Procter & Gamble in the China Market

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Procter & Gamble, abbreviated as P&G, is one of the popular international daily global consumer goods firms. P&G has witnessed rapid development in oversea and hometown marketing since its inception in 1937 (P& G, 2011). Since then, the company has expanded to at least 80 countries, and has employed at least 127000 people. P&G has no less than 300 different product brands, which include household care products and beauty & grooming. Company reports have specified that the company realized net sales and earnings of about $82 billion and 11 billion in 2011 respectively (P&G, 2011). Despite the net sales of the company increasing in 2011, its diluted net earnings and operating cash flows decreased. This paper provides an in-depth analysis of P&G China’s branding. The paper will use Porter’s five forces and SWOT analysis models to achieve this objective.

The development history of P&G indicates that the company has experienced several problems during its establishment procedures (Ailawadi, Lehmann, & Neslin, 2001). The establishment year of the company, 1837, was not regarded as the best year for launching the company. During this year, the US was under panic of breakdown of banks and other financial institutions, and economic slowdown. Despite Cincinnati, the place of P&G’s origin, being a business center during this period, its economic situation was similar to the national economic situation and economic crisis (Barwise & Meehan, 2010). Nevertheless, the founders of P&G persisted on launching the business in order to compete with soup and candle production firms. History has indicated that the company was successful in beating the odds of economic crisis.

History also indicates that the company witnessed challenges between 1919 and 1920 (Barwise & Meehan, 2010). During this period, the company had to decrease the number of employees in order to cope with the uneven demand and decreasing sales because of the seasonal wholesalers’ purchasing. According to Gupta and Govindarajan (2001), the quick adoption of strategies by the company’s management executives assisted the firm in overcoming these difficulties. The most recent crisis witnessed by P&G occurred in 2000 (Varadarajan, DeFanti, & Busch, 2006). The crisis compelled the company’s CEO, Durk Jager, to quit (McMillan, 2010). With the adoption of new business strategies, the company eventually sprung back to its rightful position. As a result, the analysis of P&G’s success during the tough times is important.

The parent company invested in the Chinese economy in 1987. The company entered the Chinese market and established its branch and research center in Guangzhou (Johnson, Christensen, & Kagermann, 2008). The research center lured elites from America, India, Philippines, and Japan. A decade letter the company opened the second research center in Beijing offering technical support to Asia and other regions of the world (Kumar, Massie, & Dumonceaux, 2006). There is no doubt that the company has made significant strides in China within the three decades. How could the company achieve such level of development at a rapid speed in comparison to the short time of investment in China?

P&G Product Branding in China

The main product brands offered by P&G include fast moving consumer goods. The goods are used in distinguishing the durable commodities, and they are consumed for personal reasons (Melewar & Walker, 2003). In general, the production of these products involves low financial expenditure. According to Johnson, Christensen, and Kagermann (2008), consumers routinely purchase fast moving goods, whose life cycle is short. By 2005, the company had introduced about 9 product brands with at least 20 sub-brands as indicated in the table below (P&G, 2011).

Categories Products
Hair products Head & Shoulders, Vs, Wella, Clairol, Rejoice and Pantene
Cosmetics Olay, SK-II
Personal Cleaning Shower gels, ZEXT shower gels, Olay soups, Safeguard soaps, Camay shower gels
Oral care products Oral-B, Crest toothpaste and toothbrush
Women products Whisper
Food and Drink Pringles
Baby products Pampers
Tissues Tempo
Household Products Tide, Duraceli, Ariel, Lenor

The key point of the company’s success is the multi-categorized product brands. The reckoning of the problems faced by consumers and the primary perspective of the fast moving goods rely on the observation of others and self-discovery (McMillan, 2010). The problems might cover various aspects in simple aspects of daily life. With respect to care brands, for instance, for both women and men, the problems might cover itchy scalp, hair loses, and dandruff. For women, there might be unique needs, including detangling condition, split end users and repairing hair condition among others. For men, there are different special shampoos taking care of needs of male consumers. According to Johnson, Christensen, and Kagermann (2008), all these products mean that consumers have various hair problems, and require products of P&G.

The company has branded its products to provide an underlying solution to consumers’ problems. According to Gupta and Govindarajan (2001), the various categories cover various needs, which an individual has in the course of daily living. This is particularly useful when consumers encounter other second characteristics of first moving goods. This is because consumers would initially go to the general level of products for fuzzy brands of solution under the influence of advertisements and other factors. Melewar and Walker (2003) pointed out that the sub-classification of products with various brands of one category provides clearer solution to the problems faced by consumers. With respect to shampoo, for instance, when a female consumer has a perm, and she realizes that her hair condition is getting worse, she is likely to look for a P&G commodity offering nutrition specialized at taking care of the hair after perm. P&G sells various shampoo brands, including Head & Shoulders for dandruff and Pantene for general care of the hair. As a result, the product choice with various brand names seems to guarantee consumers that products with various brands have various functions and are capable of solving multiple problems (Kumar, Massie, & Dumonceaux, 2006).

In addition, multi-branding strategy used by P&G is useful in nurturing the reliable customers to the sub-classified brands of products rather than the general parent brand. This implies that consumers might select brands belonging to P&G without realizing that one brand is helping in the development of good portfolio of the parent brand. According to Melewar and Walker (2003), P&G’s multi-branding strategies, coupled with the effective product sub-categorization, are one of the efficient measures of countering competition among other companies.

Johnson, Christensen, and Kagermann (2008) cited that multi-brand, coupled with various emphasized functions, is also helpful in the sub-categorization of the market and possible consumer requirements. This assists the company to infiltrate the market and leave very little room for competitors to snatch the market (Varadarajan, DeFanti, & Busch, 2006). This provides a confirmation of P&G brand strategies so that there is a likelihood of the existence of another brand in one field, then that brand belongs to the company. The branding strategy also ensures that the company enjoys optimal market share.

P&G’s Competitive Position

Product branding plays a crucial role in determining a competitive position of a corporation. Porter’s five forces model, which was proposed in the Harvard Business Review of 1979, can determine the competitive position of a company. This model describes five forces, which include the buyers bargaining, suppliers’ bargaining power, intensity of competition among companies, and the threat of product or service substitutes in the industry.

New Entrants

In the Chinese fast moving consumer goods market, the two industrial giants, Unilever and P&G have already secured a lion’s share of the market. Because of the multi-branding, coupled with sub-categorization, strategy proposed and adopted by P&G, the company has provided different products closely linked to daily lives (Gupta & Govindarajan, 2001). With a comparatively good portfolio firm and the positive impacts in China, the company has secured the trust of Chinese consumers. Trust is useful in attracting and maintaining loyal consumers to the various brands of P&G. As a result, it is not easy for new entrants to secure market share in China since the establishment of brands and good portfolio consumes time and finances (Barwise & Meehan, 2010).

Key players in this industry have accumulated significant experience in terms of distribution, product development, and supply chain (Johnson, Christensen, & Kagermann, 2008). For instance, P&G has been in operation for not less than 170 years and it has about 80 years of global market experience. As a result, the company has occupied a favorable place on the learning curve, which coupled with economies of scale, creates barriers for potential entrants. In addition, a significant financial investment is necessary in this industry in order to implement distribution, research and design, production and marketing strategies. Therefore, the threats of new entrants are comparatively limited for the Chinese market. Nevertheless, according to Melewar and Walker (2003), it is not conceivable for the key players, Unilever and P&G, to cover every corner of the Chinese market. As such, there are still unexploited opportunities for new entrants to meet particular needs of customers.

Bargaining Power of Supplier

Supplier’s power is low because the company owns various research and development centers, which assist in supporting innovation of the existing products (Johnson, Christensen, & Kagermann, 2008). As a global company, it is comparatively easy for P&G to utilize raw materials at low cost from the less developed and poor nations whose economy depends on the raw material export. As a result, the bargaining power for doing away with the suppliers’ power is not strong when facing such international corporation, particularly the one that has well-organized researching and purchasing teams (McMillan, 2010).

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Every line of personal products has unique requirements and preferences. Different raw materials, ingredients and components are required, and there are specific procedures throughout the process of production (Gupta & Govindarajan, 2001). Therefore, the company is coping up with considerably differentiated suppliers while facing low bargaining power from suppliers. Nevertheless, P&G still faces costs of switching majorly because of its need for quality in building brand image.

Threat of Substitutes

Because of the multi-brand strategies adopted by P&G, the likelihood of a consumer choosing a product produced by P&G is high. According to Melewar and Walker (2003), the multi-branding strategy helps in preventing fast moving consumers from choosing products of competitors. This is because the long period of usage of the product leaves a positive impression of the company. When one product of P&G does not fully meet the needs of the consumer, he or she is likely to choose another brand belonging to P&G, which looks suitable for their needs. Even when facing the same products of Unilever brand, the consumer is likely not to try it due to the long-term confidence in P&G. According to Johnson, Christensen, and Kagermann (2008), the loyalty for P&G brands and suppliers prevents consumers from choosing substitutes.

Threat of Competition

With regard to this force, the company has continuously practiced multi-branding strategy and multi-category that has established barriers for new firms opting to enter the Chinese market. There is high possibility that P&G products cover the majority of fields concerning daily living. According to Ailawadi, Lehmann, and Neslin (2001), the strong brand promotion and price advantages prevent consumers from buying products of competitors, such as Unilever.

SWOT Analysis

Strengths

The primary strengths of P&G are associated with its leading position in the industry and strong brand assortment, massive marketing, substantial cash productivity, and R&D. As the top manufacturer of personal care products in the Chinese market, P&G has more than 50 product brands covering a wide assortment of life segments (P&G, 2011). In relation to multifaceted brand assortment, P&G has proved strong management ability and an ability of taking advantage of its powerful brand assortment in order to sustain competitive advantage in the global market (Johnson, Christensen, & Kagermann, 2008). With numerous top brands in China, P&G has obtained extensive competitive lead over Unilever. In addition, the diversifications in the products has meaningfully assisted the company to realize economies of scale in distribution, production, and hold a favorable bargaining power against retailers and suppliers (Kumar, Massie, & Dumonceaux, 2006).

Weaknesses

However, P&G has its own weaknesses. Weakness lies in its multi-branding strategy. By providing broad categories and brands, the trust and confidence of consumers on entire product line of P&G would decline when one brand is in trouble (Kumar, Massie, & Dumonceaux, 2006). For instance, the recalling of Vicks Sinex nasal spray in the UK, Germany and US because of bacteria B. cepacia had an effect on the Chinese market.
The reliance of P&G on Wal-Mart for distribution is also another weakness. This implies that any decreases in Wal-Mart’s revenue in China or market share are likely to trigger a loss for P&G China (Johnson, Christensen, & Kagermann, 2008). In addition, the overreliance might result in loss of bargaining power against Wal-Mart subsidiaries in China.

Opportunities

The first opportunity for P&G China is the well-defined market niche and just in time manufacturing ability (Johnson, Christensen, & Kagermann, 2008). The Chinese market is well defined with few key players. The second strength is the trade barriers imposed by the Chinese market. Trade barriers have been historically recognized to be the biggest threat for most global businesses. The Chinese government has imposed restrictive policies that tend to scare investors. These barriers prevent the entrance of other corporations, giving P&G a vast playing field (Kumar, Massie, & Dumonceaux, 2006).

Threats

The political protection of the local industries offered by the Chinese government is a threat to P&G. Because P&G is not a Chinese company, it might be subjected to competition against rival companies (Varadarajan, DeFanti, & Busch, 2006). Because of political protection, the majority of Chinese local companies sell products at low prices. As such, many Chinese people would choose local substitutes instead of products of P&G despite the good portfolio and brands established by the company (Gupta & Govindarajan, 2001).

Conclusion

Procter & Gamble, as global leading fast moving company, has made significant strides in business development. China is one of the developing nations with significant potential business opportunity in the consumption of the daily goods. The success of P&G in China lies in its clear strategic business management of multi-categories and multi-brands, which decreases the likelihood of new entrants. The multi-branding strategy helps in preventing fast moving consumers from choosing products of competitors. However, by providing broad categories and brands, the trust and confidence of consumers in entire product line of P&G would decline when one brand faces challenges.