Background
Procter & Gamble (P&G) is an American company that deals in consumer goods with a global presence. Forbes lists P&G at number 17 among the top American public companies based on its position on sales volume, profitability, assets, and market value. The company has cut itself a niche in the household/personal care industry and was listed as having a market capital of $228.1 billion as of May 2017 (Forbes, 2017). The success of P&G is founded on its business level and corporate strategies that have enable the company to expand not only its product portfolio, but also its market presence worldwide. This paper discusses some of these strategies with the objective to ascertain their influence and contribution to the success of P&G.
Analyze the business-level strategies for the corporation you chose to determine the business-level strategy you think is most important to the long-term success of the firm and whether or not you judge this to be a good choice. Justify your opinion.
Delegate your assignment to our experts and they will do the rest.
By P&G own admission, its success for over 180 years was founded on the willingness of its management to change anything and everything, except its purpose and core values in serving consumers while creating value for its shareholders. The company’s president has on several occasions observed that the company business level strategies are working better than ever. Business level strategies refer to business decisions take by a company to create, maintain, and use its competitive advantage. The strategies are developed after comprehensive evaluation of the product line, target market, and competition.
P&G heralds itself as a force for good and a force for growth. The company business level strategy is focused on creation of new brands, innovation, and scale, as evidenced through its laundry, baby care, haircare, and feminine protection products. Currently, the company operates on two critical business strategies: differentiation and global standardization. Procter and Gamble has an array of products for different purposes (cleaning agents, personal care products. beauty care products, personal healthcare products, and diagnostics). Its differentiation strategy stems from investment that has created dominance in the market place through vigorous advertising and product recognition. It is apparent that P&G employs Porter’s (2008) basic competitive strategy whose critical components are cost leadership, differentiation, and focus. The company’s products have demonstrated the effectiveness of the strategy as most consumers not only recognize them, but also use them because they are affordable.
Acemoglu, Gancia, and Zilibotti (2010) observed that innovation and product standardization are the competing engines of growth. P&G follows both with innovation used to introduce new brands whose production required skilled labor. According to Acemoglu, Gancia, and Zilibotti (2010), innovation is followed by the costly process of standardization. Procter and Gamble currently focuses on standardizing its products for a global market. The process requires use of strategies such as coordination of unit activities and utilization of human resources, critical components of functional level business strategy. Global standardization is currently pursued by P&G in place of the initial international strategy when the company first entered foreign markets. Global standardization as a strategy ensures that products marketed worldwide are standardized to reduce cost and ensure economy of scale.
The use of global standardization as a business level strategy proves to be inefficient where quick responses are needed. The cultural diversity of consumers worldwide is a major contributor to this inefficiency. Therefore, differentiation remains to be the most important strategy for achieving sustainable competitive advantage. Through differentiation, P&G has successfully created value, transformed its product portfolio, and improve productivity through innovation (P&G, 2017). In a comparative analysis of a firm’s strategic position at business level and sustainability, Banker, Mashruwala, and Tripathy (2014) established that differentiation strategy has the potential to sustain a firm’s current performance in the future to a greater extent compared to cost leadership and other strategies. The use of differentiation by P&G has allowed the company to develop distinctive competitive advantages, identify market niches for its new brands, and enhance monitoring of its product strategies to enhance product life cycle. Analyze the corporate-level strategies for the corporation you chose to determine the corporate-level strategy you think is most important to the long-term success of the firm and whether or not you judge this to be a good choice. Justify your opinion.
Procter & Gamble specializes in household/personal goods industry. However, over the years, the company underwent crucial transformations in its structure, an outcome of ventures into other sectors, notably the food industry. In a business environment, this is only natural because most corporations contemplate diversification when they identify opportunities outside their industry. When additional businesses are acquired by a company, the company must consider implementation of corporate level strategy. Corporate level strategies refer to the processes taken to define the industry in which the company operates, and setting of the necessary systems, structures, and processes for achieving sustainable competitive advantage. He and Balmer (2013) established that corporate strategy has a crucial link to comprehension and management of contemporary organizations, demonstrating almost a symbiotic relationship.
P&G employs a combination of multi-domestic and global strategies in driving its culture of beauty consciousness. The company has employed a number of strategies since inception including growth, consolidation, and global strategies. Initial efforts by P&G to achieve growth were implemented through diversification, horizontal integration, and vertical integration. For instance, following the high demand of the company’s products in the early 1910s, the building of additional plants contributed to diversification of product to include food products. A similar approach was adopted by P&G in its international expansion where it underwent vertical integration by launching new products and brands after acquiring a number of companies in the UK during 1930s. In 1957, the company purchased Charmin Paper Mills and ventured into manufacturing tissue paper products. The acquisition of Gillette in 2005 placed P&G at the leading position as the largest consumer company ahead of Unilever. The company has also placed emphasis on globalizing its products, which to a greater extent, is aided by its business-level strategies of cost leadership, differentiation, and focus. P&G main achievement has been turning its global presence into a competitive advantage. It multinational approach has made it possible to target different geographical markets with success.
Going by the recent development in P&G’s restructuring, it is evident that the company has decided to focus on its global corporate strategy. It is evident that the company has forgone diversification and only used horizontal and vertical integration to a limited extent. Coolidge (2015) posited that P&G announced its restructuring plans in 2014 and targeted to streamline its brands by dropping around 100 of them while retaining 65 that generated 95% of its profits. The move was followed by a series of sales of its acquisitions initially intended to provide diversification such the sale of Duracell to Berkshire Hathaway in 2016. One can argue that the company sought to narrow its products to ensure a centralized management approach that allows implementation of cost leadership and differentiation competitive strategies in its market expansion. Morgan (2015) observed that P&G continues to target merging markets in China, Russia, and India where it has the potential of winning enough market share to take a leadership position, by employing volume plays – winning market share through lower prices and higher volumes.
Analyze the competitive environment to determine the corporation's most significant competitor.
The recent sale of some of P&G acquisitions has drastically reduced the number of competitors in its initially diversified industry, including the sale of its 43 brands to an industry competitor, Coty (P&G, 2015). Nevertheless, it is important to point out that each of P&G profit segments (beauty, hair and personal care; grooming; health care; fabric care and home care; and baby, feminine and family care) has competition in the industry. For instance, in beauty, hair, and personal care segment, competitors include Avon, Colgate-Palmolive, Revlon, Coty, Elizabeth Arden, Estee Lauder, Inter Parfums Inc, and Unilever. This is worth noting given that 23% of P&G profits are form this segment. In the grooming segment, P&G is the dominant player after the acquisition of Gillette, with Bic the only notable international competitor. The company draws 17% of its profits from this segment. In the healthcare segment, which accounts for 7% of P&G profits, competitors include CCA Industries, Colgate-Palmolive, Church and Dwight Co., Ecolab, Stepan Company, and United Guardian. In fabric care and home care, which contributes 26% of the company earnings, P&G competes with Colgate-Palmolive, Unilever, and Church and Dwight Co. Colgate-Palmolive, Unilever and Church and Dwight Coastly are also the major competitors in the baby, feminine, and family care segment responsible for generation of 25% of P&G revenue. On the basis of segment profitability, one can argue that Unilever is P&G’s most significant competitor in the industry.
Compare their strategies at each level and evaluate which company you think is most likely to be successful in the long term. Justify your choice.
The Trefis Team contributing for Forbes in 2015 observed that P&G and Unilever are pulling in opposite directions in relation to their strategies. At the business level strategy, it is evident that both companies struggle for cost leadership but P&G strategy has emerged to be superior evidenced by its volume sales. In instances where Unilever has been struggling to surpass its growth projection in volume sales, P&G has been able to surprise analysists by surpassing expectations and the company hierarchy is confident of positing even larger volume sales. The two competitors also have varied approaches to differentiation as evidence by P&G 65 important brands compared to Unilever’s over 400 brands. The companies also differ in their corporate level strategies. According to the Trefis Team (2015), P&G while P&G was targeting to divest 100 of its brands in its “brand consolidation”, Unilever’s acquisition spree is projected to rise. This suggests that the two companies, despite targeting global growth, have different strategies of reaching their goal. Contrary to P&G which is selling its formerly acquired subsidiaries, Unilever embraces both horizontal and vertical integration, diversification, and consolidation. Unilever is establishing a presence in the food industry where P&G decided to exit.
Determine whether your choice from Question 3 would differ in slow-cycle and fast-cycle markets.
One can argue that Unilever approach at diversification and consolidation is informed by its need to remain relevant in the competitive environment by having product offerings for all its consumer segments. While such approaches may be effective in fast-cycle markets where market trends are constantly changing to meet trends and demands, it may prove to be ineffective in slow-cycle markets where changes take long to be realized. However, even in fast-cycle markets, consistency is central to providing value. The approach adopted by P&G to consolidate its brand through divesting implies that the company is strategically position itself to be competitive in both fast-cycle and slow-cycle markets. Through integration of innovation, P&G can meet emerging consumer demands, aided by the fact that its portfolio of consolidated brands is easy to manage. On the other hand, in slow-cycle markets, it doe s not have to undertake such measures as its brands would still be competitive. Therefore, Unilever would not be the major competitor to P&G in either market scenario.
References
Acemoglu, D., Gancia, G., & Zilibotti, F. (2012). Competing engines of growth: Innovation and standardization. Journal of Economic Theory , 147 (2), 570-601.
Coolidge, A. (2015). P&G brand sales, restructuring will cut jobs up to 19%. Cincinnati Enquirer . Retrieved 11/11/2017 from: https://www.cincinnati.com/story/money/2015/07/09/pg-spins-off-covergirl-wella-and-fragrance/29903547/.
D. Banker, R., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy? Management Decision , 52 (5), 872-896.
Forbes. (2017). America’s top public companies. Retrieved 11/11/2017 from: https://www.forbes.com/companies/procter-gamble/.
He, H. W., & Balmer, J. M. (2013). A grounded theory of the corporate identity and corporate strategy dynamic: A corporate marketing perspective. European Journal of Marketing , 47 (3/4), 401-430.
Morgan, P. (2015). Procter & Gamble eyeing opportunities in emerging markets. Retrieved 11/11/2017 from: http://marketrealist.com/2015/07/procter-gamble-eyeing-opportunities-emerging-markets/.
P&G. (2015). P&G Accepts Coty’s Offer of $12.5 Billion to Merge 43 P&G Beauty Brands with Coty. News Release. Retrieved 11/11/2017 from: http://news.pg.com/press-release/pg-corporate-announcements/pg-accepts-cotys-offer-125-billion-merge-43-pg-beauty-brand.
P&G. (2017). Company strategy. Retrieved 11/11/2017 from: http://www.pginvestor.com/Company-Strategy/Index?KeyGenPage=208821.
Porter, M. E. (2008). Competitive strategy: Techniques for analyzing industries and competitors . Simon and Schuster.
Trefis Team. (2015). Are P&G And Unilever Headed In Opposite Directions? Forbes. Retrieved 11/11/2017 from: https://www.forbes.com/sites/greatspeculations/2015/03/25/are-pg-and-unilever-headed-in-opposite-directions/#78762b52b581.
