convinced the markets or investors about the
benefits of acquisitions. This is true since the earnings per share was
estimated to decline by $0.25 and $0.30 per share.
Opportunities
Threats
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Competitors
Substitute brands that have a cheaper price
Private label growth
Slowdown in consumer spending in the US & globally
Key competitors expanding their product portfolios through acquisitions
Increase in raw material price so cost to the company is increasing.
Commodity cost and currency exchange rate placed tremendous pressure
on the business
New and increase of regulations
The number of suppliers and brands, the European market was even more
crowed as US.
The top and bottom price classes was even bigger than the US.
Difference between prices for the same quality.
Many important competitors
Regulatory Environment
Global Economic Conditions
Counterfeit goods
Rising cost of energy prices
Economic slowdown in the US and Eurozone
Due to recession, the consumer spending has decreased globally.
PEST Analysis
PEST factors play an important role in the value creation opportunities of a strategy.
However they are usually beyond the control of the corporation and must normally be
considered as either threats or opportunities. Remember macro-
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economical factors can differ per continent, country or even region, so normally a PEST
analysis should be performed per country.
So, Pest Analysis is the analysis of political, economic, social, and technological
environment of the company.
The rapid change in the past two decades has affected the industry badly.
Different governments with different policies and different benefits have
different affects on the industry.
As the manufacturing trend in the economy has changed from 4.5 to 8.6
during the last five years, also maximum level reached at the 14.0 percent
level. But still no positive and consistent changed has seen.
For the new entrants in the industry there are also some measures set by
the government which are no completely in the favor of any investment
activity with reference to the detergent industry.
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There are many groups in the country as well as which have a very limited
approached towards the advertisement policies of the industry. Such
groups only perform activities for there own political interest.
Manufacturing trend in the economy has changed 4.5 to 8.6 for last 5 years
Manufacturing of detergents are no more in the country
Company shifts their business outside the country because of government
taxes
Economic Factors
Technology Factors
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1.Threats of New Entrants
In detergent industry the production is on large scale. Here the fixed cost is
same whether you produce one unit or thousand. The only thing that
matters here is the variable cost. Like the marketing expenses to capture
the share of unorganized sector or to get market of loose detergent. The
research also required heavy amount of investment, so barrier exist here.
All the brands are well know and very mannerly identified by customer.
Huge amount of capital is required and an expense to new entrants like
marketing and distribution expenses requires heavy investment.
3.Threats of Substitute
Bar Soap
Liquid Soap
Sawaiyan
Bar Soap
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Gai Soap
Ladoo Soap
Sufi soap
Sawayian
Gai
Millian
Sufi
OR
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Porter’s Five Forces Model (Analysis)
The analysis of Procter and Gamble (P&G) Company by using five forces
analysis. The following part will show the insight and limitation of five forces
analysis. The analysis of shampoo industry in United Kingdom will be discussed
by using five forces analysis in the last part.
Procter and Gamble Company is a leader company for producing some essential
products in daily life such as toiletry products. In recently, the company has
established five strategies for sustainability; products, operations, social
responsibility, employees and stakeholders (P&G website, 2010).
The first strategy focuses on their products. They attempt to improve their
environmental profile from delighting customers with the sustainable innovations
such as using biodegradable materials (ibid, 2010). The second strategy is the
improvement of their operations with environmental concerning such as using an
additional 20% reduction in carbon dioxide emissions (ibid, 2010). The third
strategy is the concerning in improving children's lives by social responsibility
programs (ibid, 2010). The forth strategy focuses on employees by supporting
them to have the sustainability thinking and implementing the thinking to daily
works (ibid, 2010). The last strategy considers in stakeholders by supporting in
transparent working with them.
The recent change of strategy might be considered as the results of some business
environmental changes for example the increasing of environmental concerning
behaviors. Therefore, environmental threat and opportunity can be reckoned as the
crucial factors for managers. It is their responsible for adapting the organizations
to cope with the changes.
The five forces analysis is a framework for analyzing industry for developing
business strategies created by Michael Porter (Narayanan and Fahay, 2005,
P.208). Johnson et al said the attractiveness of an industry could be identified by
such framework in terms of competitive forces (2008, P.59). Note that the word
industry means a group of companies that produce the same products or serve the
same services (ibid, P.58). There are five elements in such framework; threat of
new entry, threat of substitute products, the bargaining power of customers, the
bargaining power of suppliers and the intensity of competitive rivalry (ibid, P.60).
The first force of the analysis is the threat of entry that involve with barriers to
entry. Johnson et al (2009, P.61) mentions the barriers to entry are factors that
new entrant need to conquer for entering to the business successfully. There are
several factors to be considered as such barriers such as scale and experience,
access to supply or distribution channels, expected retaliation, legislation or
government action and differentiation. The second force is the threat of
substitutes. Johnson et al describes, "Substitutes are products or services that
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offer a similar benefit to an industry's product or services, but by different process
(ibid, P.62)". For example, in airline industry, the substitutes can be cars,
train, and boats. However, their price to performance ratio should be less than
such ratio of industry's products or services (ibid, P.62). It means that substitutes
should have cheaper prices if it serves the same product performance. The third
force is the power of buyers that tend to be high if some conditions occur such as
concentrated buyers, low switching costs and buyer competition threat. The forth
force is the power of suppliers that are organizations that supply whatever for
producing products or services (ibid, P.63). The power seems to be high if there
are low concentrated suppliers, high switching cost and high supplier competition
threat (ibid, P.63). The last force is competitive rivalry. This force will be high if
the former forces are intense. Moreover, it depends on some factors such as
competitor balance, industry growth rate, high fixed costs, high exit barriers and
low differentiation (ibid, P.64).
Limitations
Moreover, the industry value chains are oversimplified by five forces framework
such as the lack of segmentation of buyers and the differentiation of channels,
intermediate buyers and end buyers. (Grundy, 2006, P.215).
In this section, five forces analysis will be applied to shampoos industry in P&G
Company and follow by some recommendation in each force.
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1. The threat of the entry of new competitors
When the new competitors want to invest in any business, they have to face with
some barriers of entry. Note that the barriers of entry are the factors that the
entrants have to overwhelm to survive in their new business (Johnson et al, 2009,
P.61). For shampoo industry, there are many factors for new entrants too. In this
section, some factors: scale and experience, access to supply or distribution
channels, and brand royalty, will be mention.
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Access to supply or distribution channels
The entrants have to make efforts to wholesalers and retailers for placing their
products in the good locations; for example, place in eyes-level shelves by giving
the better proposal such as paying an extra money or reducing their prices.
However, the incumbent as P&G can react by offering the same or better proposal
too. In addition, an extensive product spreading is also needed because it has to
response to mass consumers that spreading on all areas of United Kingdom.
Therefore, the entrants have to allocate a budget for managing the logistic to
satisfy customers and preventing from insufficient products situations.
Brand Royalty
Brand is one of the important factors when customers decide to buy. It takes times
for letting customers accept and be familiar with new brands, so the entrants have
to concern a lot in marketing to promote their brands. Furthermore, it is not easy
to make customers alter their mind to use new products. Marketing activities and
continuous development of products are needed to make brand royalty for P&G
Company.
In shampoo industry, it is not easy for entrants to be successful because the strong
brand royalty appears (Key Note, 2009, P.81). However, there are some group of
customers are willing to try new products (ibid, 2009, P.81). The entrants might
search the opportunity from new product sectors of market and then rapidly
preoccupy. Therefore, P&G Company should set a marketing team to explore
possible markets and observe coming changes before the new entrants found. For
instance, nowadays, people tend to concentrate on organic substance or green
ingredients. The Soil Association's Organic Market Report 2009 indicated organic
toiletries products grew quickly in 2008 (ibid, P.4). P&G Company might research
for launching new product to response the needs. However, as we have seen in
their strategy, they try to generate sustainable image that can support them to be a
green organization and also differentiate P&G from other competitors. Another
example may be men products. The demand of men's toiletries increases
according from the speedily increasing of men in the population (ibid, P.4). P&G
Company should have more concerning in men products such as launching
shampoos for men and set the team for analyzing men behavior in buying
shampoos.
The substitutes for shampoos are rather few. The most proximal product might be
soaps. However, people do not admire to use soaps for washing their hair because
the properties of soaps is different from shampoos. However, there is a possible
substitute: two in one product. H&BC Company has launched a men shower gel in
Radox brand. Such shampoo has distinctive properties that it can use as both
shower gel and shampoo. It can be assumed that H&BC Company's researchers
might explore the men behavior before launching such product. Because such
product is easy for using and convenient to carry for traveling that it might be
similar to almost men behaviors. Besides, the price of Radox is quite cheaper than
some P&G shampoos. This can attract consumers to buy. Therefore, P&G should
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be careful by monitoring their sales. If they are successful in sales, P&G might
launch the similar products and attempt to occupy their market. However, P&G
has soaps industry, and hence it is not difficult for P&G to compete the rivals.
Concentrated buyers
Buyers tend to have the higher power in this topic because they can change to use
another shampoos by no switching costs. Therefore, the efficiency of products is
very important for maintaining customers because the customers will be
continuous buying the products if they impress such products. In addition, P&G
might launch the idea of membership to create a barrier of switching decision. For
example, the members might have privileges in reduced prices on P&G products,
special services or can use member cards to get other benefit such as having the
ability to attend P&G activities, having discount on theater or plays. However,
they should specify some rule for pushing customers buy their products usually.
For instance, the cards might be activated when customers buy their product in
normally by identifying the minimum period such as 500 pounds per year or the
cards will activate by collecting points. Another ideas might be selling the
combination of products. P&G might sell their shampoos with other products such
as conditioners, shower gels or new launching products in special prices. Such
ideas will be advantages for P&G from increasing motivation in trial new products
and this also increase brand loyalty.
Brand loyalty
P&G tend to have the higher power in brand loyalty aspect because there is a
group of buyers prefer P&G shampoos. The quality of shampoos can account as
an important factors. Buyers will buy shampoos if they feel such shampoos can
propose the effective results. Therefore, P&G should maintain their quality and
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attempt to develop their products by researching or concerning new technology.
Besides, they should support the presenting of shampoos qualification by
advertisement.
Ingredient
For P&G, power of suppliers tends to be low because there is no specific or rare
ingredient and there is more than one supplier that has ability to provide raw
materials. Therefore, there are many selections for P&G to select another
company instead of the old one. For instance, P&G could buy active chemical
ingredients from the Swiss company Lonza Group Ltd, Cognis, Dragoco (Great
Britain) Ltd and Ciba Specialty Chemicals (Key Note, 2009, P.40). However, the
concerning of organic materials trend might increase supplier power. There are
two major aroma chemical suppliers: Treatt PLC and Swiss Company Givaudan
(ibid, P.40). According to green trends, both companies make progress for organic
aromas (ibid, P.40). If one of aroma suppliers successes in producing of 100%
organic fragrances, this will differentiate such supplier and they will have more
power than P&G. However, it is less possible that the other suppliers surrender to
one supplier. They would research and develop in producing organic aroma.
Therefore, P&G can be reckoned as having the higher power then suppliers.
Moreover, P&G tend to have higher power than suppliers because the suppliers
depend on P&G. P&G is a giant company, so the company will order their
material in large amount. P&G will have more power in negotiation.
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royalty, shampoos recipes, experiences of shampoos industry and high advertising
costs, therefore it is difficult to suppliers to success.
The last force is the intensity of competitive rivalry that it will be affected from
other forces as well. The intensity will increase if the other forces are high. This
section will mention in four factors for shampoos industry of P&G; competitor
balance, industry growth rate, high fixed costs and low differentiation.
Competitor balance
The competition of shampoos industry tends to be intense because there are not
many competitors in each segment. For example, in premium shampoo segment,
P&G might consider Unilever (Dove brand) and Loreal as competitors of P&G
(Pantene brand). The high rivalry can be seen from the activity of marketing
especially advertisement that can maintain their existed customers and introduce
new products. Furthermore, the attempting to attract new customers by developing
new products can reflect the intense of rivalry.
Due to shampoos industry is nearly saturated point (Key Note, 2009, P.81), so it is
in situation of low growth rate, only 0.3% change of value from 2007 and 2008
(ibid, P.16). Moreover, in low growth market, high price competition could be
seen (Johnson et al, 2009, P.64). Therefore, the degree of competitive rivalry
seems to be high in this topic.
Low differentiation
Moreover, shampoos can be regard as a commodity products that there are poorly
differentiated therefore it is easy to customers for switching between competitors.
This would be occurred price competition in order to hold more penetration.
However, for P&G, the company has continuously developed their product to be
effective by concentrating on researches. This could differentiate P&G among
competitors if customers can feel the better result from using P&G shampoos.
Moreover, the attempt to construct sustainable or green image will differentiate
P&G from others.
In five forces analysis, there are some forces that can considered as weak for
P&G. Therefore, they should implement some strategies to solve such
weaknesses.
From five forces analysis, there is a weak point in threat of substitutes that come
from two in one product, Radox brand. P&G should provide some researches
about customer behavior in two in one products and monitoring their sales. If
there is tendency to success in such product, P&G might launch similar products
and attempt to conquer by using competitive strategies such as producing in lower
costs or sale in lower prices. Another strategies might be concentrating in
marketing activities such as promotion.
Furthermore, from the risk of power of suppliers that increase from the
emergences of environmental concern, P&G might invest in their suppliers' shares
to have more power. However, P&G should only invest in suppliers that can be
considered as important suppliers.
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