Procter and Gamble: An Assessment of Strategy
As one of the biggest companies in the world, the American multinational giant Procter and Gamble has been an everyday presence in a lot of consumers’ lives. With their products ranging from soaps for the bathing and washing to over-the-counter medicines, Procter and Gamble can be said to have one of largest and strongest corporate umbrellas across the globe. Given its strong presence in various industries due to its multitude of consumer products, the conglomerate can be considered to have been performing exceptionally over the last decades despite some threatening points as brought by economic performances and the entry of competition.
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...gn: justify;">Nonetheless, Procter and Gamble has demonstrated its market and economic resilience and can be said to have reassured its long-standing strengths among its customers and shareholders. Although this is the case, Procter and Gamble can be said to still have challenges, especially with the recent economic downturns, competition and controversies. There is also the case of the changing preferences among consumers.
According to Grantham and Carr (2002), social changes have been leading to people to have changing lives, practices, and even beliefs; in the long run, these people, who are consumers, may also experience changes when it comes to what to look for in a product. Because of these, according to the authors, business growth may depend on how companies have responded to these changes, and that companies need to reach out to the sensibilities of the modern consumer.
Although so far, Procter and Gamble currently has 24 products that have earned more than $1 billion in net annual sales, and that 18 of its products have earned between $500,000 and $1 billion, the company is still exposed to the varying dynamics of the economy and the markets, especially once their consumers start to look for alternative products that will bring about the value they want (2008 Annual Report, 2008). This paper looks and evaluates Procter and Gamble from a strategic planning standpoint, and how the company has performed in the recent years.
From this, this paper presents an analysis of the company’s strengths, weaknesses, threats and opportunities (SWOT) and an assessment of its environment, from the political, economic, social, technological, legal and environmental. This paper then aims to present a profile of the company, its current state, and potential directions in order to maintain its growth and success. About Procter and Gamble History Procter and Gamble’s history can be also indicative of the company’s historical approach to its strategic growth.
Hence, in order to understand how Procter and Gamble has reached its current heights, it is important to also look at its historical development given that the company went through several stages, through time, in order to progress what it is now. Procter and Gamble is a company formed between a partnership of two in-laws, William Procter and James Gamble. Both men married the Norris sisters, and before forming the company, were actually in competition with each other, as Procter was a candlemaker and Gamble was a soapmaker (Dyer & Olegario, 2004).
Hence, the company initially built their enterprise in candlemaking and soapmaking; eventually, Procter and Gamble would become a company that prospered in the 19th century as the company’s sales reached $1 million. Procter and Gamble also further increased its business when the company was contracted to become a candle and soap supplier to the during the American Civil War; in addition to the huge orders by the Union Army, this move was actually a chance for Procter and Gamble to introduce their products to the soldiers, therefore, the company’s consumer base further increased even after war.
Evidently, as Procter and Gamble’s business grew, so did the company. The company’s employee count started to increase, and at the same time, the company also started to produce soap varieties. One of the company’s most noted brands, the Ivory soap, was invented by the company as a soap that actually floats (Wikipedia, 2008). Procter and Gamble although started to innovate, not only in terms of its growing product line but also its adaptation of a progressive working environment.
In fact, as early as 1887, the company started to give its employees company shares in order to have them become more of a part of the company, hence, preventing any possibilities of a strike. This company-employee arrangement was established by William Procter’s grandson, William Arnett Procter (Wikipedia, 2008). The company started to define its trade when it became responsive to the changes taking place in the society. One critical decision that Procter and Gamble had to make was to close up its candlemaking division due to the growing demand and distribution of electricity.
Hence, for a time, Procter and Gamble mostly produced and sold soaps until the company started to diversify its product lines (Wikipedia, 2008). Hence, this diversification would become integral to the company’s operations at the entry of the 20th century. Procter and Gamble started to venture to new products such as the introduction of a vegetable oil-based shortening product, Crisco. The company also benefited from its market research initiatives and Procter and Gamble’s established research and development facilities and laboratories.
Hence, with information and knowledge coming straight from the market and the consumers, Procter and Gamble further took advantage of these assets which would lead them to use these components in their marketing campaigns, especially in their advertising programs. Procter and Gamble would be famously known for its sponsored radio programs in the 1920s and 1930s known as the “soap operas” (Wikipedia, 2008). Eventually, the company continued to grow not just by means of introducing new products to the market but also by means of acquiring other companies that manufacture products that already have a position in the market.
An example is Procter and Gamble’s acquisition of the English firm Thomas Hedley Co. which would enable Procter and Gamble to have a better grasp of the English market and production capacity. The company’s presence in the United States would also become more evident as Procter and Gamble opened new plants and offices throughout the country, thereby extending its market reach (Wikipedia, 2008). Eventually, new products came out of the Procter and Gamble plants, and from there, these products would further add value and transform into brands.
Hence, by means of integrating product development with strategic marketing, Procter and Gamble has managed to have a strong hold on the market. In addition, Procter and Gamble continued its diversification of product lines as the company, throughout the 20th century, continued to acquire other firms and formulated new products that it would introduce in the growing market. Procter and Gamble Today Procter and Gamble cane be considered as a well-formed corporation that have also extended its reach to global markets.
The success of the company can be attributed to the fact that Procter and Gamble has managed to keep up with the times, not only in terms of its product development initiatives but also the company’s ability to successfully market its products and even its own corporate brand. The success of the company can be seen in its more recent 5-year growth, from 2003 to 2007; the increase in sales between 2003 and 2007 were at $33. 1 billion dollars (2007 Annual Report, 2007). According to the 2007 Annual Report?
s letter to the shareholders, Procter and Gamble demonstrated significant increases over a seven-year period, with sales increasing from $39 billion to $76 billion. Furthermore, a number of its products have become billion-dollar performers, with their sales reaching more than $1 billion in one year. In addition to the positive increase in sales, Procter and Gamble has continued to grow globally. Its market capitalization has reached more than $100 billion since 2001.
With such impressive performance, Procter and Gamble is among the Fortune 500 companies and is among the Top 10 Most Valuable Companies in the United States (2007 Annual Report, 2007). It can be said that based on these performances, Procter and Gamble has managed to perform better throughout the years despite the presence of certain threats. According to the company’s 2008 Annual Report (2008), the company still managed to experience increases in 2008, a critical year for most companies due to the market crash, global economic challenges and the prospect of massive recession in the United States.
The company reported a net sales increase of 9%, from $76. 5 billion in 2007 to $83. 5 billion in 2008. However, despite this, the increase was shy of about 4%-6% to its projected sales growth (‘Purpose, Values and Principles’, 2008). SWOT Analysis Strengths A source of strength for Procter and Gamble can be pointed at the company’s fundamentals; these can be seen as to how these factors contribute to Procter and Gamble’s ability to achieve its goals. This can be seen in Procter and Gamble’s effective translation of its mission and vision as defined by its purpose, values and principles.
As Jones and Kahaner (1996, p. ix) pointed out: Corporate mission statements . . . are the operational, ethical, and financial guiding lights of companies. They are not simply mottoes or slogans; they articulate the goals, dreams, behavior, culture, and strategies of companies. Furthermore, Stone (1996) discussed how companies are able to address their problems by means of referring to their mission statement. Stone described mission statements as a means to maintain the company’s visual focus, its vision, and generally, its sense of direction.
By definition, Stone described mission statements as statement that specify ‘what the company does, how it does it, why it does it, and where it is going in the future can transform a leader’s vision into substance’ (Stone, 1996, p. 31). Hence, mission statements play a critical role in terms of how the company functions and performs, and at the same time, it defines the company’s future in terms of its actions in the present, as defined by its mission.
In this case, these working principles behind the company’s operations and functions can be regarded to define the internal forces that make the firm strategic as these are foundations of the company’s goals (Liou, 2000). For Procter and Gamble, the company’s mission can be deemed apparent: the company’s design for sustainable growth, its design to innovate and to grow. The company’s purpose is to ‘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’.
In order for the company to achieve this, Procter and Gamble has established the values of integrity, leadership, ownership, passion for winning, and trust (‘Purpose, Values and Principles’, 2008). In addition to these values, the company’s principles can be also considered to contribute to its strengths. As a guiding framework, these principles have contributed to the company’s strategy, focus, and relationship with people. It can be gathered that Procter and Gamble’s strengths serve as the framework when it comes to making the company have a competitive sets of management strategies.
These strengths can be initially seen in the company’s history in which Procter and Gamble has always been innovative and determined to integrate business with the products’ development, thereby leading to an effective approach to strategic marketing. The competitive aspect of Procter and Gamble can be also attributed to the company’s ability to embrace strategy across different operations (Cisco, 2002). Procter and Gamble’s strategy has been to ‘invest more in innovation and marketing support than any other consumer products company’ (2008 Annual Report, 2008, p.
2). One of the most notable strategies applied by Procter and Gamble is that the company heavily invests in marketing, most especially its advertising initiatives. The company is known for its huge spending in advertisements (Did Somebody Say Strategy? , 2008); in 2004, Procter and Gamble spent $2. 9 billion in advertising, an increase of about 7. 4% from 2003 (Bachman, 2005). Procter and Gamble’s marketing strategy can be also observed to be innovative.
As previously mentioned in the company’s history, Procter and Gamble has always been involved in market research activities, thereby making sure that the company is aware of the changing landscape of the markets, more particularly when it comes to addressing the needs of the consumers. Procter and Gamble’s response to consumer needs have been dynamic throughout the decades; the company has taken pride in its products’ innovations which have given way to these brands as pioneers in their product segments.
For instance, the popular brand Tide is known as the first heavy-duty laundry detergent, and that the toothpaste brand Crest is known as the first toothpaste that has been clinically proven to prevent tooth decay (2008 Annual Report, 2008). Procter and Gamble continues to keep itself in-tune with the changing markets thereby making sure that not only do these products have maintained its long-standing position in the market but the company has made sure that these classic products and brands have remained relevant in these changing times.
Moreover, the company has a structured means to identify its product divisions: Baby and Family Care, Fabric and Home Care, Beauty, Grooming, Health Care, and Snacks, Coffee and Pet Care (2008 Annual Report, 2008). Branding is therefore an important strength for Procter and Gamble. According to Kay (1995, p. 251), the combination of advertising and branding are ‘important tools to competitive strategy’. In fact, strong branding strategies better total returns to shareholders (Court, et al. , 1999).
The strength of branding is due to its ability to bridge the company with the customers because branding can serve as a means to simplify the purchase decisions of consumers. As pointed out by von Brachel (1999), branding further helps the company to become a household name. In Procter and Gamble’s case, the company has managed to keep the corporate umbrella strongly associated with its products, hence, the company’s branding is also as strong as its products. Such relevance has also pushed the company to create a global network.
Procter and Gamble brands can be found in different parts of the world, with its branding strategy also making their products relevant to the local markets. Hence, in putting this strategy in Bielski’s words (2006, p. 36) ‘brand is the promise you make to the customer’, Procter and Gamble’s marketing strategy in international markets can be considered to be strongly focused on localizing the marketing of the products instead of emphasizing that Procter and Gamble products are American brands.
Because of the company’s successes, Procter and Gamble has been one of the most heavily invested companies in the world. In summary, the strength of Procter and Gamble is that its strategy has been sustainable and innovative, and the company has a strong grasp and relationship with the market. Generally, these strengths are due to Procter and Gamble’s ability to translate its mission and vision frameworks as defined by its purpose, values and principles into a set of initiatives that further the company’s core competencies.
These core competencies, as Drejer (2002) pointed out, can lead to the definition and formation of the company’s competitive advantage which definitely provides for the company’s strengths. Weaknesses Although Procter and Gamble is a strongly competitive company, the corporation is not without a series of challenges that range from the company having to face a competitive market and the demands posed by the overall supply chain, and the series of controversies that Procter and Gamble has faced.
At one point, Procter and Gamble was noted to have certain problems in terms of its operations. According to McGee (1999), the company used to run operations that were ‘conservative, slow-moving, bureaucratic’ thereby leading to certain obstacles before the company would make quick decisions. There were also challenges in terms of coordination and information dissemination as Procter and Gamble used to have manual processes for its collaborative works. In addition, another weakness is in the area of product innovation.
Although, as previously mentioned, Procter and Gamble can be commended for their innovations in product development, as McGee (1999) mentioned, the company needs to develop new products and further expand its markets. Developments in the supply chain are always seen as a challenge Procter and Gamble face, especially with the growing demand for speed in the market (Cisco, 2002). Another weakness for Procter and Gamble can be seen in the controversies that have surrounded the corporation.
Throughout the decades, Procter and Gamble has managed to protect itself from any drastic decline in performance because of its strength in terms of being responsive to the dynamics of the market and the ability to respond to demand and needs. In any case, Procter and Gamble still had to address certain weaknesses in terms of its oversights as the company would address the issues of consumer safety, and more recently, environmental concerns. Procter and Gamble has indeed experienced product recalls, with the most distinctive case involved that tampon Rely in the 1980s.
Basically, the issue with the product was that due to its absorption capabilities, the tampon would actually become a breeding ground for bacteria, thereby leading to infection and toxic shock syndrome among hundreds of women, and even deaths (Mikkelson & Mikkelson, 2005). The oversight is that Procter and Gamble mainly concentrated on the function of the product and not much on its actual effects. Because of this case, Procter and Gamble had to recall the product and provide the market with a program in order to notify the consumers.
In addition, Procter and Gamble has also faced criticisms in terms of demands to have certain products off the shelves and even from its product lines such as cosmetic products that may be carcinogenic (Responsible Shopper, 2008). Ethical factors have also become critical to any corporation, and one of Procter and Gamble’s weaknesses is that as a producer and packager of consumer goods, the company has been one of the biggest sources of pollution in the United States. In a study by the Political Economy Research Institute (2002), Procter and Gamble ranked 52nd as among the biggest air polluters in the country.
Evidently, these controversies and even findings would have to be based on certain facts. Ethics have been among one of the most important issues that have emerged in the past years, especially when it comes to certain expectations from the firm to go beyond their responsibilities to the shareholders but also emphasize their responsibilities to the stakeholders as well. This is also especially critical among multinational enterprises (Husted & Allen, 2006). Based on these cited weaknesses of Procter and Gamble in the context of corporate social responsibility, the company needs to address these new demands.
At this point, certain developments can be seen to be apparent such as Procter and Gamble’s adaptation of new initiatives in information technology in order to improve internal systems in collaboration, communication, and information dissemination, among others (McGee, 1999); Procter and Gamble, throughout the recent years, have taken initiatives to address bureaucracy and adapt modernization measures. As for the company’s stance in terms of its corporate social responsibility, the company has programs that address a number of issues which include product safety and the environment.
Opportunities Opportunities for Procter and Gamble strongly rely on the growing demand for consumer products. Generally, as can be seen in the Procter and Gamble’s products, the company’s products can be said to be aimed at a mass market, meeting certain needs and necessities such as products for grooming and health. In 2008, despite the slowdown of the economy and cuts in consumer spending, Procter and Gamble still managed to demonstrate that its products remain to be in demand, with sales in the company doubling in the beauty, health and home care divisions.
As a pioneer in these divisions, it can be said that Procter and Gamble can continue to take advantage of the opportunities in terms of the constant demands for these products. Another point of opportunity for Procter and Gamble is the company addressing further diversification of the markets. Basically, market diversification is driven by the emergence and definition of various lifestyles (George, et al. , 1994). It can be observed that a number of opportunities can be seen in the lifestyles of today which include the increasing awareness among consumers in terms of the products they eat and its environmental impact.
Hence, this can lead to means for Procter and Gamble to continue to innovate products by addressing these current concerns. In addition, there is also the aspect of the changing social dynamics as brought by the increasing role of information technology in everyday lives, hence, this can be said to also create opportunities for Procter and Gamble’s marketing channel. Information technology can be therefore seen as an important opportunity for Procter and Gamble.
As previously mentioned, at one point, Procter and Gamble had to address problems that came with its being a traditional firm for several decades; by means of information technology, the company would become more modernized. Furthermore, the company can also extend this opportunity through its customer relationship management channels; with the help of the Internet and other communication and information technologies, Procter and Gamble can easily get in touch with its customers, thereby increasing the company’s capacity in improving its market research initiatives.
Opportunities can be also seen in the growing global markets. Although Procter and Gamble is already a multinational corporation with its wide global network, such grasp in the local markets can also lead to product innovations for the company. The convenience in this is that due to trade agreements and encouragement for foreign direct investors to enter foreign markets, Procter and Gamble can actually further take advantage of manufacturing opportunities in these nations or global regions. Threats
One of the biggest threats for Procter and Gamble is economic instability. At this point, with the current economic challenges in the world today that started in the largest economy in the world, the crash can be considered to take a domino effect which also affects the entire global market. In this case, the threat can be in two forms: the declining stock value of the company in the stock market, and the consumers cutting back from spending, thereby leading to lower demands (Leonhardt, 2008).
Based on the more recent economic meltdown in the United States, the impact to Procter and Gamble can lead to the company experiencing lower stock value as the markets would fluctuate. Although the company experienced positive growth in the United States, the company generally remains to fall in the grace of the performance of the American economy. Another common threat for the company is competition. Procter and Gamble also competes with other multinational companies and other companies across different industries.
Procter and Gamble’s top competitors include Johnson and Johnson, Kimberly Clark, and Unilever, in addition to smaller businesses that specialize in specific sectors that are also in direct competition with the company’s products. Due to Procter and Gamble’s wide global network, the company is also subject to threats in terms of their foreign operations. Political upheavals and economic decline may also affect the company’s international operations. As with most companies, Procter and Gamble is also subject to potential threats of terrorism and other safety and security concerns.
PESTLE Analysis Political In addition to the political and economic dynamics, Procter and Gamble needs to address the general political landscape both in the United States and around the globe. In the United States, recent political and economic challenges have led to a number of issues and incidents that could give way to a critical period of recession. With the involvement of the U. S. government in terms of providing a financial lifeline to companies who are about to go bankrupt, the current mood towards large corporations in the country are not as favorable at all.
Although Procter and Gamble can be considered to be among the few corporations that have managed to go through the current economic challenges unscathed, projections as to what might happen in the coming year can create an impact to the company. As the United States is about to enter a new era with a new President in 2009 with new models proposed for the American corporations such as new systems of taxation, it is possible that Procter and Gamble will be affected as well. A political extension of economic factors is the case of protectionism.
The economic issue can be considered political given that the economy is among the government’s top priority; this is to say that although certain factors are in the realm of the economy, the reality is that there is always the political dimension at play. Free trade agreements, for instance, may have an economic intent, but the real forces working behind it are political. Interestingly, this has brought issues of protectionism at the legislative levels, in which case, there has been the demand for protectionist laws to be passed on for the purpose of protecting local businesses (Oxford Analytica, 2004).
Economic The economic factors surrounding Procter and Gamble are crucial to the company. Economic factors that affect any company include the dynamics of both the local economy and the performance of the global economy. International businesses have found opportunities in the forces of globalization yet, it should be kept in mind that there are also the risks that come with globalization as well. The range of economic factors that are significant to the company include pricing, labor, and currency exchange, among others, are also volatile.
Current economic systems also enable companies to have greater access to foreign markets according to different market entry forms. Corporations like Procter and Gamble have international subsidiaries or partnerships with local or regional firms in order to ensure that the company’s economic performance are, in a way, protected from the possible negative forces of the local economy. According to Birkinshaw (1995), by taking advantage of these liberalized economic systems, companies are able to relate structure with strategy, especially as multinational corporations now have better access to foreign markets.
Procter and Gamble can be said to take advantage of the forces of trade liberalization. However, this can be said to also affect the general competitive landscape, especially with Procter and Gamble facing more competition from other companies and brands, even in the United States. One example is the case of entry of less expensive products from countries such as China; due to these products and their competitive stance in terms of product price, it can be said that the liberalization of trade has also brought a number of advantages to other countries.
Hence, if American countries have taken advantage of free trade agreements, so have other nations, and companies like Procter and Gamble now has to compete with other market entries not only into the United States but the foreign markets which the corporation also operates in. At a more recent set of events, the company is also subject to the current economic challenges. As a publicly traded company, Procter and Gamble’s value are determined by the performance of its shares and whether the company, at a certain point, is feasible for investment.
Due to the critical market fluctuations in the United States, Procter and Gamble has been deemed not recommended for investment opportunities due to the reductions in retailing power of the company’s products (‘Procter and Gamble Trims Sales Growth for the Quarter’, 2008). The viability of the company becoming more active on the trading floor still depends how the markets would manage to survive the current economic problems, therefore, at this point, Procter and Gamble, like other corporations, have been suffering from negative market and economic dynamics.
Social The social factors today in the landscape of consumer practices and consumer products can be regarded to have taken a critical turn according to the recent events that have taken political and socially. Consumers expect that corporations should respond not only to their needs but also to the realities of the world today; as consumers purchase as a means to solve a problem or a need, society has been evolving into something that has a greater amount of awareness and even responsibility.
However, although this is not the case among the majority of the consumers today, there is now an evident wave of awareness and social participation (Mohr & Webb, 2001). One example is how there is a growing segment among consumers who are demanding for social responsibility from corporations, especially in terms of their ethical and environmental practices (Bennett, 2002). In addition, there is also the economic aspect in which consumers are looking for solutions to their current financial challenges.
People have become more open to alternative products that do not only help them live within their budgets, they also look for products that give them reasonable value. Technological Social trends in the past years can be also strongly associated with the technological trends; this is evident in the innovation in information and communication technologies and how society has tremendously responded to them. People have become more dependent on these tools such as mobile technologies and electronic communication and transactions.
With the Internet having an exponential number of traffic, it can be considered that the worldwide web is a growing marketplace that companies can take advantage of in terms of the benefits of electronic commerce and business. There is also a strong link between the technological developments with how society has been evolving, given that these technologies have led to the creation of social networks and other portals where people can easily exchange ideas.
In this case, people can easily access information, whether they are valid or not, from a wide range of resources. The Internet has enabled people to access and upload information without that much platform of control. In this information age, information has become an important asset, and it is something that companies can take advantage of or something that can potentially take a company down. Cybercrimes may have ranged from the libelous claims to security problems such as identity theft.
Procter and Gamble has taken advantage of the technological developments initially by means of implementing modernization efforts within the company through effective information systems, in addition to the company’s website which people can easily access for more information on the company and its products. Legal The legal implications that Procter and Gamble may find itself in include the free trade legislations it needs to comply with and other legal requirements needed by the foreign markets the company is about to enter or already operating in.
Legal implications also include the legal responsibilities of the company should its products failed safety standards such as the case of the Rely tampons in the 1980s. In addition, the legal factors that also influence Procter and Gamble include compliance with labor laws and other industry-based regulations. In terms of the operations of the company, especially in the United States, compliance also need to take place should corporate laws are modified according to the new pre