2. 2
Executive Summary
This report provides a strategic analysis and evaluation of the current and prospective
strategies of The Proctor & Gamble Company (P&G), specifically considering the
performance of the company‟s beauty segment and the company‟s strategy in the emerging
market of Latin America.
The report begins by considering an external analysis of the industry combined with the
internal resources and capabilities of the company, in order to come up with
recommendations of how P&G can change their strategy to improve performance within the
beauty segment, specifically in Latin America. This external analysis suggests that the Latin
American market, due to its high growth, may provide a great source of potential growth to
the company.
Secondly an analysis has been done of the company‟s main strengths and weakness
focusing strongly on the company‟s key resources and capabilities, comparing them with
their key competitors. The analysis suggests that P&G has been underperforming relative
to their rivals but also relative to their own internal resources and capabilities.
Finally, an evaluation of the current financial performance of the company has been
undertaken along with the problems with the current operational strategy. The financial
analysis identifies the beauty and male grooming segments as the main contributors to
P&G‟s poor recent performance.
The final section of the report makes strategic recommendations based on all the analysis
done. These recommendations suggest that P&G should alter their marketing based on
different cultures in different markets, in order to reach and attract a wider audience;
undertake a joint venture with established company Natura Cosméticos S.A to help them
move successfully into the Latin American market and finally increase the awareness of their
own connection with the brand portfolio.
3. 3
1. INTRODUCTION ...................................................................................................................... 4
2. INDUSTRY ANALYSIS............................................................................................................... 5
2.1 OVERVIEW OF INDUSTRY AND THE TRENDS AFFECTING IT......................................................................5
2.2 INDUSTRY FEATURES AND TRENDS: PESTLE-ANALYSIS.........................................................................6
2.3 COMPETITIVE FORCES IN THE INDUSTRY: PORTER’S FIVE FORCES MODEL ................................................8
3. INTERNAL ANALYSIS..................................................................................................................10
3.1 OVERVIEW OF CURRENT STRATEGIES & KEY STRATEGIC PROBLEMS..........................................................10
3.2. COMPANY PERFORMANCE ANALYSIS ..............................................................................................10
3.2.1 Financial Statement Analysis............................................................................................10
3.2.2 Stock Market Value...........................................................................................................12
3.2.3. Dividend return ...................................................................................................................13
3.3. SWOT ANALYSIS............................................................................................................................14
3.4 KEY RESOURCES AND CAPABILITIES .....................................................................................................16
3.5. COMPARISON TO COMPETITORS RESOURCES AND CAPABILITIES .............................................................17
4. RECOMMENDATIONS................................................................................................................19
4.1. RECOMMENDATION 1 - MARKETING ADJUSTED TO DIFFERENT CULTURES IN DIFFERENT MARKETS.................19
4.2. RECOMMENDATION 2 – JOINT VENTURE WITH COSMÉTICOS S.A ...........................................................21
4.3. RECOMMENDATION 3 - INCREASE THE AWARENESS OF THE CORPORATION’S CONNECTION TO THE BRAND
PORTFOLIO ...........................................................................................................................................22
5. CONCLUDING STATEMENT.....................................................................................................24
BIBLIOGRAPHY..............................................................................................................................25
APPENDICES..................................................................................................................................30
APPENDIX I...........................................................................................................................................30
APPENDIX II:.........................................................................................................................................31
APPENDIX III:…………………………………………………………………………………………………………………………………32
4. 4
1. Introduction
The Proctor & Gamble Company (P&G) is a large multinational company based in the
consumer goods industry. The company was first established in 1837 and has over 300
different brands (Statistic Brain, 2012) within five different segments; fabric and home care,
health care, baby and family care, grooming and beauty. They provide products to around
4.8 billion people (P&G, 2013) - approximately 68% of the total global population.
Recent performance of the company‟s beauty segment has been under scrutiny; highlighted
by a concerning trend of decreasing returns, most notably amongst their billion dollar brands
Pantene and Olay. It is currently performing the worst of the five company segments. This
report proposes P&G is underperforming within emerging markets and suggests strategies
the company can employ to exploit these markets further. A key area of opportunity is the
Latin American consumer goods market, where the economy is expanding and the market
for cosmetics products is growing.
5. 5
2. Industry Analysis
2.1 Overview of Industry and the Trends Affecting it.
Having experienced a huge surge in global importance, the Latin American cosmetics
market has been experiencing huge market growth in recent years. At an estimated US $64
million, the market is now almost as large as that of North America, having tripled since 2000
(Cosmetics Business, 2011). This enormous growth is partially due to an expanding middle
class and an increasing cultural fascination with looking good. These middle-income
consumers are driving the Latin American beauty industry, especially in countries such as
Brazil and Peru (Euromonitor, 2013).
Currently Latin America is the fourth largest cosmetics market globally (Cosmetics Business,
2013), with Venezuela as the largest consumer with cosmetics consumption of US $390 per
person. Brazil closely follows at number two at $380 per person. Following are Mexico,
Columbia and Peru with consumptions of $330, $320 and $290 respectively (Galofre, 2012).
Peru has seen the biggest increase in growth recently, with 13% experienced in 2011
(Galofre, 2012). Brazil has also been described as one of the fastest growing beauty
markets worldwide, soon to overtake Venezuela as the top market in Latin America
(Cosmetics Business, 2012).
The popularity of male beauty products is booming (GCI magazine, 2013) with the market
growing at an annual rate of 9%. Men are becoming more image-conscious with a trend
towards them purchasing their own beauty products rather than their wives. (Lennard, 2010).
Current estimates suggest that males within Latin America spend on average $50 a month
on beauty products, which results in 18.3% of the overall male beauty market (Cosmetics
Business, 2010).
Recently, the Latin American market has seen a shift towards the mass market - more
companies introducing new product lines at lower prices (Euromonitor, 2013). This is
because sales growth comes mostly from mass marketed products. These products are
now increasingly being sold in specialist beauty retailers, having seen a huge push towards
store based retailing, especially in Brazil (Euromonitor, 2013).
Within the Latin American market, time saving and long lasting products have seen a surge
in popularity (Euromonitor, 2013). These products help reduce the time spent by consumers
on beauty regimes and include products such as 2-in-1 shampoo and conditioner (Lennard,
2011). Sun-protection products are becoming more popular as well as anti-blemish products
due to an increasing awareness of the dangers related to high sun exposure (Euromonitor,
2013).
6. 6
2.2 Industry Features and Trends: PESTLE-Analysis
By conducting a PESTLE analysis, a greater understanding of the external factors affecting
P&G can be achieved. Table 1 depicts a growing middle class is driving growth in the beauty
industry with rising disposable income driving demand for non-essential items. There is a
clear trend towards health consciousness and a focus on appearance. It can also be noted
that consumer choice is leaning towards ecologically sustainable products. It can be
concluded that Latin America populates a younger demographic.
Table 1. PESTLE-Analysis of the Beauty Market and the Industry
Beauty Market Industry
Political In Argentina the demand for beauty
products stayed flat in volume in
2012. The Government imposed
import and price controls which
affected market performance. The
second half of 2012 turned more
positive as import controls were
relaxed due as the government
reached its established quotas
(Euromonitor, 2013).
Local Chemists are petitioning to local
councils to prevent the opening of any
more specialist beauty retailers – this
poses a distribution challenge to
beauty products manufacturers and
retailers (Euromonitor, 2013).
Countries such as Venezuela,
Argentina have greater political
volatility and more vulnerable to
infrastructure and labour
disruptions than other established
markets (Annual Report, 2013).
Economic Growing middle class in Latin America
continues to drive growth – this
emerging segment of the population is
significantly boosting the consumption
of not only mass but also premium
beauty products. This economy
continues to boost aspirational
purchases and increased demand of
non-essential products like colour
cosmetics, fragrances and skin care.
A feature of emerging markets and
developing economies is
expanding middle classes with
rising disposable income level and
high population growth rates.
Failure to manage the high
volatility in foreign exchange rates
can influences the debt rating of a
company and create risks
7. 7
associated with foreign currency
exposure (P&G Announcements,
2013).
Developing countries grow faster
than developed countries. In 2012,
The United States grew at 2.2%
and United Kingdom grew at
0.3%. Venezuela and China grew
5.6% and 7.8% respectively,
which are relatively higher than
developed countries (The World
Bank, 2013).
Record levels of employment in
Brazil continue to boost demand in
the growing cosmetics industry.
Social Increasing focus on consumer health
consciousness, physical appearance
and wellbeing is driving consumer
demand for increased emphasis on
product safety and products providing
health benefits.
Consumer conscience gradually
shifting towards ecological
manufacturing processes and
renewable products (Goleman,
2009).
Technological Delivering new and innovative
products crucial to success in beauty
industry; investment in research and
new technology is crucial to maintain
existing and attract new customers.
The rate of technological change
is high in the industry. There are
growing markets in mobile and
internet. E-commerce is an
upwards trend globally. (Thad
Rueter, 2013)
Legal Key features of beauty industry are
the use of copyrights and patents by
firms for their products and
technologies (Annual Report, 2013).
Firms must adhere to Competition
Law that maintains market
competition by regulating anti-
competitive behaviour. A
requirement for multinational
companies is compliance with
8. 8
differing interpretations of
Competition Law in each of the
different countries they operate.
Environmental Beauty products must be relatively
environmentally sound to be
consumer-friendly; raw materials
sourced with ecological awareness,
and manufacture and distribution must
be ethical.
There is a focus to continue
reducing in energy consumption,
CO2 emissions, disposable waste
and water consumption (P&G
Sustainability Report, 2011).
An increasing „green‟ focus has
driven legislation imposing
limitations and fines for waste
discharge and pollution.
2.3 Competitive Forces in the Industry: Porter’s Five Forces Model
Porters Five Forces analysis highlights the rivalry within an industry and allows the business
to understand where threats may come from. From this analysis, (see figure 1 and appendix
III), it can be concluded that within the Latin American market there is a high threat of
competition from well-established companies due to a large number of substitute products
available and low switching costs. For these well-established companies there is little threat
of new entrants as it is difficult for new companies to enter the market due to high capital
requirements along with problems of getting access to distribution channels. Between these
large competitors there is high rivalry due to low switching costs between standard products.
P&G will have to focus greatly on brand awareness in to order to gain a competitive
advantage ahead of the other companies. It can be seen that it may be difficult for P&G to
get a good position within the market, so they may need to consider a partnership in order to
move in successfully.
10. 10
3. Internal Analysis
3.1 Overview of Current Strategies & Key Strategic Problems
P&G‟s core focus is on superior quality and value creation to „improve the lives of the world‟s
consumers‟ (P&G, 2013). P&G‟s current strategy is to focus mainly on their most profitable
businesses, but not lose sight of innovations and the developing markets that promise future
growth. Eager to create a cost savings culture in terms of operations, P&G generate more
profitability. They focus large amounts of resources on innovation and/ new product creation
pipeline. This means individual brands within the company have a portfolio of innovation in
all product categories. (P&G, 2013) The leading Fast Moving Consumer Goods Company
believe that if P&G provide consumers with such superior quality products, they will succeed
on sales, profit and value creation, so much that they will achieve financial targets of 1%-2%
faster than the average market growth (P&G, 2013).
However this core focus is not without fault; strategic problems can be drawn. P&G‟s current
strategy dictates only briefly not forget emerging markets; despite this strategy in the past (in
China and Western Europe) proving to be a source of great success. P&G should make
growth in emerging markets a priority and more specifically, focus on fewer but more stable,
profitable markets rather than just trying to gain any form of presence in multiple markets.
P&G should seek to gain a better understanding of these emerging markets, and not
assume that other cultures will respond as well to those already familiar with the P&G brand.
They must consider alteration for other markets, not just for products, but also for marketing
and availability.
Finally, P&G must ensure they are fully utilising their resources and capabilities, with regard
to their innovation and market knowledge. Specific focus in this area should ensure a more
profitable segment in the future.
3.2. Company Performance Analysis
P&G performance will be considered from three perspectives. By analysing the company‟s
financial statements, by considering the stock market valuation of the company, and by
considering the company‟s dividend return performance.
3.2.1 Financial Statement Analysis
P&G has maintained continual growth in sales revenue throughout the period 2009 to 2013
despite an 18.8% 5-year decrease in net profits, Table 2. P&G‟s waning net profit
performance is due to the competitive consumer goods industry where they have been
11. 11
subject to fierce competition for market share by continuing growth of Unilever and Colgate.
A more direct threat to profits has been increasing global commodity prices (Figure 1, Cost
of Goods Sold), and P&G‟s exchange rate losses, particularly the heavy blow of the
Venezuelan currency devaluation in February 2013.
Table 2. Financial Statement Highlights Comparison 2009-2013. (Annual report, 2013)
2013 2012 2011 2010 2009 5
Year %
Change
Net Sales $84,167 $83,680 $81,104 $77,567 $75,295 11.8%
Gross Profit $41,739 $41,289 $41,245 $40,525 $37,644 10.9%
Cost of Goods Sold $42,428 $42,391 $39,859 $37,032 $37,651 12.7%
Operating Income $14,481 $13,292 $15,495 $15,732 $15,188 (4.9)%
Net Earnings attributable
to P&G (Year End Profit)
$11,312 $10,756 $11,797 $12,736 $13,436 (18.8)%
Net Earnings Margin
from Continuing
Operations
13.5% 11.1% 14.4% 14.0% 14.1% (60) bps
Cash and Cash
Equivalents
$5,947 $4,436 $2,768 $2,879 $4,781 24.4%
P&G‟s sales gains in emerging markets have been offset by their declining performance in
developed markets; concerns of market saturation in developed markets have emphasised
the necessity for continual growth in developing markets. Table 3. and 4. highlight the
decrease in performance of the Beauty and Grooming segments relative to their
performance in 2012. The performance of segment leading multi-billion dollar brands has
hindered growth, particularly in the beauty segment.
Table 3. Beauty Segment (Annual report, 2013)
($ millions) 2013 Change vs.
2012
2012 Change vs.
2011
Volume n/a 0% n/a +2%
12. 12
Net Sales $19,956 -2% $20,318 +2%
Net Earnings $2,474 +4% $2,390 -6%
% of Net Sales 12.4% 60 bps 11.8% (100) bps
Table 4. Grooming segment (Annual report, 2013)
($ millions) 2013 Change vs.
2012
2012 Change vs.
2011
Volume n/a -1% n/a +1%
Net Sales $8,038 -4% $8,339 +1%
Net Earnings $1,837 +2% $1,807 +2%
% of Net Sales 22.9% 120 bps 21.7% 10 bps
P&G‟s challenge is reversing a decreasing year end operating income. The operating
income decline points to a reduction in productivity and inefficient utilisation of resources and
capabilities. Reversal of this trend will provide potential for growth across all segments of the
business, however failure to deal with operational short-comings makes the strong cash
assets position a redundant resource.
3.2.2 Stock Market Value
P&G‟s share price fell dramatically at the end of the financial year in 2009 due to the time-lag
period investors took to re-evaluate feeling towards the company post financial crisis (Figure
2). P&G‟s main consumer goods rivals displayed similar trends of falling share prices
following the crisis (Appendix I); highlighting an industry trend rather than poor company
performance. A comparison of share price trends in the post-2009 years of all 3 companies
reveals both Colgate-Palmolive and Unilever have experienced larger growth in share price;
estimates show P&G growth to be 23% with Colgate-Palmolive and Unilever experiencing
growth of 85% and 66% respectively - suggesting market sentiment favours the growth
opportunity of P&G rivals.
13. 13
Figure 2. P&G NYSE Share Price 2009-2013 (Yahoo! Finance)
3.2.3. Dividend return
A dividend yield comparison between P&G common stock and the S&P 500 market index
(Figures 3 and 4) shows P&G‟s shareholders receive a return on their investment superior to
the broad market index. The strong dividend return of P&G is an indicator of the financial
well-being of the company. Though a different interpretation suggests a depressed share
price, indicating investors no longer see growth for P&G stock; prices have peaked and the
future holds a prolonged downturn for the share price.
Figure 3. P&G 5-year dividend yield (ycharts, 2013)
14. 14
Figure 4. S&P Index 5-year dividen yield (ycharts, 2013)
P&Gs dividend policy of continual growth in returns shows the strong financial capability of
the company; they are able to operate and meet their obligations whilst delivering strong
dividend returns. If P&G were to reinvestment a larger proportion of profits into the business
this could help facilitate future growth; they have historically favoured funding research and
development or acquisitions.
3.3. SWOT Analysis
The SWOT analysis enables further examination of the Beauty segment, in order to fully
consider the strategy required. The Beauty segment is under-utilised and greater profitability
can be achieved (Table 5). P&G‟s billion dollar brands should individually addressed to
remain key to the segment‟s success. The major opportunity highlighted is growth within
Latin America, and further presence of P&G in this market. With development in China and
EMEA succeeding, Latin America‟s growing middle-class is the next step. Decreasing global
market share of the beauty segment poses a recurring threat, combined by the severe
competition from Unilever and L‟Oreal. P&G must utilise their opportunities in order to gain
Beauty and Grooming Segment dominance in the marketplace.
15. 15
Table 5. SWOT-analysis
STRENGTHS WEAKNESSES
- Brand Awareness for P&G, including
Beauty Segment Brands remains one of the
highest in the industry.
- The overall Profitability is growing year on
year; $75,295 in 2009 to $84,167 in 2013. A
financially stable company means capital is
available for investment in the Beauty
segment. (Annual Report, 2013)
- $20 billion net sales reflected in global
beauty in 2013 represents a high demand for
beauty products.
- Billion dollar brands make up this segment,
supporting a secure base: Olay, Head,
Shoulders, Pantene, & Wella. (Annual
Report, 2013).
- Social Media Network is thriving. (February
2012 - dramatic change in strategy to meet
the digital needs)
- An un-favourable geographic mix reduced
net sales by 1% due to disproportionate
growth in developing regions, which have
lower than segment average selling prices.
(Annual Report, 2013).
- Beauty net sales decreased 2% to $20.0
billion in 2013 on unit volume that was in line
with the prior year period. The segment is
underperforming. (See Table 3.)
- Focus in high-end market - the competitors‟
products are less expensive and a number
of customers may turn away from P&G items
towards lower-priced alternatives.
OPPORTUNITIES THREATS
- The Beauty segment remains at 24%, as
the second largest group in terms of sales.
There is scope to reach a large audience of
people.
- 61% market share in Developed and 39%
Developing Countries meaning scope here
to reach out to developing countries like
Latin America. (Annual Report, 2013)
- 10% presence in Latin America; the
smallest segment when separated by
geographic regions. Both Asia and EMEA
have higher segments yet also developing
countries. This shows there is potential to
expand share in Latin America Latin
America. (Annual Report, 2013).
- The growth of the middle class in emerging
markets (Brazil is one of the seven largest
emerging markets and developing
economies by either nominal or inflation-
adjusted GDP)
- The Global market share of the Beauty
segment decreased 0.5 points 2012-2013
- Competition: Unilever‟s Axe holding
number one market position in several Latin
American and European Markets. (Unilever,
2013).
- Competition: L‟Oreal aims to double sales
in Brazil by 2015 and add 50 million new
customers there in the next decade as Latin
America‟s largest economy expands.
(Robert, 2011)
16. 16
3.4 Key Resources and Capabilities
The key resources which P&G have (Table 6), highlight the key success factors of the
company.
Table 6. Key Resources
Reputation In 2012, P&G was named the 10th
most reputable company in America by
Forbes, up from number 20 the previous year. This ranking was a result of
research into customer views on trust, esteem, admiration and good feeling.
Financial P&G as a result of their success are able to justify spending a large amount of
money on research and development of new innovations.
Physical P&G has a wide global positioning with their products marketed in over 180
countries worldwide. They have a wide network of facilities and dedicated
innovation facilities spread over five continents.
Culture P&G places a large emphasis on customer orientation, developing a superior
understanding of what their customers want and need. Allowing them to
develop a close relationship with their customers.
Human Currently P&G employees 129,000 employees from a wide diversity of
backgrounds, currently representing 150 different nationalities. This allows
P&G to have access to a large, varied knowledge and skills base.
By looking at the key capabilities, (Table 7), of P&G as shown in the value chain (appendix
II), the importance of the key resources can be identified and so fully utilised.
Table 7. Key Capabilities
Marketing P&G is a well-known, worldwide brand with a huge customer base. In
order, to reach out to an even wider audience, P&G undertake extensive
advertisement and promotion helped along by an extensive sales force.
This helps to create awareness of the extensive product range they have
available (Annual Report, 2013). Their established reputation, allows them
to sell products more easily under their name allowing them to build good
quality relationships with their customers.
HRM Employees of P&G come from a wide range of backgrounds and areas,
allowing P&G to tap into a huge number of different skill and knowledge
bases (P&G, 2013) These employees help maintain P&G‟s customer
orientated culture, allowing the company to provide exactly what the
customers want, and when they want it.
17. 17
Technology
Development
P&G are continuously coming up with new innovative products, thanks to
acquisitions as well as from the sharing of knowledge within the company.
They have excellent research and innovation centres around the world,
which allows for the continued innovation and knowledge sourcing (P&G,
2013). Their partnerships with different universities allows for them to
acquire new ideas and ways of thinking in order for them to stay
competitive.
Procurement In order to be cost effective, P&G‟s raw materials are sourced and
procured from all over the world. P&G are also committed to sustainable
procurement and their practices relating to working capital items for
customers and suppliers are consistent for the industry segment in which
they compete (Annual Report, 2013).
3.5. Comparison to Competitors Resources and Capabilities
Looking at competitors, P&G‟s competitive advantages can be identified. The capabilities
that are being compared are those that are desirable within this industry.
Table 8. Comparison of P&G's, L'Oreal's and Unilever's Resources and Capabilities
P&G L’Oreal Unilever
Presence in
Emerging
Markets
P&G have a
presence in China
now they have
understood the
market better. There
is a growing
presence in Latin
America.
Opportunities in India
remain, yet a small
presence is
established.
Traditionally South
America, Russia and
the Far East where
were most L‟Oreal
product were
distributed externally. In
recent years, the
destinations are
increasing.
Unilever generates
more than half its
annual sales from
developing and
emerging markets yet
in recent years lots of
evidence towards
lower than expected
sales in these
markets.
Global Presence North America takes Strong Presence in Anglo-Dutch group.
18. 18
the no. 1 position for
highest presence but
clear that P&G has
high global
awareness for its
individual Brand
names rather than
for „P&G‟.
Western Europe and
particularly France.
Known primarily as a
female brand for
“beauty and quality”.
Famous tag line
“Because you‟re worth
it!”
Very good brand
reputation – few
corporate mishaps,
controversy-free.
Different brands for
different countries.
Lynx, Dove – UK.
Paddle pop – AUS.
Brand
Awareness
Biggest FMCG
company in the
world. Multimillion
dollar brands have
huge global
awareness. Known
for its quality
products at premium
prices.
L‟Oreal started as a
hair care company, so
their reputation for
quality in this industry is
strong. Large marketing
efforts make L‟Oreal a
recognisable brand.
Like P&G, Unilever
known for its brands
rather than company
name. High brand
awareness worldwide.
Responsiveness
to Change
P&G are clear on
their strategy of
ensuring
manufacturing sites
serving both local
and global supple
networks are highly
responsive to
changes in demand,
based on real-time
data from the stores.
L‟Oreal‟s technique to
become more
responsive to change is
by adapting to the
specifics of local
markets using a 5-zone
format. Being
separated
geographically allows
each segment to
respond to change
more efficiently in each
area (L‟Oréal, 2013).
Unilever consider
management
primarily when
regarding
responsiveness to
change –
performance of new
Line managers and
Corporate structure
helps aid responsive
effectiveness.
19. 19
4. Recommendations
4.1. Recommendation 1 - Marketing adjusted to different cultures in
different markets
Typically P&G have a strong advertising presence, yet mainly through television and print
adverts, which led to strong brand recognition. P&G have also made use of the indirect
marketing technique of sponsorship, largely using the whole company as a sponsor of the
Olympic Games, and individually in Brands like Pampers connecting with UNICEF to help
expectant mothers in developing countries.
With the digerati hype of the 21st Century, digital marketing has also been considered. As of
August last year, P&G reported that 35% of the Marketing budget was spent digitally (Neff,
2013), demonstrating a response to the market. This included mobile advertising, android
Apps such as „Pampers Premium‟ and Social Networking Advertisement (Pampers, 2013).
This technique has worked better with some brands than others. For example, the brands
with older target markets like Olay and Pantene may not have as many target customers
looking online as would younger target market brands like Herbal Essences and Always.
Looking at this in a Latin American context, it is useful to see how marketing techniques can
be adjusted to suit the contrasting market.
Latin America has a rapidly growing online population, in fact from March 2012 – March
2013; their online population grew at a faster rate than any other region in the world, rising
12% to 147 million visitors (Digital Strategy Consulting, 2013). These consumers spend 10
hours a month of social media, doubling the global average time. Mobile phones are also
growing in traffic, highlighting another advertising channel. When looking to use this
information in a marketing context, information shows online shoppers upped by 26% last
year and online advertising in Latin America is growing 97%, with 130 billion online
advertising impressions being delivered in March 2013 (Digital Strategy Consulting, 2013).
From this information it is obvious that a digital marketing campaign should be the primary
focus within advertising in Latin America. The average age in the country is 27.8 (World-Stat,
2013), thus online activity is more popular than those countries with older demographics. By
selecting younger brands like Gillette, Herbal Essences and Tampax, P&G should use online
media as advertising venues. Facebook is the biggest Social Network used in Latin America,
growing 7,915 users between 2011 and 2012 (Digital Strategy Consulting, 2013), thus an
effective channel to pursue.
It is important to see where Latin America is viewing advertising, but equally what they are
20. 20
responding to. Trends throughout the countries represent Men‟s beauty is growing with
men‟s purchasing power increasing in Bolivia and men‟s hair care becoming more popular in
Peru. Brazil also shows men‟s grooming on an upwards trend (Euromonitor, 2013). Yet the
outstanding factor from countries mentioned and also the rest of Latin America is the interest
in natural, healthy products. Those like moisturiser with organic and natural extracts, in
particular anti-ageing and anti-wrinkle creams (Euromonitor, 2013). With both men and
women sun-protecting creams and anti-blemish are of an upward trend. This shows the
importance of emphasising these natural qualities when marketing in Latin America and
choosing products more suited to this brief.
When looking at these longer-term goals, short and medium-term objectives can be
concluded.
A shorter-term goal would be addressing the obvious importance to the Latin Americans of
skin-care and protection. P&G should use inbound marketing to capitalise on this. More
specifically, they should gain attention of the consumers by creating a free of charge skin-
care android application. This would give information like the best skin-care products for
different skin types, dealing with sun-burn, anti-wrinkle tips and so forth. Conveniently, P&G
would show-off their products but in a subtle way, gaining trust from the consumers. It would
be suitably engineered so that you could „tap to buy‟ when looking at these range of
products. This app would be advertised on Facebook so to reach the market that would want
to download the app.
Longer-term it is important to think about improving brand awareness. P&G should use their
Pantene ambassador, supermodel Gisele Bundchen to create an online advertising hype.
Gisele has spoken in the past about her passion for her country Brazil, and for beauty and
careers (Pele, 2013). The Latin American market would respond well to a highly-regarded
model from their country and she would be eye-catching on an advert. Initially P&G could
use Gisele to appear on adverts of a product that would be ideally suited to the Latin
American median age, female demographic. This would be something like Olay Essentials
Complete Care Touch of Foundation as it encompasses all the important factors to this
demographic such as sun-protection (SPF 15), skin-care (moisturiser) and time –saving and
long-lasting products (3 in 1),(Olay, 2013). By showcasing a product that is ideally suited to
this market, by a public figure that the consumers will respond to, P&G is implementing a
long-term marketing strategy by building strong brand quality and awareness.
21. 21
In the short and medium term, P&G should fully utilise Facebook advertisements in the
online advertising campaign since it is the platform most likely to reach this target market
selected. These are effective as they can be targeted at a specific market, so an age group
and sex could be selected. Facebook is the most used social network site in Latin America,
so it would effective. Addressing Latin America‟s online presence and this female, median-
age demographic, P&G could increase these advertisements to websites such as Beauty
Box, a Latin American beauty retail store, whereby such demographics would be most likely
visiting.
4.2 Recommendation 2 – Joint Venture with Cosméticos S.A
This report recommends P&G enters a joint venture partnership with Natura Cosméticos
S.A., a Brazilian personal hygiene, flagrancies and cosmetics manufacturer and retailer; to
overcome P&G‟s current difficulties with understanding the beauty industry in the Latin
American market and also increase the availability of P&G products across all Latin
American beauty markets. P&G has shown from its inception that it has industry competitive
advantage in its ability to integrate new companies into their business strategy and have
them operationally synchronised in a short period of time; P&G will rely on these capabilities
to successfully venture with Natura.
P&G currently achieves 39% of its sales from emerging markets (Annual Report, 2013); less
than both of their primary competitors Colgate-Palmolive and Unilever (Jopson, 2012). P&G
is losing the battle for market share in the beauty segment because they do not have the
same knowledge as their rivals. P&G claim to be one of the first company‟s in the world to
use data-based market research and, alarmingly, they claim to have invested the most in
market research of all companies (P&G, 2013). Clearly this research is not being translated
into market share and business segment growth; their research has failed to understand new
culture, different social problems and market trends. In Latin America P&G have failed to
deliver on their promise to create value through „Consumer understanding and Innovation‟
(P&G, 2013).
In order to fully utilise these core strengths P&G need the tacit knowledge crucial to doing
business in Latin America; the market research is time-wasted without the knowledge of how
to effectively implement market research. Natura provide P&G with instant „how to‟
knowledge in Latin America, evident by their increasingly successful business operation in
the last 10 years.
22. 22
Recently many changes have been taking place within the Latin American market regarding
the point of sale for beauty products. Consumers in different countries have their own
preference as to their most popular place to purchase beauty products. Argentina has
recently seen local chemists petitioning to their councils to stop the opening of any more
specialist retail outlets, as they have many of them and it is affecting their sales. However,
the people of Argentina like these specialist stores as they are clean and well laid out. As a
result, they have seen an increase in the popularity of direct selling. In Peru, direct selling
has suffered a serious blow due to the rapidly increasing expansion of retail stores. This is
due to the huge development of malls in many provinces which allows a greater audience to
be reached.
The joint venture with Natura enables P&G to benefit from a growing market leader that has
an loyal, established customer base. P&G would benefit from Natura‟s established
distribution and communications network. Natura has established commercial networks as a
specialist retailer and also as a direct seller with 1.5 million Natura consultants (Natura
Annual Report, 2012). P&G would use the Natura network to distribute P&G beauty products
to a wider market audience. With the combined market share of the two companies and their
scale efficiencies, they will benefit from combined operations immediately boosting their
competitiveness in the Latin American cosmetics industry.
The joint venture will also marry the two cultures and respective brand reputations. P&G will
benefit from selling its products using Natura‟s reputation for sustainable development, the
quality of relationships and promotion of the consumer well-being; values identified in the
industry analysis as crucial to marketing products to the changing consumer attitudes in
Latin America. Natura will benefit from P&G‟s immense research and innovation capabilities
to fill the „gaps in the market‟ they are striving to deliver (Natura Annual Report, 2012).
4.3 Recommendation 3 - Increase the awareness of the corporation’s
connection to the brand portfolio
P&G has a large portfolio of well-known brands, but the corporation „P&G‟ is too a large
extent hidden in the shadows of the individual brands. To further benefit from the marketing
of the corporation and each individual brand, P&G should aim to increase the awareness of
the corporation and the connection between it and the different brands in the portfolio. The
sales of the brands can then favour from each other since each brand can capitalize on the
23. 23
positive associations customers have with other brands in the corporation they are more
familiar with. Family branding, where products in the same as well as in different product
lines can capitalize on the reputation of a corporation and the positive image customers have
of it (Solomon 2012), will therefore favour P&G.
A customer that has bought and used some of P&G‟s products and that is satisfied with the
quality and value will be more willing to try other brands in the portfolio in the belief that they
will be equally satisfied with that product. Brands within the same business segment, like
Pantene and Olay in the beauty segment, as well as brands from different segments can
benefit from this kind of branding and it can create a higher degree of customer loyalty.
Customers that previously were loyal to a brand in the portfolio will then be more likely to be
loyal to the corporation, which is of great importance within a business where the switching
costs are considered to be low.
The marketing of P&G will be more efficient since customer will instinctively associate a
brand with the corporation and the other brands in the portfolio. Considering the sponsorship
of the Olympic Games with Rio de Janiero in 2016 nearest, the logo „P&G‟ will be featured
and visible at many place in different contexts. A higher output of the sponsorship would be
expected if the awareness of the P&G brand portfolio were higher.
Criticism to family branding is that different brands to the same extent can disfavour other
brands in the portfolio if a product fails in satisfying the customers. P&G‟s purpose is to
provide branded products of superior quality and the threat of customers turning away from
them towards lower-priced alternatives is always present. It is therefore of great importance
to offer value for money and focus on the quality of the products throughout the entire
product portfolio to secure that the customers are satisfied and loyal so benefits from a
higher awareness of the corporation‟s connection to the brand portfolio can be gained.
24. 24
5. Concluding Statement
The analysis of P&G‟s strategy and performance helps to understand how important strategy
is to any company, especially the biggest Fast Moving Consumer Goods Company in the
world. P&G reports success in many of its business areas, yet it can be identifiable that the
Beauty Segment is underperforming and our analysis shows us that this can be improved
with a stronger strategy. P&G does indeed have a global presence, yet from our analysis we
see how this could be developed much further in the growing economy of Latin America.
Combining these two key factors, and a wide range of internal and external analysis, it has
helped us identify areas of opportunity to improve the company‟s strategy. Our
recommendations highlight the importance of P&G having a greater understanding of the
Latin American Market, and knowing how best to reach the desired demographic in terms of
marketing efforts. P&G must also consider using the strength of the company brand name
when marketing business segments of the brand portfolio. With such a great selection of
resources and capabilities, P&G could achieve so much more with a better strategy and turn
the Beauty Segment away from underperformance.
25. 25
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30. 30
Appendices
Appendix I.
The Proctor & Gamble Company NYSE share price 2009-2013
Source: Yahoo! Finance
Colgate-Palmolive Company NYSE share price 2009-2013
Source: Yahoo! Finance
Unilever NV Common Stock NYSE share price 2009-2013
Source: Yahoo! Finance
32. 32
Appendix III: Porters Five Forces
High Threat from Substitutes
- In the cosmetics market, the threat of substitute products is always present due to
low switching costs between different brands.
- The consumer‟s willingness to switch depends on the relative price and performance
of the products.
- P&G are continuing to provide cutting-edge, innovative products to their customers
by developing a deep customer understanding and improving product in-store
presence.
Low Threat of New Entrants
There is a low threat of potential new entrants due to high barriers to entry.
- Capital Requirement: Capital costs are needed mainly in infrastructure, technology,
and marketing research.
- Economies of Scale: Cost-efficiency requires a large volume of output to amortize the
indivisible costs. New entrants typically enter with low market share and are forced to
accept high unit cost.
- Absolute Cost Advantages: those are the cost advantages irrespective of scale. New
entrants face the challenges that difficult to get the low-cost sources of raw materials.
- Product differentiation: the products for established firms are highly differentiated.
New entrants need spend disproportionately more on advertising and promotion in
order to again the same level of brand awareness as the existing companies.
- Access to Channels of Distribution: This barrier arises from the difficulty in obtaining
shelf space for consumer goods, that is because the pre-existing relationships
between producers and buyers is important as it allows them to negotiate the price
and discounts.
- Governmental and Legal Barriers: legal barriers make new entrants hard to enter the
research-intensive personal products industry. This is because some intangible
assets had already paid by established producers to protect their new innovation
ideas by copyrights and patents. In Ecuador, new product innovations have to be
registered at very high prices. These are between 10 and 20 times higher than in
neighbouring countries (Euromonitor, 2013) which restricts companies with their
innovation and hurts the industry.
33. 33
High Rivalry between Established Competitors
In the beauty industry, P&G is highly competitive with four main competitors: Unilever,
Johnson and Johnson and Kimberley-Clark and Colgate-Palmolive. High rivalry can be
expressed as follows:
- Concentration: High market concentration ratio. In particular, single firm dominates
the market like P&G Gillette in razor blades.
- Switching costs: low switching costs in certain products such as those which are
similar for both price and quality.
Moderate Bargaining Power of Buyers
- Buyers‟ Price Sensitivity: low buyer price sensitivity for P&G differentiated products, as
retailers such as Wal-Mart, HEB and Walgreen want the best products on their shelves
and so are forced to keep their own costs down.
- High dependency on Wal-Mart creates the “Wal-Mart effect” which reduces the
bargaining power of P&G and inversely be imposed unfavourable terms on the
company.
Low Bargaining Power of Suppliers
- P&G has a co-dependent relationship with most of its suppliers.
- P&G needs various quality materials for production at the best prices in order to create
high quality products. The suppliers also need large customers like P&G and so will
have little bargaining power due to small size.
