Overview

Procter & Gamble


Industry Area: Worldwide producer of consumer, household and pharmaceutical goods (in addition, P&G manufactures chemicals as input for its own products as well as for the chemical processing industry, and P&G produces Soap Operas as part of its elaborate marketing strategy in order to hook female customers up to its brands).

Overview

Market share/importance:
Procter & Gamble (P&G) is America’s biggest maker of household products, with at least 250 brands in six main categories: laundry and cleaning (detergents), paper goods (toilet paper), beauty care (cosmetics, shampoos), food and beverages (coffee, snacks), feminine care (sanitary towels) and health care (toothpaste, medicine).

P&G’s famous brands include Ariel, Pantene, Head & Shoulders, Fabreze, Sunny Delight, and Oil of Olaz. About half of P&G's sales come from its top ten brands.

P&G also makes pet food and PUR water filters and produces the soap operas Guiding Light and As the World Turns [1]. Finally, P&G produces chemicals. Today, P&G markets its products to more than five billion consumers in 130 countries. The company has on-the-ground operations in over 70 countries around the world, and employs more than 106,000 people. Last year’s (2000) turnover equalled $37 billion [£25,6 billion].

P&G is one of the world’s biggest advertisers [2]. Advertising Age estimate a 1999 media spend of $4.7bn [£3,3bn], of which around $3bn [£3,253bn] was outside the US, making it the world's #2 advertiser [3].

Fortune 500 lists America’s Top Performing Companies. P&G ranks #39 on the list, before its main competitor Johnson & Johnson (#57) and Kimberly-Clark (#142). P&G also outperforms Unilever and Nestle, the company’s main competitors overseas [4].

History

Soap&Candles
Candlemaker William Procter (an immigrant from England) and soapmaker James Gamble (arrived from Ireland) launched their new enterprise in Cincinnati in 1837. The company gradually grew into a multi-million dollar corporation. ‘During the Civil War, Procter & Gamble was awarded several contracts to supply soap and candles to the Union armies. These orders kept the factory busy day and night, building the Company's reputation as soldiers returned home with their P&G products.’[5]

Once a staple of the company's product line, candles declined in popularity with the invention of the electric light bulb. P&G discontinued candle manufacturing in the 1920s [6]. Soap is still one of P&G’s core products. P&G was the first company to advertise nationally direct to consumers (Ivory soap in the 1880s) and it literally created the concept of "soap opera" by sponsoring radio and television dramas targeting women [7].

P&G defined many marketing strategies we now take for granted. Marketing (still gaining importance) is definitely an important key to P&G’s success. As one critic put it: "Within a paternalistic corporate culture, P&G pioneered in brand management, in consumer surveys for marketing research, and in new product research and development. One reason for P&G's domestic success has been their reliance on a combination of consumer research, advertising, and distribution techniques." [8]

Bad Results
However, P&G has not been very successful recently. ‘Annual sales growth has been slowing over the last few years, from 5 percent in 1996 to 2.6 percent in 1999’. The company stumbled badly in 2000 missing analysts’ profit expectations and causing its famously reliable stock to plummet from $103 (£71,3) in January 2000 to $64 (£44,3) in June 2001 [9].

In 1999, CEO Durk Jager kicked off Organization 2005 in order to forge better performance. Organization 2005 includes cutting 17,000 workers over the next three years and reorganising the company's corporate structure from four geographic business units to seven global business units based on product categories.

Culture Change
‘Organization 2005 also aims at changing P&G's culture from a conservative, slow-moving, bureaucratic behemoth to that of a modern, fast-moving, Internet-savvy organisation. P&G wants to make faster and better decisions, cut red tape, wring costs out of systems and procedures, fuel innovation, set more aggressive sales goals and nearly double its revenue. The catalyst for all this change is IT.’[10]

In addition, P&G wants to abandon its legacy of secrecy. ‘Its new spirit of openness is most evident on the Internet. A year ago, it was a stodgy, nondescript site where no one other than investors or job seekers had any reason to go to. Today, you see a consumer-friendly portal with loads of information about P&G products.’[11]

So far, Organization 2005 has had little to show. However, P&G stresses the company will pick the fruits of the ambitious restructuring plan in the near future. "This restructuring," former CEO Millen explained, "will ensure that P&G is well placed to address the issues facing manufacturers, retailers and wholesalers at the outset of the 21st century. Examples of these issues are the internationalisation and consolidation of retailing, consumer loyalty and retention, category management, the potential effects of the Euro currency and dramatic advances in information technology."[12]

New Alliances
One of P&G's new strategies is linking up with other companies to extract as much value from its brands as possible. Last February (2001) Coke and P&G announced a $4bn [£2,77bn] alliance. The alliance would involve the union of some 40 consumer products (including Sunny Delight, Pringles and Minute Maid) under the umbrella of a Coke-P&G joint venture. P&G was hoping Coke’s far-reaching distribution network could give the company a boost. P&G’s renowned R&D capacities were attractive to Coke. Eight months later the consumer goods behemoths called the wedding off. ‘A spokesman for Coke said: "After many months of due diligence with Procter & Gamble, we felt that we could unlock the value of our brands more effectively and profitably by retaining full control of them."’[13]

However, P&G successfully tied up with chewing gum giant the Wrigley Company. The deal will allow P&G to cash in on the global gum, mint, and breath-freshener market. This is bigger than the toothpaste market and equal in size to the shampoo or skincare sectors. ‘We will soon be able to sweeten our mouths with Crest gum, Crest mints and Crest breath freshener’, the Guardian reports [14]. P&G has recently announced it will sell the Jif and Crisco brands in a bid to get rid of under-performing brands. P&G and J.M. Smucker Co., which makes a wide variety of jams, jellies and other foods, is acquiring the Jif peanut butter and Crisco cooking oil brands from P&G for $1 billion in stock [15].

References
[1] www.hoovers.com/co/capsule/1/0,2163,11211,00.html (source: Hoover’s Business Information, date viewed: 22/10/01)
[2] ‘Plan Global, Win Local’, by John Millen, Vice President, Customer Business Development at Procter & Gamble (www.kamcity.com/library/global.htm, source: Kamcity, date viewed: 22/10/01)
[3] www.mind-advertising.com/us/pg_us.htm (source: Mind Advertising, date viewed: 22/10/01)
[4] www.hoovers.com/cgi-bin/offsite?site=HBN&url=www.fortune.com/fortune/fortune500 (source: Hoover’s Business Information, date viewed: 04/10/01)
[5] www.pg.com/about_pg/overview_facts/history.jhtml (source: P&G, date viewed: 05/10/01)
[6] Ibidem
[7] www.mind-advertising.com/us/pg_us.htm (source: Mind Advertising, date viewed: 05/10/01)
[8] A comment by G.W. Goodale on the book titled ‘Soap Opera, the inside story of P&G, by Alesia Swasy.
[9] www.fastcompany.com/online/49/bestpractice.html (source: Fast Company, the Magazine, August 2001 issue, date viewed: 22/10/01)
[10] www.internetwk.com/transform/transform110199-3.htm (source: United Business Media, date viewed: 10/10/01)
[11] www.fastcompany.com/online/49/bestpractice.html (source: Fast Company, the Magazine, August 2001 issue, date viewed: 22/10/01)
[12] ‘Plan Global, Win Local’, by John Millen, Vice President, Customer Business Development at Procter & Gamble ( www.kamcity.com/library/global.htm, source: Kamcity, date viewed: 22/10/01)
[13] ‘Coke and P&G abandon alliance’, source: The Grocer, September 29, 2001
[14] www.guardian.co.uk/Archive/Article/0,4273,4235602,00.html (source: The Guardian, date viewed: 21/10/01)
[15] www.oilprices.com/?action=display&article=9778278&template=oilprices/stories.txt&index=recent (source: Crude Oil and Natural Gas Prices, date viewed: 18/10/01)
 
powered by the Webbler | tincan