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You are required to read the case “Procter & Gamble” and write a report addressing the tasks given below. All the tasks carries equal weightings.
- Critically analyze the directions of Strategic development followed by P&G over different periods
- Evaluate the organic and inorganic approaches adopted by P&G and argue which of the two methods had resulted in a sustainable growth.
- Assess the possible reasons for P&G’s decision to divest Pringles line of snacks.
- Using the SAFe criteria, undertake an evaluation of the strategic options that exists for P&G.
Procter & Gamble
Procter & gamble (P&G) in April 2011 sold its Pringles line of snacks to Diamond Foods for $1.5 billion. P&G manufactures and markets consumer packaged goods in the United States and abroad, but the company, with that divestiture, finally ends being in the food business in order to focus on beauty and personal-care products. P&G once owned Jif peanut butter, Crisco shortening, Sunny Delight orange drink, and Folgers coffee—but no longer. A recent Harvard Business Review article interviews former P&G CEO AG Lafley, who says, “P&G learns much more from failed new brands and products like Dryel at-home dry cleaning and Fit Fruit & Vegetable Wash than we do from huge successes like Febreze and Swiffer.”
In Fortune’s most admired company rankings released in February 2011, P&G ranked number one in the Soaps and cosmetics industry. P&G changed CEO in July 2010, going from Mr. Lafley, who focused on innovation, to Mr. McDonald, who focuses on lower-end products aimed at consumers looking for discounts. Founded in 1837 in Cincinnati, Ohio, by William Procter and James gamble, P&G achieved sales and earnings of $78.9 billion and $12.7 billion respectively in 2010. P&G recently donated $300,000 to the NFL Play 60 and Youth Health and Wellness programs and pursues LEED certification (green buildings) for all new global sites.
P&G operates in three strategic business units (SBUs), which they call global business units (GBUs): 1) Beauty and grooming, 2) Health and Well-Being, and 3) Household care. P&G products are sold through thousands of retail operations, including mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, and high-frequency stores. Twenty-three P&G products are annual billion-dollar sellers, including Fusion, always/ Whisper, Braun, Bounty, Charmin, crest, Downy/Lenor, Gillette, Lams, Olay, Pampers, Pantene, tide, and Wella. P&G also makes pet food and water filters and produces a soap opera. in March 2011, P&G’s air freshener product, Febreze, became the company’s 24th product to achieve $1 billion in revenues. In the United States, Febreze currently has a 17 percent market share in versus competing products such as glade and air Wick, up from 14.8 percent in 2010. P&G has 250 brand products, but the 24 $billion+ products account for about 70 percent of the company’s $79 billion+ annual revenues. Pampers diapers are P&G’s bestselling product at $9+ billion annually followed by Tide detergent at $5+ billion.
P&G does not have a vision statement. The company mission is: “We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.”
To grow, P&G has historically acquired many smaller businesses such as the pet-food company Natura Pet Products, Inc. and Sara Lee Corporation’s Ambi Pur air refresher. P&G is reducing its fabric-care business to about 40 products, down from 60 lines in 2007. Also, the company desires to reduce its packaging ink colours from 4,000 plastic colours to 1,500 and 10,000 print-ink colours to 200, which is projected to save approximately $60 million. P&G desires to accelerate its growth in developing markets, such as Brazil and India, which analysts have nicknamed “walled cities” because Unilever and Colgate-Palmolive have historically dominated the markets. Consumers in developing markets are increasingly willing and able to purchase pricey items, such as P&G’s Gillette Fusion Pro Glide razor.
P&G invested nearly $2 billion in research & development in 2010, which was nearly 50 percent more than their closest competitor. P&G strives to continue innovating and introducing new products on an international basis such as the new tide Stain release and Ariel Professional in laundry additives. P&G has 50 brands that account for 90 percent of the company’s total sales and profits. P&G reports that 99 percent of U.S. and Canadian households use at least one of its products. North America represents about 42 percent of P&G’s revenues.
P&G’s Global Business Units (GBUs)
GBU #1—Beauty and Grooming P&G’s beauty and grooming GBU was overhauled in 2009 with each brand at that time being categorized into “his” or “her” categories. Expansion efforts in this GBU have included entering more department stores with Dolce & Gabbana makeup counters, and expanding into new markets with Olay skin cream, jointly advertised with Pantene hair-care products. Ultimately, Olay skin cream is destined to enter 150 countries where Pantene is already being sold. Profits have improved in this GBU and sales growth has outperformed the rest of the company.
Among female cosmetics products such as razor blades and skin care crèmes, Olay (facial skin care) is the strongest brand holding an approximate 10 percent of the global market share. P&G holds a 20 percent share of the retail hair care market share, headed by brands such as Pantene and Head & Shoulders shampoo. Fragrances such as Dolce & Gabbana, Gucci, and Hugo Boss represent the fragrance lines.
Regarding grooming products, Gillette’s Fusion and Mach 3 are top producers, representing 70 percent of the global male razor blade market. Male deodorants, shaving cream, and hair/skin products are among other products that P&G markets. The electronic shaver Braun has been a successful brand, with the company holding approximately 30 percent of the male shaver market and 50 percent of the female epilator market.
GBU #2—Health and Well-Being in the health care segment of this GBU, P&G has about 35 percent of the global feminine care products business. Personal health non-prescription products, such as heartburn medication Prilosec (OTC) and Vicks, are successful P&G brands. In the Snacks/Pet care division, P&G’s Pringles potato chips achieved a 10 percent share of the global market share before being divested. The pet care segment’s Lams and Eukanuba brands have helped capture an approximate 10 percent market share, with the majority of the business being in North America.
GBU #3—Household Care P&G’s family care and home care brands, including Ace, Ariel, Dawn, Downy, Duracell, gain, and tide, achieved net sales of $23.8 billion in 2010. The fabric care product lines include laundry detergents, fabric enhancers, and home care products/batteries. The division has a 30 percent global share. However, the global home care market share is about 15 percent across the categories, and the Duracell battery brand yields about a 25 percent global market share for P&G. Some of P&G’s household products, such as alkaline batteries, liquid detergent/cleaners, bleach, diapers, and paper towels, incurred declining sales during the 4th quarter of 2010, with bleach revenues dropping 11.3 percent and battery revenues dropping 7 percent.
P&G has a Baby care and Family care division. the baby care business, which consists of diapers and baby wipes, has about 35 percent of the global market share, making P&G either the number one or two manufacturer of baby care products globally. Pampers is the company’s most successful brand ever and achieved net sales of approximately $9 billion in 2010. P&G’s family care business includes Bounty paper towels and Charmin toilet paper, which generate about 45 percent and 25 percent of the U.S. market share respectively.
Global Operations
P&G’s does business in North America, Western Europe, central and Eastern Europe/Middle east/Africa (CEEMEA), Latin America, and Asia, which consists of Japan, china, and ASEAN/ Australia/India/Korea (AAIK). P&G products are sold in approximately 180 different countries around the globe.
Olay is a big success in Mexico with an 8 percent market share of the facial moisturizing market. Latin America and the Middle East & Africa comprise the smallest portion of P&G’s global business, but Asia as a primary target for growth, with the continent being home to some of the fastest-growing economies in the world. Over three billion consumers populate Asia, representing more than half of the world’s population. During the last decade, P&G has more than doubled the number of brands in its Asian portfolio (from 10 to 22).
P&G has sold products in Latin America for approximately 60 years. P&G is one of the largest consumer goods companies in the region, across 14 countries with 19 manufacturing sites, 12 distribution centers, and one service site. The largest markets are Mexico, Brazil, Venezuela, and Argentina.
North America is the largest division (sales) of P&G. in Western Europe, P&G markets over 100 brands, dating back to 1930 in the United Kingdom. As of 2011, P&G products are marketed in every Western European country, which together account for about 25 percent of total company sales. P&G has about 35 manufacturing plants in Western Europe.
Competitors
Johnson & Johnson (J&J), Colgate-Palmolive, Kimberly-Clark, Unilever, and Clorox are major competitors to P&G in the personal products industry. Note J&J’s net income was $13.2 billion compared to P&G’s $10.9 billion. J&J employs approximately 114,000 associates worldwide, operating in over 60 countries with three business segments: 1) consumer; 2) medical devices and diagnostics; and 3) pharmaceutical. J&J had $61.5 billion in revenues in fiscal 2010, but its consumer division is the one that primarily competes with P&G. Particular products include J&J baby shampoo, Liquid Neutrogena, Band-Aid and Tylenol Aspirin. J&J utilizes more than 29,000 internet domains, such as KY.com and JJ.com. J&J has an impressive history with 27 consecutive years’ adjusted earnings growth and 48 consecutive years of dividend increases. Similar to P&G, J&J continues to introduce new products in the market, but during fiscal year 2010, J&J encountered two major recalls.
Colgate-Palmolive
Colgate-Palmolive is a global manufacturer and marketer of oral care personal care, home care, and pet nutrition products. the company markets its products in over 200 countries under the brands Colgate, Palmolive, Mennen, Soft soap, Irish Spring, PROTEX, SORRISO, KOLYNOS, ELMEX, Tom’s of Maine, Ajax, Axion, Soupline, Suavitel, and Hill’s Science Diet and Hill’s Prescription Diet. Founded in 1806 and headquartered in New York City, the company achieved net income of $2.2 in fiscal 2010. the company operates 280 international facilities, of which 76 are owned in various countries, such as Australia, Brazil, china, Colombia, France, Guatemala, Italy, Mexico, Poland, South Africa, Thailand, and Venezuela. While the company has been exponentially phasing out and closing select production facilities since 2004, it has also built state-of-the-art plants that manufacture toothpaste in the United States and Poland. The company employs approximately 36,000 employees globally.
Kimberly-Clark
Kimberly-Clark was founded in 1872 and operates four business segments: 1) Personal care, 2) consumer tissue, 3) K-c Professional & Other, and 4) Health care. The Personal care division manufactures and markets products such as disposable diapers, baby wipes, and feminine and incontinence care products under such brand names as Huggies, Pull-Ups, Little Swimmers, Goodnites, Kotex, Light days, Depend, and Poise.
The consumer tissue division manufactures and markets products such as facial and bathroom tissue, paper towels, and napkins. Products in this division are marketed as Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, and Page. The K-C Professional & Other division markets such products as facial and bathroom tissue, paper towels, napkins, and wipes sold under the brands Kimberly-Clark, Kleenex, Scott, Wypall, Kimtech, Kleenguard, Kimcare, and Jackson.
Health care segment markets disposable health care products such as surgical drapes and gowns, infection control products, face masks, exam gloves, respiratory products, and pain management products under Kimberly-Clark, Ballard, and On-Q brands. The company has 56,000 employees and 27 facilities in the United States, one in Canada, 20 in Europe, and 64 in Asia, Latin America, and other countries, with many of the facilities producing multiple production items/products (synergy). The company achieved $19.7 billion in total revenues in 2010.
Unilever
Unilever is a privately-held British corporation headquartered in London that markets more than 400 brands, such as Lipton tea, Dove, and Aviance. However, the company’s main focus is on what are called "billion-dollar brands,” which are 12 brands achieving annual sales in excess of €1 billion. Unilever’s top 25 brands account for more than 70 percent of sales. They are categorized into food and beverage, home, and personal care divisions. The company achieved net profits of €4,597 in 2010, up from €3,659 in 2009.
Unilever’s Asia Pacific segment yielded double-digit volume growth in 2010, with strong performance in Vietnam, the Philippines, Pakistan, and china. The competitive market existing in India yielded a double-digit volume growth for Unilever. The company experienced weaker market conditions in central and Eastern Europe. Increases of volume growth were achieved as a result of growth in Latin America and performances in North America. In particular, North America achieved a 3 percent volume growth, while Latin America’s growth increased above 4 percent, with the assistance of increased pricing.
Unilever directly competes with P&G’s personal and home care segments. The company witnessed strong sales in deodorants due in part to strong sales by brands such as Dove Men+care and Rexona. Its home care segment’s laundry products have had strong volume growth in India, due in part to the relaunching of Rin and Wheel laundry detergents. In order to shrink the market share gap in china, the company launched Omo liquids, which achieved double-digit growth.
Clorox
Clorox manufacturers and markets consumer products under such brands as its namesake bleach and cleaning products, green Works natural home care products, Pine-Sol cleaners, Poett home care products, Fresh Step cat litter, Kingsford charcoal, Hidden Valley and K c Masterpiece dressings and sauces, Brita water-filtration products, glad bags and wraps and containers, and Burt’s Bees natural personal care products. Founded in 1980 and employing approximately 8,300 employees globally, Clorox achieved revenues of $5.2 billion in fiscal 2010. Clorox manufactures products in over 24 countries and markets them in 100 different countries around the world.
Clorox operates in four respective segments: international, cleaning, household, and lifestyle. International sales constituted 21 percent of sales. The household segment achieved 32 percent of sales in 2010, followed by cleaning with 31 percent, and lifestyle with 17 percent. A sample of the company’s products and brands sold under such categories as home care products include Pine-sol, Tilex, 404, and Liquid Plumr, which constituted 17 percent of sales. Charcoal achieved 11 percent of sales, with such brands as Match Light and Kingsford. The glad brand produced 13 percent of net sales, while laundry-related Clorox produced 11 percent, and the company’s dressings and sauces, such as Hidden Valley and Masterpiece, achieved 9 percent of net sales, among other brands/products represented within the company’s business segments.
Retailers, such as giant Wal-Mart, continue to place heavier emphasis on their own brands. High unemployment rates across the country have caused manufacturers to place greater emphasis on “value-priced” products, such as P&G’s tide Basic, Charmin Basic, Bounty Basic, and Papers Basic. Church & Dwight Company offer their own “value” products, such as arm & Hammer laundry detergent and Xtra laundry detergent. P&G holds 60.2 percent of the laundry detergent market share and 40.4 percent of the toothpaste share, compared to Colgate-Palmolive’s 29.7 percent share of the toothpaste market. Disposable diapers market share is led by P&G with 48.2 percent and Kimberly-Clark with 34.2 percent. However, sales of private-label brands rose 13.5 percent, while private-label market share increased to 16.8 percent in 2010. In deodorants, P&G holds a 35.5 percent share, Unilever’s share is 28.7 percent, and Colgate-Palmolive’s share is 10.5 percent. P&G holds a leading 37.3 percent of the shampoo market share, followed by L’Oréal’s 13.1 percent. Koch industries leads in the toilet tissue market share with 26.7 percent, followed by Kimberly-Clark’s 25.1 percent and P&G’s 24.1 percent. Industry analysts believe continued new product development will be the key to increasing market share/sales.
The Future
Company reports have indicated volume growth opportunities exist across the business landscape, but industry reports suggest consumers are more cash-strapped than before. Given the varying political and economic conditions globally, as well as the recent stock market crash, it is going to be a tough road ahead.
Abridged version of the case written by Alen Badal of the Union Institute. Source: Fred R. David, Forest R. David, Strategic Management Concepts and Cases, 15th edition, Pearson publishing.
GENERAL INSTRUCTIONS
Your work will be graded on the following aspects:
- This is an individual Assignment.
- The assignment MUST be submitted on-line (through MOVE) on or before the due date.
- Your assignment shall reflect the depth and breadth of your original analyses clearly and coherently.
- Use of the relevant academic literature to support ideas and issues discussed. The range of academic sources such as texts and journals to support your arguments and comments.
- This carries a weighting of 40% towards the final module grade.
- This assignment follows an essay format and must be original and creative. An analytical piece of work is required. The use of ‘cut and paste’ approach will be penalized. It must be presented in a structured manner, with appropriate cover page, content page, introduction, body (with appropriate heading / sub-headings), conclusion, references, page numbered and any required appendices.
- The cover page should be attached with the assignment and uploaded through MOVE (on-line). Name of the student, The Programme, Module Title, Assignment Title and number of words must be reflected on the cover sheet.
- All assignments must adhere strictly to the deadlines specified by Majan University College. Failure to hand in the assignment for any reason and without prior approval and a valid written extension from the module tutor will not be marked and will be awarded a grade G (0) irrespective of the quality of the work. See Student Handbook, section 4.3, page 17. Available on MOVE
- Unacknowledged use of work of others (plagiarism) is regarded as a dishonest practice and will be penalized. See Student Handbook, section 5.7, pages 30-31. Available on MOVE
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