SM Project Report - P&G

P&G

Procter & GambleTouching Lives, Improving Life.

PROJECT REPORT

for

STRATEGIC MANAGEMENT

P&G Touching Lives, Improving Life 2

Table of Contents

Title Page no.

1. Introduction………………………………………………………………...…….…..3

1.1. Foundation………………………………………………………………….

…....3

1.2. Purpose………………………………………………………………...

………...3 Values…………………………………………………………………...

…….….4

1.3.

Principles…………………………………………………………………………5

2. Five Forces Model…………………………………………………………..………..7

2.1. Industry Rivalry…………………………………………………………..….

…..8

2.2. Threat of New entrants…………………………………………………..

…........8

2.3. Threat of Substitute Products…………………………………………..

………...9

2.4. Bargaining Power of

Buyers…………………………………………….............10

2.5. Bargaining Power of Suppliers

……………………………………………........10

3. Core Competencies………………………………………………………………......12

4. Rule of Three…………………………………………………………………………15

4.1.

Gillette…………………………………………………………………………...16

4.2. Head &

Shoulders…………………………………………………………….....17

4.3. Detergents………………………………………………………………..

………18

5. BCG Matrix…………………………………………………………………………..19

6. IO Model for Head & Shoulders…………………………………………...……......20

7. Financials………………………………………………………………………….…21


7.1. Quarterly Results in Brief…………………………………………………….

…22

7.2. Half Yearly

Results……………………………………………………………...23

7.3. Annual

Results…………………………………………………………………..24

8. References……………………………………………………………………………25


1. Introduction

P&G is one of the largest and amongst the fastest growing consumer goods companies in India. Established in 1989, P&G India serves over 650 million. Its presence pans across the Beauty & Grooming segment, the Household care segment as well as Health & Well Being segment, with trusted brands that are household names across India. These include Vicks, Ariel, Tide, Whisper, Olay, Gillette, Ambipur, Pampers, Pantene, Oral-B, Head & Shoulders, Wella and Duracell. P&G India is committed to sustainable growth in India, and is currently invested in the country via its five plants and over nine contract manufacturing sites, as well as 26,000 jobs it creates directly and indirectly. P&G’s sustainability efforts focus on Environmental protection as well as Social Responsibility to help develop the communities the company operates in.

1.1 Foundation:

Taken together, the Purpose, Values and Principles lay the foundation for P&G’s unique culture. Throughout the history of 170 years, the business has grown and changed but these elements have endured.

The companies Purpose unify them in a common cause and growth strategy of improving consumers’ lives in small but meaningful ways in each day.

Their Values reflect behaviours that shape the tone of how they work with each other and with their partners.

Principles articulate P&G’s unique approach to conducting work every day.

1.2 P&G’s Purpose:

P&G brands and P&G people are the foundation of P&G’s success.

P&G people bring values to the life as they focus on improving the lives of the world’s consumers.


1.3 Values:

1. Integrity – P&G Always try to do the right thing. Honest and straight forward with each other. Operate within the letter and spirit of law. Uphold the values and principles of P&G in every action and decision. Data-based and intellectually honest in advocating proposals, including recognising

risks.

Fig 1.1 P&G Values

2. Leadership Leaders in area of responsibility, with a deep commitment to delivering leadership

results. Clear vision of where we are going. Focus on resources to achieve leadership objectives and strategies. Develop the capability to deliver strategies and eliminate organizational barriers.

3. Ownership Accept personal accountability to meet business needs, improve systems and help

others improve their effectiveness. Act like owners, treating the Company’s assets as own and behaving with the

Company’s long-term success in mind.

4. Passion for winning Determined to be the best at doing what matters most. Have a healthy dissatisfaction with the status quo. Have a compelling desire to improve and to win in the marketplace.


1.4 Principles:

1. Show Respect for All individuals Believe that all individuals can and want to contribute to their fullest potential. Value differences. Inspire and enable people to achieve high expectations, standards and challenging

goals. Honest with people about their performance.

2. The Interests of the Company and Individual are Inseparable Believe that doing what is right for the business with integrity will lead to mutual

success for both the Company and the individual. Company’squest for mutual success ties them together.

Encourage stock ownership and ownership behaviour.

3. Strategically Focused in Work Operate against clearly articulated and aligned objectives and strategies. Only do work and only ask for work that adds value to the business. Simplify, standardize and streamline current work whenever possible.

4. Innovation is the cornerstone of the company’s success Place great value on big, new consumer innovations. Challenge convention and reinvent the way to do business to better win in the

marketplace.

5. Value Personal Mastery Believe it is the responsibility of all individuals to continually develop themselves and

others. Encourage and expect outstanding technical mastery and executional excellence.

6. Seek to be the Best Strive to be the best in all areas of strategic importance to the Company. Benchmark our performance rigorously versus the very best internally and externally. Learn from both successes and failures.

7. Externally Focused Develop superior understanding of consumers and their needs. Create and deliver products, packaging and concepts that build winning brand

equities. Develop close, mutually productive relationships with customers and suppliers. Be good corporate citizens. Incorporate sustainability into products, packaging and operations.


8. Mutual Interdependency is a Way of Life Work together with confidence and trust across business units, functions, categories

and geographies. Take pride in results from reapplying others’ ideas. Build superior relationships with all the parties who contribute to fulfilling Corporate

Purpose, including customers and suppliers, universities and governments.


2. Five Forces Model

In every industry, there is a model that can be used to identify the strategy, profitability, and power of particular companies. This model is called the five forces model. This gives an analysis of companies for competing and personal uses. The five forces model consists of two major parts. The first part of the model consists of rivalry among existing firms, threat of new entrants, and threat of substitute products. This part measures how much actual and potential competition there is. The second major part is between the bargaining power of buyers and the bargaining power of suppliers. These two measure the power a company has or does

not have over the buyers and suppliers. In using this model, we will be able to identify these valuable parts of Procter & Gamble.

fig 2.1 (5 Force Model for P&G)

Personal Products IndustryRivalry Among Existing Firms HighThreat of New Entrants LowThreat of Substitute Products Moderate


Bargaining Power of Buyers ModerateBargaining Power of Suppliers Low

2.1 Industry Growth

The growth in this industry has been moving up on a yearly average. Gamble’s purchase of Gillette in 2006 sales grew by 20.23 percent. This is a 9.85 percent increase from the 2005 sales growth of 10.37 percent.

Concentration There is a high amount of concentration in this industry. All of the companies in the personal products industry have to compete on price. Since most of these goods are not commodities, it allows them to compete less on the price. Also need to focus less on quality and more on price reduction when looking at non-brand specific products.

Differentiation and Switching CostsMany of the products offered in the personal products industry are of the same quality and price, meaning that switching costs are relatively low. For a company to be successful, it must differentiate its products from its competitor’s products.

Exit BarriersWhen a firm’s operating costs exceed revenue for a long enough period, the firm may go out of business. In certain industries, barriers may make exiting the market difficult and often they are forced to stay in business. Contract cancellation costs with suppliers, asset write-off expenses, or regulations that must be followed are all costly exit barriers. One large potential barrier to exit for the personal products industry is the expense of writing-off assets. Much of the equipment is highly specialized chemical processing equipment which may be difficult to sell or remove. The costs associated may be more than the company wants to put on its balance sheet.

ConclusionWith a high industry concentration, relatively low switching costs, large economies of scale benefits, and possible high exit costs, rivalry among existing firms in the personal products industry tends to be high.

2.2 Threat of New Entrants

The personal products market is a relatively difficult market to penetrate due to the high degree of concentration. A highly concentrated market makes it difficult for new entrants to succeed because there are only a few major companies in the industry that are very competitive.

Economies of Scale and First Mover Advantage A firm’s economy of scale can also give them a competitive advantage over new entrants. The ability to increase production can drive down input costs, giving you economies of scale. Increasing production is something that can only be done if your firm is large enough to do


so. A firm must have large amounts of assets to be able to produce goods on a larger scale, making it hard for new entrants to compete with production costs and price.


Distribution Access and RelationshipsAccess to existing distribution channels can be a substantial barrier that new entrants would have to face in order to enter the industry. Supermarkets and other retail stores have a limited amount of shelf space available for consumer goods. This shelf space is usually used up by the big firms that have existing relationships with the customer, making it difficult for new entrants to obtain the required room for their products.

Legal BarriersLegal barriers can also make it hard to enter the personal products industry. A new entrant has many regulations, laws, patents, and copyrights that they have to abide by when they are entering into an industry. The personal products industry is very research-intensive. This produces many patented products that cannot be copied by newcomers.

ConclusionThere are many different barriers in the personal products industry that a new entrant would have to overcome to enter. The large companies have a huge competitive advantage over new entrants that leave new entrants with little success in gaining any market share. With established economies of scale, access to distribution, relationships, and legal barriers in the favour of existing firms in the industry, a new entrant would little success in competing. This almost eliminates the threat of a new entrant in the personal products industry.

2.3 Threat of Substitute Products

The threat of substitute products is the customer’s (retail stores) willingness to switch to a different product that is similar to yours. In the personal products market, the threat of substitute products is always present. There are always substitutes available for every different kind of product in the personal products industry, creating a mild threat of substitute products. However, there are some factors in considering a product to be a substitute. The relative price and performance of the substitute product must be close to the original product to be considered as a substitute. In addition, customers’ willingness to switch is a factor in considering a substitute for a product.

Relative Price and PerformanceIn the personal products industry, price is usually perceived as value. Many of the name brand items, like Tide laundry detergent, Crest toothpaste, and Bounty paper towels are often at a higher price than a generic brand of the same items would be. This is because customers believe these name brands have more value than a lesser known brand, allowing them to pay a premium on these items.

Buyers’ Willingness to Switch Buyers’ willingness to switch is a critical part of the threat of substitute products. In the personal products market, the buyers’ willingness to switch is usually low. A buyer (retail store) of personal products usually has good relationships with their suppliers, making them partial to their products.

ConclusionSubstitute products in the personal products industry are readily available by much smaller and different firms, but due to brand name recognition and developed relationships, it is not likely that a buyer will switch products. The added benefit, due to the higher price, is usually


enough to keep customers happy with the brand name products. Therefore, the threat of substitute products in the personal products market is low, due to the high concentration of the industry.

2.4 Bargaining power of Buyers

“Bargaining power is the ability to influence the setting of prices”. It is based on the relationship between the firm and the buyer. The main question in this part of the five factor model is “who has the power over whom?” In this case, the retailers are the buyers and Procter & Gamble is the firm.

Switching costsThe cost of these customers switching from Procter & Gamble to Johnson & Johnson would be low in certain products. This is because most of these products on the shelf are close to the same price

DifferentiationThere is a lot of differentiation when comparing Procter & Gamble products and the products of other competitors in the industry. According to their 10k, Procter & Gamble has narrowed their range to three different subjects; these subjects are beauty, household care, and health and well-being. All of these areas have been differentiated accordingly. Johnson & Johnson is very similar in the way that they have a lot of brand power and quality in their products.

Price SensitivityProcter & Gamble is very differentiated, and because of this, it has to be less price sensitive.

Importance of Product for Costs and Quality In the personal products industry, it is very important to have brand power and quality. If one is lacking it will be very difficult to start a new company and compete with others. All of the top companies in the personal products industry are greatly helped by already having the best brand names. These companies have more bargaining power with customers because their superior products demand a premium price.

2.5 Bargaining Power of Suppliers

“Our suppliers are valued partners in the success of our business. Our relationships with them must be characterized by honesty and fairness. Suppliers are selected on a competitive basis based on total value, which includes quality, service, technology, and price” (Sustainability guidelines for Supplier Relations, 2007 P&G 10-K). Bargaining power of suppliers involves the relationship between the firm and the suppliers. When there are fewer companies, the supplier is able to have more control over a firm in this industry. Procter & Gamble has many sustainability guidelines that must be followed in order to be involved with their suppliers. Some of these guidelines are legal compliance, human rights, employment practices, forced labour, and child labour. Most of the companies in this industry have guidelines like these because they are ethical companies who want to do the right thing. “Supplier diversity is a fundamental business strategy at P&G. Since Procter & Gamble has this option, this allows them to be more diversified. This also allows them to have some power over their suppliers.


If one of the suppliers is trying to raise prices, they can just go to another. A great portion of a company’s success in this industry depends on brand name. These suppliers know this, which leaves them with some power. Suppliers have to provide good materials for people to see the quality. There are a few companies in this industry that can manage and compromise with suppliers like Procter & Gamble. Because of their large size and name, these companies are not only able to get whom they want, but they can also control prices. This is a big plus for these companies in this industry.


3. Core Competencies

A core competency is a unique ability that a company acquires from its founders or develops and that cannot be easily imitated. Core competencies are what give a company one or more competitive advantages, in creating anddelivering value to its customers in its chosen.

P&G focuses on five core strengths required to win in the consumer products industry:

Consumer Understanding

No company in the world has invested more in market research than P&G. They interact with more than five million consumers each year in nearly 100 countries. Conduct over 20,000 research studies every year, and invest more than $400 million annually in consumer understanding. The insights we gain help us identify opportunities for innovation and better serve and communicate with our consumers.

Consumer Understanding

uncovers unarituculated

need of consumes.

InnovationTranslates

consumer desires into new products

Brand Building

Shapes purposes-inspired benefit-driven brands.

Go-To- Market

CapabilitiesReaches Retailers and consumers at the right place and

time.

ScaleDrives effeciency

and consumer value


Innovation

P&G is widely recognized as the industry’s global innovation leader. Nearly all organic sales growth over the past decade has come from new brands or improved products. P&G collaborates with a global network of research partners, and more than half of all product innovation coming from P&G today includes at least one major component from an external partner. Their contributions have consistently helped the company earn honours from the SymphonyIRI New Product Pacesetters Report—the annual list of the biggest innovations in our industry. Over the past 16 years, P&G has had 132 products on the top 25 Pacesetters list—more than six largest competitors combined. P&G earned 5th place among Fortune’s 2011 list of the World’s Most Admired Companies. And as of April 2011, P&G has won 22 “Product of the Year” recognitions, as voted on by consumers in the US, UK, France, Holland, Italy, Spain, and South Africa.

Brand-Building

P&G is the brand-building leader of the industry. P&G has built the strongest portfolio of brands in the industry with 50 leadership brands that are among some of the world’s best-known household names–and which together make up 90% of P&G’s sales and more than 90% of profits. Twenty-four of these brands each generate more than $1 billion dollars in annual sales.

Go-to-Market Capabilities

P&G has established industry-leading go-to-market capabilities. P&G is consistently ranked by leading retailers in industry surveys as a preferred supplier. They are also frequently ranked as the industry leader in a wide range of capabilities, including clearest company strategy, brands most important to retailers, strong business fundamentals and innovative marketing programs.

Scale

P&G is creating scale advantage by integrating across our enterprise, consistently acting as one Company across other businesses and markets. By harnessing the strength of the company’s brands and categories as one Company, they can better serve more consumers around the globe. With all of the brands, businesses, and people working in unison, they create scale advantages by allocating resources more strategically and efficiently than any individual business can do on its own. This combination is greater than the sum of its parts—and we are focused on maximizing its potential.

Our Conjecture of P&G Core Competencies:

While P&G is clearly known as a marketing/branding/advertising company, it has other core talents as well. The primary core is the people. Great care and effort is expended in identifying and recruiting top candidates in all functions. Then, strong training and development programs are put in place for all, since the company is a promote from within and the future of the company rests heavily on the new hires. They state that people are their most valuable asset and they mean it.

The second core competency is in research and development. The company has “overspent”


in this area for decades. In fact, at one time, there were more PhDs per square foot in the R&D labs than at any other place in the world.

P&G also believes that their People are the Magic of their organization. They attract, empower, develop and reward a diverse organization of people who excel at New Business work. PG foster an environment of collaboration and entrepreneurial spirit, characterized by scarcity, curiosity, humility, and accountability.

The combination of these elements results in a core competency of bringing superior products to market. Superior is defined as not only breakthrough, but also better meeting customer needs. Breakthrough products include the first shortening (Crisco), the first detergent (Oxydol/Tide), the first workable disposable diaper (Pampers) and many more. The company has been and remains the premier consumer packaged goods company as a result.

P&G leverages their core competencies in innovation, consumer understanding, go-to-market strength, scale, marketing, and brand-building to facilitate rapid prototyping and decision making.


4. Rule of Three

4.1 Gillette

Gillette is the brand of P&G which targets on Premium Sector and upper middle sector.

Market Share is as follows:

According to MotilalOswal Securities Ltd. the market share of Gillette is 40% while its nearest competitor the House of Malhotras is14%.The second major competitor to Gillette is VidyutMetallics (Supermax) whose market share is 6%.

So rule of three has not established in this Industry, as there only two players in industry having market share more than 10%. In this industry Gillette is a generalist with 40% market share. Gillette is the market leader in this sector.

To maintain market leader position Gillette reduced the price of Mach3 razor which increase the market share.

To maintain the position of market leader and to increase the market share Gillette targets different segment.

o Eg. Gillette introduced Mach3 for middle segment which price was60%

lower than Mach3 Turbo (targets on upper middle class and premium segment)

o This innovation gave rise in sales by 21%.

Gillette Market Share

Gillette : 40%House of Malhotras :14%Vidyut Metallics :6%others :40%


4.2 Head & Shoulders

Shampoo Industry in India as follows:

The top 3 companies with their market share is as follows: HUL with market share 44%. P&G with market share 25% Cavinkare with market share 18 %(data is according to Nielsen’s 2011 report). So Rule of Three has already established in shampoo industry. HUL is market leader in shampoo industry, but its market share has declined in 2-

3 years. According to report P&G (Head&Shoulders & Pantene) market share has

increased with respect to that of 2-3 years back. In India most of the population lies in rural area, so to make present in that

segment P&G launch shampoo in small sachets of Rs.1 to 3 While other companies are more focusing on Cosmetic segment (strengthening ,

shining) P&G is focus Anti-dandruff segment. To increase market share P&G focus on generating awareness. It is doing heavy

advertising to generate awareness. Head & Shoulder uses celebrity (Saif Ali Khan and KareenaKapoor) and dermatologist to influence the people.

Head & Shoulders Market Share

HUL : 44%P&G : 25%Cavinkare :18%Dabur: 7%Others : 6%


4.3 Detergent Industry The market share of different companies in detergent industry are as follows

( This data 2010):

Detergent Market Share

HUL : 37%Nirma : 15%Ghadi : 13%P&G : 08%Others: 27%

According to market share top 3 companies in detergent markets are HUL (37%), Nirma (15%), Ghadi (13%) whereas P&G has market share 8%.

Ariel Ultramatic, Ariel spring clean are premium price detergents whereas Tide is mid-price detergent.

To increase volume and thus market share P&G launched Tide in mid-2000 which was targeting middle segment. But as Tide and Ariel targets more or less similar segments, it did not increase the market share of P&G. In addition to that as price war increased in detergent industry the market share of P&G remained same.

To increase market share P&G should consider rural market,as presence of P&G in rural market is less. It should invest more in R&D for market analysis as well as Product development as no of products offered by P&G is less when compare to HUL.


5. BCG Matrix

Index:

1) Head and shoulders2) Gillette3) Ariel4) Ambipur

1. Head & Shoulders Total market for shampoo in India Rs 2500 - Rs 3000 corers Market share held by P&G Head and Shoulders in India approximately 30% Revenue to the company by shampoo segment Rs 87 crores in 2011 The market for the shampoo industry is big as mentioned above and P&G hold abot

30% share in the market. It has got better opportunity to expand its market share. The revenue has increased by 24% from this sector


2. Gillette Gillette can be place in between question mark and star. EBIT 34% (year 2010) EBIT 37% (year 2011) the percentage growth has increased but the market growth

figures are not in favour of Gillette. It’s declining over the period of years. Company has to pay to pay due attention to the marketing strategy to be adopted as it can lead to market creation or break the market for Gillette.

3. Ariel Revenue RS 1200 crores Ariel can be placed in star quadrant whear the the market growth is high and market

share is also high. Ariel market share is increasing at 20-30% every year as compared to its competitors. Again market opportunity still exists for increase in the revenue

4. Ambipur AmbiPur was bought by P&G from Godrej company in 2009 Current AmbiPur has market presence in 80 countries Overall sales of AmbiPur in 80 countries is about $260 million Good growth opportunity but relatively less market share brings AmbiPur in question

mark quadrant

NOTE: THIS DATA IS COLLECTED FROM COMPANY’S WEBSITE AS WELL AS FROM OTHER SOURCES SO IT MAY DIFFER FROM THE ACTUAL FIGURES. IT’S AN ROUGH ESTIMATE FOR PROJECT PURPOSE ONLY.


6. I/O Modelfor Head & Shoulders

The external environment-the general, industry and competitive environments imposes pressures and constraints on companies and determines strategies that will result in superior returns.In other words, the external environment pressures the company to adopt strategies to meet that pressure while simultaneously constraining or limiting the scope of strategies that might be appropriate and eventually successful.

External environment

Increasing number of middle class people. The Rs. 3,000-crore branded shampoos sector in India. When H & S entered the Indian markets it was only HUL that dominated the market.

Competition was less.

An Attractive Industry

H&S concentrated on anti dandruff segment which was not explored and also smooth hair.

It was successful in its attempt by acquiring 17% of the market share.

StrategyFormulation

It targeted the higher middle class and middle class people who care about the health of their hair.

It took the help of an element called ZPT to differentiate itself

Assets and Skills

P&Gisaninternationalcompany which brought in updated technology for the production of various shampoos under H&S.

It is the skilled personnel of the company that lead to the success of the company.

Strategic Implementation

H&S saw to it that their strategies were implemented effectively. That is why the company was able to acquire 17% of the market share within 15years

in India.

Superior Returns

H&S’s contribution to the revenues of P&G id 87 crores. P&G has seen a increase in the market share in the recent years.


7. References

1. Official Website:

www.pg.com/en_IN/

2. Research from renowned Accountant Mark E.

Moore:www.mmoore.ba.ttu.edu/ValuationReports/Fall2007/ProcterGamble.pdf

3. Annual Financial Reports:

www.pg.com/fr_FR/annual_reports/PG_2010_AnnualReport.pdf

4. A Sylloge Corps Presentation on P&G’sIndian Marketing Strategy:

www.slideshare.net/SyllogeCorps/pg-india-marketing-strategy

5. P&G Page on Corporate Watch:

http://www.corporatewatch.org/?lid=247

http://www.pg.com/en_IN/


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SM Project Report - P&G