Founded in 1837 in Cincinnati, Ohio, Procter & Gamble is undeniably one of the global leading consumer products companies, having an estimated 300 brands and doing business in over 140 countries worldwide going by figures released in 1997 (Arnold 4). This paper attempts to analyze P&G’s operations in Russia in regards to the sale, market share, and challenges facing its Always flagship brand.
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P&G first ventured into the Russian market in 1991, but the Always brand was first introduced into the market in 1995.
Now the senior management of the company in Russia is discussing the future strategy of marketing the Always brand in the country, particularly after the realization that decisions on product portfolio, price levels, and brand positioning need to take into consideration new realities on the ground if the company is to be successful in developing the Russian market further (Arnold 1-3, 13).
Statement of “Strategic” & “Tactical” Problems
P&R strategy in Russia, particularly with regard to its Always brand, had been to place the product as a premium brand, rather than as a mid-market offering (Arnold 7). Indeed the company had been concentrating on the upper-end of the Russian market, who research shows have a high affinity for best-performing Western products.
This effectively meant that the price for the Always brand in Russia was as high as in other countries in Western Europe. But due to some dynamics prevalent in Russia, such as extensive switching behavior, uneven distribution of income, and irregular spending patterns (Arnold 3, 4), the senior management feels that its time to come up with a new pricing policy for the Always brand so as to guarantee sustained growth into the future.
P&R have invested heavily in the distribution systems and advertising in Russia to ensure that its products, particularly the Always brand, reaches the intended customers.
Going into the future, however, the management feels that current distribution system may not generate enough revenues to sustain the company’s growth agenda due to its inability to reach pharmacies as well the fact that other competitors are investing heavily in their own distribution systems (Arnold 6).
Additionally, P&R have invested heavily in advertising, but are now forced to contend with arising issues such as lack of adequate measurement of consumer viewership patterns, risk of wear-out of the advertisements, and social taboo associated with pad advertising (Arnold 10, 11).
Issues/Problems Identification & Analysis
Strategic Issues & Analysis
Although the flagship brand Always was achieving market leadership in Russia in 1998, courtesy of a strong corporate culture that was grounded on various principles such as developing products with functional superiority, broad research in R&D, competitive and talented workforce, and extensive marketing and branding expertise (Arnold 4), the senior management felt it was in order to fine-tune some strategies to allow growth in market share of the Always brand in the future.
In price level, the management had to make a decision on whether to continue pricing Always brand at the same price level as Western Europe or whether it was time to introduce a mid-priced brand to cater for low-end consumers (Arnold 2).
The senior management of the company also wanted to review the sustainability of the different marketing initiatives being practiced in Russia and neighboring Eastern European nations, particularly Poland, Hungary, and the then Czechoslovakia.
Of importance here was to evaluate how the Russian market could adopt an aggressive low-price competition strategy that had been tried and tested in the Polish market, with results demonstrating it could result in a reduction of price points to beat emerging competition (Arnold 1).
Lastly, the management needed to make a decision on “…whether to extend the FemPro portfolio by launching Alldays, a companion brand of pantiliners, and/or Tampax, the tampon brand added to P&G stable of brands through the acquisition of Tambrands in 1997. This product and market diversification strategy was intended to generate more revenues for the company and hence guarantee sustained growth.
It is worth mentioning that product diversification could have not only ensured that the company was able to enter into the market with a wider portfolio of brands, hence more revenues (Arnold 5), but could have also ensured that the customers had more products to choose from under the P&G family of products.
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Tactical Issues & Analysis
Previously, P&R had executed its marketing plan in terms of products distribution in the Russian market by adopting the ‘McVan Model’, which generally entailed identifying a number of promising distributors and making huge investments in their businesses in return for a commitment or undertaking to distribute only P&G products (Arnold 6).
However, it was generally felt that the advantages offered by this model could soon be eroded as the rest of the distribution network developed in Russia. Also, this model was largely ineffective in enhancing P&G’s presence in pharmacies, which accounted for over 50 percent of pad sales in major Russian cities and 35 percent of the sales nationally (Arnold 9).
In terms of advertising, the management noted that although TV penetration stood at 96 percent of the Russian households in 1996 (Arnold 10), it was not only critical to increase the number of different executions to curtail wear-out of the ads, but it was timely to develop people meters to rate viewership (Arnold 11).
Additionally, the company had to come up with ways to prevent negative attitude associated with watching pad advertising (Arnold 11).
Generation of Solutions/Alternatives
The dynamics prevalent in Russia ultimately called for P&R to not only develop mid-priced products but also low-priced products under the Always flagship brand to enhance profitability and growth into the future.
From the article, it is clear most consumers not only exercised irregular shopping patterns due to uncertainties regarding pay and greater insecurity due to the political and economic dynamics of the time, such as slow pace of political reform and inefficient tax collection system, (Arnold 1, 2), but also expressed preference for local products due to price differentiation and issues of trust (Arnold 3).
Consequently, it was the right time for P&G to engage in aggressive low-price competition strategy to ensure that they dint lock out this important segment of customers from accessing the company’s products.
In terms of extending the FemPro portfolio, it was imperative for P&G to conduct an expansive market research on consumer attitudes and perceptions regarding tampons before initiating a product diversification program. Available information demonstrates that other competitors dealing with the sale of tampons failed to register enviable results, hence the need to undertake the research.
An observation in the distribution challenge is that P&R could have continued making heavy investments in their McVan Model to ensure more penetration in the Russian market (Arnold 8). The company could have continued to invest in the Open Street markets to supplement the efforts of contracted distributors in supplying its products as Open Street markets accounted for 50 percent of P&R products in a number of cities (Arnold 9).
In advertising, the company could have engaged other less costly and more personalized forms of advertising, such as fliers and internet, to reduce instances of eliciting negative feedback from the television audience who thought that pad advertising on mainstream media was a social taboo (Arnold 11).
P&G needed to be encouraged to invest in aggressive low-price competition strategy to allow sustained competitiveness and growth of the Always brand in the future. Second, it could have been recommended that P&G conduct product diversification of the Always brand to target consumers in the lower-end cadre.
A low-cost product does not necessarily translate into a low-quality product, so it could have been recommended for the company to invest in developing a low-cost product under the Always flagship brand.
In terms of distribution challenges, it could have been recommended that P&R develops a strategy to directly market the Always brand and other health-related products directly into the pharmacies, which contributed 50 percent of pad sales in Russia.
Here, direct marketing instead of relying on distributors could have worked well for the company. Also, it could have been recommended that that the company continues to make heavy investments in distributorship contracts with an aim to penetrate the rural regions and reach millions of people who were in need of their products but who could not access them.
In advertising, it could be recommended that the company makes use of other non-invasive channels to advertise their products to potential customers. Where the television was used, it could have been recommended that extra caution in normative and cultural terms be taken so as not to offend the viewers as has been reported in the article.
Investing in other advertising mediums could not only ensure that the company was able to increase its advertising executions to beat competition from rivals, but internet advertising could have ensured that the company was able to track advertising effectiveness through undertaking online surveys.
Plan of Action
It could have been prudent for P&R to first of all undertake a comprehensive market survey including all the variables discussed in this paper to know from their customers what their perceptions and attitudes were regarding the company’s product.
With presumed positive outcomes from the market research, the company could have embarked on an intense R&D programme aimed at developing a low-priced Always brand but still with quality aspects in mind. Upon the development of this product, the company could have embarked on an intense advertising campaign using the TV, internet, Radio, flyers, and other mediums to make the product popular among customers.
Along this continuum, investments could have been to expand the distribution system to reach the rural customers and train professional sales people to be used to avail the Always brand to the pharmacies. This plan of action, in my view, could have occasioned sustained competitiveness and growth of the company.
It is true that P&R had done sufficiently well in getting the Always brand into the Russian market, but there is still room for improvement particularly with regard to the development of low-priced and mid-priced products, expansion of the distribution system, training of professional sales people to deal with pharmacies, and changing its advertising paradigms to fit current trends.
The company has a bright future in its operations in Russia if these variables are in included in their next strategic and tactical marketing initiatives.
Arnold David J. Procter & Gamble: Always Russia. Boston: Harvard Business School, 1998.