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Company Analysis Analytical Essay


The purpose of this company analysis is to discuss the strengths, weaknesses, opportunities, and threats of Procter & Gamble. However, this report concentrates more on Porter’s five forces, resources, and capabilities of P&G, present strategies, and Resource Base View (RBV) model to recommend the company.

Current Strategic Situation:

  • Growth Strategy: Chairman and CEO of P&G Bob McDonald stated that Purpose-inspired growth strategy is beginning to work because this strategy is touching and improving more consumers’ lives in all over the world, for instance, expansion tasks of Ambi Pur with Febreze contract;
  • Operational strategy: Procter &Gamble reported that it would carry out an environmental sustainability program throughout its operations to reduce carbon emission by 20% and it would also focus on water and energy utilization and waste removal from corporate plants;
  • Product development strategy: P&G always interested in introducing new products considering consumer demand and they concentrate more on product innovation, and it has already developed few new brands, such as introduce of the second wave in toothpaste or oral care brand, coverage of Western Europe by Pampers Dry Max and ingredient variation in Pantene and so on. However, Home Care, Fabric Care, Hair Care, and Oral Care are the most successful segments;
1950-2009 Psrc=G Product Strategy Graph

Figure 1: 1950-2009 P&G Product Strategy

Source: Smith (1)

  • Customer Relationship Management: Now, P&G is concentrating more on serving more customers by implementing new CRM policies along with continuous innovation and expansion of brand portfolio upper, vertical or downward value integration;
  • Organizational Chart: It reshaped organizational chart to implement its strategies properly where global business units focus more on global buyers, competitors, and brands, which function as the media of intended innovation, profitability, and ROI by using its efficient and expert employees to deliver the best performances to gain competitive advantage; however, the following figure shows the organizational chart of P&G –
Organizational chart of Psrc=G

Figure 2: Organizational chart of P&G

Source: Procter & Gamble (1)

  • Pricing Strategy: Smith (1) pointed out the view of the CEO and argued that P&G offers low price to introduce new products in the existing market, and the aim of CEO is to increase competition and at the bottom and the decade long stagnation to decline in middle-class income; however, P&G offers only 10% price reduction on average.

2010 Psrc=G Product Strategy Adjustments Graph

Figure 3: 2010 P&G Product Strategy Adjustments

Source: Smith (1)

Resources and capabilities of P&G:

Resources of Psrc=G Scheme

Figure 9: Resources of P&G

Source: Self-generated

  • Financial Resources: According to the annual report, the financial position 2010-11 was outstanding as P&G’s organic sales grew 4%, Organic volume grew 5%, Core earnings per share grew 8%, P&G’s dividend has increased at an annual compound average rate of approximately 9.5%; however, it returned about $7 billion to shareholders through the repurchase of P&G stock. According to the income statement, balance sheet and cash flow statement of P&G, its present key financial variables are –
Key variables 2011 ($ million) 2010 ($ million) 2009 ($ million)
Total Sales Revenue 82,559.0 78,938.0 76,694.0
Gross Profit 41,791.0 41,019.0 38,004.0
Operating costs 25,973.0 24,998.0 22,630.0
Operating Income 15,818.0 16,021.0 15,374.0
Net income (loss) 11,797.0 12,736.0 13,436.0
Total Assets 138,354.0 128,172.0 134,833.0
Total Liabilities 70,714.0 67,057.0 71,734.0
Total Stockholder Equity 68,001.0 61,439.0 63,382.0
Total Cash Flows From Financing Activities (10,023) (17,255) (10,814)

Table 1: – Financial information of P&G

Source: self-generated from Yahoo Finance (1)

  • Organizational resources: Staff of the P&G is one of the significant assets, and it has 127,000 employees according to the annual report 2011 of P&G who worked in inside and outside the US market and the help the company expanding business;
  • Physical resources: – This resource includes constructions, property, equipment, furniture, and so on; however, the following table shows the total amount of property of P&G –
Key variables 2011 ($ million) 2010 ($ million) 2009 ($ million)
Property Plant and Equipment 21,293.0 19,244.0 19,462.0
  • Technological resources: Graul et al. (54) reported that this company invests more than $2 billion for the development of technology in 2005, it has more than 29,000 patented technologies along with twenty technical centers in four continents;
  • Intellectual and human resources: – According to the annual report of the P&G, R&D teams enrich with more than 200 scientists, chemists, and so on; besides, they are responsible for identifying, developing, and using leading health care technologies to develop health care products;
  • Reputation resources: – Procter & Gamble affords a high brand value, which tends to expand in the future and this reputation is the outcome of consumer perceptions about the quality, trust, and ethical factors in every market segment; however, the subsequent table demonstrates goodwill of P&G for three years –
Key variables 2011 ($ million) 2010 ($ million) 2009 ($ million)
Goodwill 57,562.0 54,012.0 56,512.0

SWOT Analysis of P&G:

SWOT Analysis of Psrc=G Table.

Figure 4: SWOT Analysis of P&G

Source: Graul, et al. (71)

Strengths: The internal strengths of P&G are significant scales of scope and economies, share price, sales growth, human resources, financial capabilities, supply chain, product innovation and overall performance in the global market.

  • Leadership Brands: According to the annual report of P&G, its fifty leadership brands are some of the world’s most famous household names and twenty-four of these fifty brands each make above $1 billion every year, which indicates 90% profits generate from these brands;
  • Market Share: it has a worldwide business operation and has a significant share in the global market;
  • Innovation: It is one of the most critical factors for this company to compete with high customer satisfaction. Also, the demand of the customers change on time, and the management of P&G maintains a specific strategy to meet the demand of the buyers;
  • Sales Volume: Sales revenue from the consumer product line has increased all over the world;
  • Human Resources: P&G has more than 127,000 dynamic and high educated employees to carry on the business in the adverse economic situation, and it also has research team to introduce new products;
  • Experience: P&G established in 1837 and served the US Army, so, it has long-experience along with the glorious historical background to operate global market with strong brand awareness;
  • Other: Corporate social responsibility, investment plan, human resource management are key strategies of the company.

Weaknesses: Besides strong points, P&G has to concentrate on many other factors, such as –

  • Market expansion: It has many familiar brands in global market, but the perforce of the company in developing countries is not outstanding as it earned only 35% of total profits from the operation in developing countries; however, it has opportunity to increase loyal customer base in developing countries by decreasing price of the products;
Net sales by market maturity and geographic region

Figure 5: Net sales by market maturity and geographic region

Source: Procter & Gamble (62)

    • Operating expenses: The total operating expenses of P&G are increasing each year, for instance, these expenses were $25,973 million in 2011, which was more than $985 million from last year expenses;
    • Political factors: Unrest situation in many countries may effect on the supply chain management system of the company, and it could adversely affect sales revenue;
    • Strategic decision: Unilever, Johnson & Johnson and other competitors have taken measures to diversify product line and implemented new marketing strategies; for instance, these companies arranged integrated marketing communication campaign to increase customer base.

Opportunities: External opportunities of P&G includes

  • New product development: P&G has a strong capability of developing new products using existing resources and capabilities along with long experience perform; thus, it has the opportunity to capture marketing leading position;
  • Joint venture: It has the financial strength to joint venture with large competitors like Unilever to reduce market competition;
  • Stock Performance: the performance of P&G in Stock market is satisfactory from the very beginning though the share price of the company decreased in 2009; however, the following figure demonstrates the position of P&G in Nasdaq –
Basic chart of Psrc=G Graph

Figure 6: Basic chart of P&G

Source: Yahoo Finance (1)

  • Performance in Recessionary Economy: P&G has experienced huge success in spite of global financial crisis while most of the companies have endeavored to survive, which gives confidence to the management of the company to go ahead with existing resources and capabilities;

Threats: External threats of P&G includes –

  • Legal: Nowadays, multinational companies need to concentrate more on the legal issue to reduce unexpected costs, for instance, BBC News (1) reported that P&G was fined €211.20 million to fixing the price of washing powder in eight European countries;
  • Competition: Strong competition among the market players is one of the main challenges for P&G because competitors captured a significant market share of consumer products, for instance, Sunsilk of Unilever captured shampoo market;
  • Compensation: Controversial issues could adversely affect on the company such as toxic shock syndrome and tampons, price fixing controversy and logo controversy created hindrance for the business operation and increased costs.

Porter’s five forces model analysis of P&G:

Porter’s five forces model of competition for Psrc=amp;G

Figure 7: Porter’s five forces model of competition for P&G

Source: Self-generated form analysis

  • Barriers of new entrants: The consumer product industry has to face intense competition both in the national and international market due to the existence of local competitors of different products and many brand items have produced by these companies to attract segmented customers. As a result, threats of new entrants are moderate to high for this company while it should not require high investment to produce few items in the local market, but the aggregate risk is low; thus, it not difficult for the new companies to occupy the market share of P&G;
  • Bargaining power of suppliers: The bargaining power of suppliers is moderate because of the availability of suppliers; however, this power accelerates when P&G like to switching off suppliers;
  • Bargaining power of buyers: the bargaining power of buyers is now high because of the current pressure of the global economic crisis, low switching off costs, availability of similar products, frequent change of customers’ demand, and unrest political position in Asian and European countries and so on;
  • Threats of substitute products: P&G faced intense competition from direct and indirect competitors, and these companies produced many consumer products those can reduce the demand of any brand of P&G, for instance, P&G’s feminine products replaced by the substitute due to toxic shock syndrome and tampons controversy;
  • Rivalry among existing firms: P&G has to compete with many direct and indirect companies at both home and abroad, for example, major competitors of this company are Unilever, Kimberly-Clark Corporation, Johnson & Johnson, Clorox, Colgate-Palmolive, etc. However, the rivalry among existing companies is extremely high, and these companies frequently change their functional plans to increase sales volume and take measures to get undue advantages from the market, for example, P&G and Unilever fixed the price of washing powder in eight EU nations to increase sales. To compare the position of P&G in industry, the subsequent figure shows direct comparison –
Direct Competitor Comparison of consumer product industry

Figure 8: Direct Competitor Comparison of consumer product industry

Source: Yahoo Finance (1)

Resource Base View (RBV) model:

Resources & Sources of

Competitive Advantage

Rare Valuable Inimitable Non-substitutable
Core Competencies
Innovation: it has 50 established brands along with 300 consumer products in four segments like P&G Beauty, Family Health, Household Care, and Gillette and it has now seven core segments like beauty, Health, Baby Care, Fabric, Home Care and so on Yes Yes Possible as it has already established as successful inventors in consumer product markets; however, it is hard to measure the volume of

innovation

It is feasible if P&G can use research and development team properly
Patents: it has more than 29000 patented technologies Yes Yes It is feasible, not probable It is feasible, not probable as it should involve huge investment
Go to Market Expertise:

Capabilities

Yes Yes Hard to attain It is tough to attain as competitors, for example, Unilever is functioning on this now.
Brand Management:

Development of brand image along with the trust of consumers

Yes Yes Achievable through market leadership hard to overtake Difficult in market leading
Brand Leadership: 50 brands each produce $1 billion sales

annually (90% of total earnings)

Yes Yes Feasible except hard in non-commoditized markets Feasible though it is hard in non-commoditized markets
Resources & Capabilities
Existing R&D: twenty technical centers in four continents Yes Yes Yes, however, it involves high entry expenses hard to substitute or compete with IP
Global Scope Advantage: business operation in more than 180 countries Yes Yes Feasible in spite of high reproduction costs Feasible in spite of high reproduction costs
Large scale manufacturing operations; locations in 42 countries Yes Yes Yes Yes
Economies of Scale with

leveraged Buying Power

and supply chain

management

Yes Yes Yes, it is necessary to have collaboration from keen partners and top-management Yes, it is necessary to have the cooperation from keen partners and top-management
Economies of Scale with Global operations Yes Yes Yes Yes
Expansion in Emerging Markets like China, India & Bangladesh Yes Yes Feasible though it needs high reproduction costs Feasible though it needs high reproduction costs
Value Added Networks for B2B Customers Yes Yes Yes, it is essential to have cooperation from enthusiastic associates and management Yes, it is essential to have cooperation from enthusiastic associates and management
Electronic Data

Interchange only available in the US and it should require development

Yes Yes Yes Yes
Enterprise IT Strategy for cost reductions, positive customer impact, functioning competence, and return on investment Yes Yes Yes but it hard to apply due to requiring high investment Yes but it hard to apply due to requiring high investment

Recommendation

  • Strategy 1: Integrated Marketing Communication (IMC) Campaign
Decision Criteria for Strategic Alternatives
Evaluation Criteria Evaluation Criteria or why choosing this strategy
Image creation This company has fifty leadership brands in the global consumer product markets; however, it has to face intense competition, so, the decision-maker should focus on IMC campaign to develop brand awareness;
Aligns with mission Since this company would like to provide the best quality products, IMC campaign would help the company to aware target customer regarding the quality of the products
Exploits core competency It has already developed the product quality to avoid any controversy like toxic shock syndrome and tampons, and IMC campaign could give this message to the customer
Competition To compete with large competitors, it will play a vital role
Creating a loyal customer base As competitors offer similar products at a low price, then it is difficult to say that IMC help creating loyal customer base though it would increase sales
Financial risk Considering previous experience, it can say that the IMC campaign has no financial risks for P&G
The short and long term Growth rate It would only meet the short-term growth rate
Think customer first As IMC Campaign would emphasis on the positive factors of P&G, the customer must be benefited from it.
  • Strategy 2: Reformation of the Pricing Strategy –
Decision Criteria for Strategic Alternatives
Evaluation Criteria Evaluation Criteria or why choosing this strategy
Create a brand image It would help P&G creating the brand image in developing countries
Aligns with mission Sales may decrease anytime due to adverse economic condition; therefore, restructuring pricing strategy match with the mission of the company.
Exploits core competency Operating at economies of scale is one of the P&G’s core competencies, so, capacity utilization development by reducing production cost assist the company offer low price;
Competition P&G would be able to hit this competitive market
Creating a loyal customer base The purchasing power of the customers reduced due to recession; so, reforming pricing strategy is the only solution to sustain as a market leader;
Financial risk Adopting this strategy has minimal financial risk; however, the European Commission could impose fines for breaking competition law in the EU zone
The short and long term Growth rate It can meet long-term growth in the global consumer product market
Think customer first It upholds the concept of think customer first.
  • Strategy 3: Reduction of operating costs
Decision Criteria for Strategic Alternatives
Evaluation Criteria Evaluation Criteria or why choosing this strategy
Create a brand image It is an internal factor to hold an existing market
Aligns with mission This strategy would increase profit and match with the mission of P&G
Competition Help the company compete with existing resources
Creating a loyal customer base This strategy would not help P&G building a large customer base but increase profits from existing sales volume
Financial risk Reduce financial risk in the global financial crisis through this company experienced success in the economic challenges
The short and long term Growth rate Meet both short and long-term growth
Think customer first It mainly focuses on reducing the switching off costs for the customers of competitors.

Works Cited

BBC News. Unilever and Procter & Gamble in price-fixing fine. 2011. Web.

Graul, Lee Ann, et al. Procter & Gamble, Unilever, and the Personal Products Industry. 2006. Web.

Procter & Gamble. Annual report 2010-11 of P&G. 2011. Web.

Smith, Tim. “P&G Shifts Pricing Strategy to Meet Post-Recession Market.The Wiglaf Journal. 2010. Web.

Yahoo Finance. Balance Sheet of Procter & Gamble Co. 2011. Web.

Yahoo Finance. Direct Competitor Comparison of Procter & Gamble Co. 2011. Web.

Yahoo Finance. Income Statement of Procter & Gamble Co. 2011. Web.

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