Proctor and Gamble: company overview and business analysis

Procter and Gamble

P&G Case study

What strategy does Procter & Gamble appear to be moving toward?

The commercial strategy of the global multinational company is that of focusing on product lines, rather than the geographical segmentation of the markets in which the corporation is involved. More specifically, in the past, P&G has used the strategy of national and regional units for the 160 countries in which the P&G products can be manufactured, distributed or purchased. In fact it was the company's decision to develop 7 business units, representing conglomerates of products with similar characteristics. The independency of the business units is just one of the defining features of the new commercial strategy which implies, amongst other things, a profit generation unit and self administration of the business unit in what concerns resources or profit distribution. Another feature of the strategy is that the manufacturing, marketing and product development specific procedures are to be done within the same business unit; as such, important decisions would be made on common grounds for each line of products.

The main argument behind the modification of the former strategy was the need to reduce the costs incurred by the company. The cost reduction is a common procedure encountered in very competitive environment, including the one in which P&G conducts its affairs. In this order of ideas and to enable cost reductions, the company engaged itself in rationalizing production, in terms of closing small and inefficient manufacturing facilities, and focusing on fewer and larger production units.

Another key element of the P&G strategy is to develop global brands and accelerate the development and launch of new the products. This direction is targeted through improving the overall competitivity of the company, and also reducing the cost level.

Otherwise said, P&G oriented itself towards a standardization strategy for its international expansion and consolidation procedures. The direct effects of this action include cost reduction opportunities and highlight a unique image of the company at the global level.

II. What are the benefits of such strategy?

The benefits that led to the implementation of this strategy are numerous. But let us take them in turn.

1. The company had been reorganized according to functional units - concentrating resources for developing line of business (starting from baby care up to health care products), rather on national entities and subsidies. This way, duplication in terms of manufacturing, marketing, packaging and post-sale services can be avoided, and costs will subsequently cut down. The company's studies have concluded that a large section of the total costs resulted from duplication of efforts in manufacturing, promotion and marketing of products.

2. This strategy would enable a superior monitoring process, as each functional unit can be assessed according to the sales, profit and costs obtained and/or incurred for each product within a particular time interval (generally one year). Also, the administration would be based on the common characteristics of products' - such as similar production facilities in case of detergents - rather than geographical coordinates, and this method would lead to the cost reduction desiderate that was initially formulated.

3. The main objective of cost reduction can be obtained through production rationalization. Personnel related expenditure, fixed assets - under the form of inventories or machines can be avoided through the implementation of regional production facilities that would supply the national items with the required products.

4. The development of global brands generates important benefits for the P&G group. Uniform promotional messages for the products included in the same business unit can be translated by diminished costs. This aspect should not be underestimated, as promotional costs, in the form of TV, radio, paper or Internet advertisements represent an increasing share in the total marketing costs incurred by the company. By using the same promotion method, costs will be most likely cut down. Also, another important effect is the uniqueness character of the company's image throughout the world - consumers at global level could easily point out, indicate or recognize the unique characteristics of the P&G products, the features of the products that differentiate them from competition's items.

5. Innovation is the key to getting ahead of competitors. The development and launch of new products would allow the company to present their customers with higher quality and more innovative products. This way, P&G could obtain better market penetration facilities; improve the consumers' perception of the company and outpace the fierce competition from Unilever.

III. What are the potential risks associated with it?

The benefits induced by the strategy are obvious, but also some potential risks have to be discussed in relation to the commercial actions adopted by P&G. Basically, there are three risk pillars identified by specialists: standardization, closing down plants and firing workers, and increased costs incurred by the Research and Development department. In the next paragraphs, we shall discuss these topics one at a time.