The Procter & Gamble Company (P&G)

One of the biggest firms in the fast-moving consumer goods sector worldwide is The Procter & Gamble Company (P&G). Products for beauty, health, textiles, home, baby, feminine, family, and personal care are available from the company. Oral-B, Pampers, Ariel, Gillette, Fusion, Vicks, and Bounty are a few of the well-known brands. Pharmacies, high-frequency retailers, beauty salons, drugstores, grocery stores, membership-club retailers, and online shopping sites all carry P&G items. The corporation has operations in the Americas, Europe, the Middle East, Asia Pacific, and Africa. The corporate headquarters of Procter & Gamble are in Cincinnati, Ohio (The Procter & Gamble Company SWOT Analysis, 2017). The purpose of this study is to give comprehensive insights about the company and its operations in the current business environment.

Segments of Operation in the General Environment

The two segments that would rank highest and have an influence on P&G are the stringent laws and regulations governing the industry and technology. The Procter & Gamble Company SWOT Analysis (2017) report acknowledges that P&G operates in more than 35 countries and generates a significant amount of revenues internationally. However, the company is vulnerable to risks of non-compliance with laws and regulations involving product liability, intellectual property, privacy, antitrust, marketing, employment, anti-bribery, and environmental issues. Failure to comply with the laws leads to fines and penalties that significantly increase the company’s cost structure limiting its ability to invest in growth opportunities

Technology is also another factor that affects the cost of operation for the consumer goods companies. Thain & Bradley (2014) assert that advanced technology lowers the cost of operation and enhances the quality of goods produced, which can be sold at consumer-friendly prices. Poor technology raises the cost of operation and this eventually increases the price of goods sold. Additionally, technology is effective in marketing so organizations in this sector should embrace it to operate effectively.

The Two significant Forces of Competition for P&G

The two significant forces are the “competitive rivalry” and the “threat of new entrants.” According to Cummings & Worley (2015), competition in the FMCG industry is high due to the large number of companies operating in the industry, diverse varieties of firms in the sector, and low switching costs. Therefore, P&G needs to compete against such firms for it to stay relevant and retain and enhance its overall market share. Thain & Bradley (2014) opine that competition is further intensified by the low product switching costs. Customers can easily choose another product and this has a negative consequence on P&G brands. As a consequence, customers do not get the ultimate experience about the effectiveness of a particular product and this contributes to a reduction in the market share.

Telofski (2012) asserts that P&G can counter competition by enhancing the quality of its products, intensifying marketing, and embracing customer-centered innovation. Quality is a component that will ensure sustainability of products in the market. Additionally, the company can invest adequate resources in marketing programs. Marketing is an effective tool for creating awareness and attracting a new set of clients, which enhances retention and augments the market share. Innovation means the creation of new and unique goods for customers. Innovation is highly dependent on customer needs so, the company should focus on understanding consumer demands and respond effectively.

Threat of new entrants is also a factor that affects P&G’s overall performance. Low switching costs, moderate capital costs, average economies of scale are some of the factors that catalyze the massive entry of new players into the industry (Thain & Bradley, 2014). Consumers can easily switch to other brands due to low switching costs so this factor exerts extreme pressure P&G. Nevertheless, the company’s large size with a significant capital structure gives it the power to withstand intense competition. In addition, the moderate economies of scale edge the easier entry into the industry since new entrants cannot match the company’s strengths on a local and global scale.

According to Saxena (2009) P&G can make entry less appealing by focusing on enhancing the efficiency and effectiveness of its products. Better products contribute to the company’s goodwill and this means consumer trust. Further, the company should control product prices to retain consumer loyalty. This will create brand loyalty and customers will still purchase the product even in times of economic slowdowns. Consumers will still prefer quality over price even in times of recessions when they know they are getting value for their money.

What P&G Co. Might do to address the Forces in Future

In order to address competitive rivalry, P&G can consider acquisitions. The company can acquire smaller companies to increase its market share, enhance the product line and broaden its global supply chain (Frankel & Forman, 2017).

Threat of new entrants can be countered through the manufacture of high quality-low priced commodities that customers can easily afford under poor economic times. Furthermore, the firm should strive to meet consumer demands at all times in order to create goodwill (Saxena, 2009).

External Analysis of P&G

External Threats Affecting P&G and Ways of Dealing with Them

Counterfeit Goods are hurting the Organization. Counterfeit goods are impeding the growth of FMCG industry. The global spread of such goods has become rampant and companies such as P&G have greatly been affected. Increased use of the internet, extensive supply chain, and global recession that compelled customer to go for low cost goods, are some of the factors that contribute to the spread of counterfeit goods. Counterfeits dilute the company’s brand image and also deprive the revenues for the firm (The Procter & Gamble Company SWOT Analysis, 2017). Therefore, P&G can minimize this by creating public awareness on the existence of counterfeit goods and pass-offs and ways of differentiating an original product from a counterfeit.

Intense Competition. P&G faces intense competition from firms like Unilever Inc., Colgate-Palmolive and Avon. For instance, Unilever is a well-known global competitor, which means the organization faces global competition in all its products. Increased competition reduces the company’s market share (The Procter & Gamble Company SWOT Analysis, 2017). Therefore, the firm can counter competition through continuous innovation and ensuring that all needs of its customers are met. Further, the organization can augment its competitiveness by creating high quality products for its consumers.

Opportunities Available to P&G and Ways of Tapping them

Growing Personal and Homecare Markets. This particular section forms the core of the company’s operations. P&G can focus on developing beauty, health, and household care products. The sector is lucrative since the consumer purchasing power for the products has constantly increased. As at 2014, the sector grew by 4.3% to reach a market value of $502.6 billion. The value is expected to reach $625.8 billion by 2019, a 24.5% increase. Conversely, in 2015, the global homecare products market grew by 4.5% to reach $140 billion (The Procter & Gamble Company SWOT Analysis, 2017). The growth in market value is attributed to enhanced disposable incomes and the changing lifestyle. Therefore, P&G can expand its production plant to tap into this attractive market. It can also expand its R&D systems to develop new and unique products that will serve the contemporary market.

Strategic Approaches to Improve Productivity and Lower Costs of Operation. Currently, P&G is considering measures that can be used to reduce costs and improve productivity. For instance, in 2012, the company restructured its operations to improve productivity, reduce costs in areas of supply chain, marketing, and overheads. Reduced costs and enhanced productivity improve the profitability of the company. Furthermore, the company can embrace advanced technology in its production and marketing areas since they are the core contributors to high operation costs (The Procter & Gamble Company SWOT Analysis, 2017). Technology can also boost productivity since it reduces operation errors and marketing initiatives are directed to the right population and this improves the rate of response with the utilization of few resources.

Internal Analysis of P&G

P&G Greatest Strength and Ways of Taking Advantage

Large-Scale Operations. P&G boasts a large scale of operations in terms of revenues and geographic presence. In the FY 2016, the company generated $65,299 million in revenues. In comparison to some of its competitors, the company is leading in the industry. For instance, Avon Products generated $6,160.5 million in the same financial year, which is significantly lower than P&G revenues. Further, P&G covers a broad geographical operation. The company operates in approximately 70 countries globally while its products are sold in more than 180 states in the Americans, EMEA, and Asian countries. In the FY2016, the company generated 44% of its revenues from North America, 23% from Europe, 9% from Asia Pacific, and 8% from China, Latin America and IMEA (The Procter & Gamble Company SWOT Analysis, 2017).

P&G can utilize this particular strengthen its network in emerging markets. The BRIC economies are upcoming economies with increasing disposable household incomes so they can contribute to market growth. Building plants in African countries lowers the production costs due to the availability of low-cost labor and this significantly lowers the cost of operation.

Large investments in R&D. P&G boasts solid R&D systems and significant marketing investments. Innovation and intensive marketing have created a competitive advantage for the firm in the industry. P&G invests approximately $2 billion annually in R&D. Furthermore, as a way of enhancing its R&D efforts, the company interacts with more than 5 million customers yearly in more than 60 countries around the world. P&G conducts more than 14,000 research studies each year and spends more than $350 million on studies designed to enhance consumer understanding (The Procter & Gamble Company SWOT Analysis, 2017). The firm launched the “Connect and Develop” initiative that is focused on creating research partnerships with other external entities for it to improve its research capabilities. As a result, the organization has greatly improved its product line and currently an external partner accounts for at least one primary component in more than half of its products.

P&G’s continuous focus on innovation has created incremental revenue streams, which have contributed to a higher market share. Currently, the firm is a recognized market leader in innovation. In the past two decades, P&G has had 173 products on the top 25 New Product Pacesetters list, more than its six largest competitors combined. In addition, the company backs its innovation by significant marketing investment. For instance, in the FY2016, P&G invested approximately $7.2 billion in advertising. Intensive marketing supports the company’s brands and aids the company remaining competitive in the market (The Procter & Gamble Company SWOT Analysis, 2017).

R&D is not a strength exhibited by many organizations due to the immense resources required to set up such establishments. Therefore, P&G can strengthen this particular area by setting up R&D plants in countries such as India, China, and Africa, where they can access skilled labor at lower costs. Consumer-centered innovation aligns goods with customer demands and this creates a competitive advantage for the company. Thus, customers will have a reason to purchase the company’s commodities and this will eventually raise the firm’s revenues (The Procter & Gamble Company SWOT Analysis, 2017).

P&G Significant Weakness and Ways of Fixing it

P&G depends heavily on few customers. In the FY2016, 2015, and 2014, Wal-Mart Stores accounted for 15% of the firm’s total revenues. The organization’s top 10 customers contributed approximately 35% of the entire sales for the three consecutive financial years. Overdependence on few customers reduces the company’s bargaining power. This means that large customers such as Wal-Mart can use their position to impose unfriendly terms on the firm. Furthermore, any reduction in revenues from these customers can have an adverse effect on the organization’s revenues and profit. Since they rely on them so much, the organization has constantly failed to meet its projected profit (The Procter & Gamble Company SWOT Analysis, 2017).

To fix this particular weakness, P&G needs to intensify its geographical coverage in other nations. Through intensive R&D as stated above, the company can appeal to consumers in other countries thus diversifying the number of customers within its web.

P&G Resources, Capabilities, and Core Competencies

P&G is endowed with solid financial and human resources. The company has adequate financial resources that facilitate its R&D, marketing, and expansion programs. Furthermore, the corporation has well-trained human resources. P&G believes in investing in its human capital through continuous training and development programs. The programs have continuously improved employees’ skills and knowledge thereby improving their productivity (Hitt, Ireland & Hoskisson, 2013).

Research and Development is one of P&G’s primary capabilities. The company invests approximately $2 billion to augment innovation and meet customer demands. Many companies do not have such capabilities so it is the firm’s competitive strategy (Hitt, M., Ireland, R. & Hoskisson, 2013).

The core competencies for P&G include the ability to understand consumer demands, innovation, strong branding, enhanced scale and productivity, and Go-to-Market capabilities (Procter & Gamble, 2017).





P&G Value Chain Analysis

Value Chain Analysis relates the corporation’s activities to the competitive strength of the business. The analysis outlines the best outsourced and the best-undertaken business activities. Activities are grouped under primary and support activities (Gereffi & Fernandez-Stark, 2016). P&G value chain analysis is analyzed in the diagram below.

Support Activities

Infrastructure: Well-established production, marketing, and financial management systems. Use of agent-based modeling saves $300 million for the company annually.

Human Resources: Well trained and dedicated workforce. Presence of an intranet that allows employees to network with experts and learn from projects.

Technology Development: facilities management (IT services, office equipment, and physical plant) MatrixOne, zTelligence, InnovationNet

Procurement: control of the supply chain systems from supplier to consumer.

Primary Activities

Inbound Logistics

P&G procures cost effective materials globally

Powerful industrial network linking suppliers and customers electronically

Operations

4 main business units namely health& beauty, babies, snacks and beverages, fabric, and homecare.

Uses product lifecycle management software for new product development

Use MatrixOne software to automate to bring product to market.

Outbound Logistics

Coordination with its biggest customer Wal-Mart

Ensure effective supply chain processes to JIT replenishments of inventory.

Marketing & Sales

Margin

Wal-Mart being P&G’s biggest customer negotiated unfavorable prices

Meet customer demands

Enhanced innovation

Service

Best customer care services









References

Cummings, T. & Worley, C. (2015). Organization development & change. Stamford, CT: Cengage Learning.

Frankel, M. E., & Forman, L. H. (2017). Mergers and acquisitions basics: the key steps of acquisitions, divestitures, and investments. John Wiley & Sons.

Gereffi, G., & Fernandez-Stark, K. (2016). Global value chain analysis: a primer.

Hitt, M., Ireland, R. & Hoskisson, R. (2013). Strategic management : competitiveness & globalization. Mason, OH: South-Western Cengage Learning.

Procter & Gamble. (2017). Our Core Strengths. Retrieved from, http://us.pg.com/who-we-are/our-approach/core-strengths

Saxena, R. (2009). Marketing management. New Delhi: Tata McGraw-Hill.

Telofski, R. (2012). Living on A Meme: How Anti-Corporate Activists Bend the Truth, and You, To Get What They Want. iUniverse.

Thain, G. & Bradley, J. (2014). FMCG : the power of fast-moving consumer goods. Sarasota, FL: First Edition Design Publishing.

The Procter & Gamble Company SWOT Analysis. (2017). Procter & Gamble SWOT Analysis, 1-8.