Mission statement
Procter & Gamble has a mission to offer branded services and merchandise of the best quality and value to enhance a better living for its customers in various parts of the globe. By so doing, the company has a mission to obtain rewards from their customers through increased sales, value, and profit creation leading to the overall prosperity of the company’s people, shareholders, and the communal in the areas that the company operates (Septien, 2010, p. 58). The company is also determined to be the best in the industry. One of the major strategies in the company is a focus. The company aims to understand the needs and wants of customers and establish a cordial mutual relationship with their suppliers and customers (Kanter, 2009, p. 51). The company’s strategy is therefore consistent with the company’s mission.
Vision
Proctor & Gamble has the vision to have recognition as the best company in the globe for the provision of essential consumer services and merchandise (Dyer and Dalzell, 2010, p. 141).
SWOT analysis of Procter & Gamble
Strengths
Procter & Gamble enjoys economies of scale in the market; the company’s products dominate the market all over the world. These include personal care, beauty, and health commodities. The company trades in more than 180 countries where it trades in more than 300 different products (Septien, 2010, p. 61).
Procter & Gamble has a wide experience in health, personal care, and beauty products since they have been existent in the market since the establishment of the company in 1837. The company has vast experience in promotional and marketing campaigns and is regarded as one of the best marketers in the world.
Procter & Gamble has strong integration links with the largest retail stores in the US and across its borders. The company has also well-developed distribution channels for its products in all parts of the world (Dyer and Dalzell, 2010, p. 188).
Procter & Gamble attains a gross profit that is 15 times more than the company’s average. The company has a well-established brand in its markets where it customizes its products according to the tastes and preferences of the target market. The company has also laid the best research and development department where it invests more than $2b annually for new products development and improvement. The vast customer database of the company is also critical as they provide feedback to the R&D department (Septien, 2010, p. 213).
Weaknesses
Procter & Gamble to brands is losing market dominance. The company’s products presence and leadership in internet media are also wadding behind. The company’s health and beauty products are mostly for women. The company does not offer its retailers private labels for the company’s merchandise.
Procter & Gamble’s large economies of scale in the market slow down the company’s process and culture. The company does not dissociate from its weak and non-performing brands. The customer base of the company is distributed unevenly but it is concentrated in specific regions. In 2001, Procter & Gamble acquired Clairol Company. They were, however, unable to grow the company’s herbal brands exposing weaknesses in Procter & Gamble beauty unit (Septien, 2010, p. 97).
Opportunities
Procter & Gamble’s opportunity lays in diversification to men’s beauty and health products. Recently, Procter & Gamble acquired Gillette company hence an opportunity for its growth in this segment. The company’s concern for its ecological friendly consumers has doubled in a bid to achieve its 2012 environmental goals. There lies an opportunity in Procter & Gamble’s use of the internet and social sites as marketing channels for the company’s products. The company should focus on growth in the international market. Procter & Gamble should also get rid of weak and non-performing brands (Dyer and Dalzell, 2010, p. 321).
Threats
Procter & Gamble faces stiff competition from other key players in the sector. This is a threat to the company’s customer share in the market. Such companies include Unilever, Colgate- Palmolive, and Johnsons & Johnsons. The companies employ price and non-price strategies in a bid to increase their customer base in the market. Procter & Gamble products have a vast number of complements and substitutes in the market, which can be availed by customers at a cheaper price. The tendency of the company not to avail its retailers with private labels for the company’s products also poses a threat of losing its market dominance. Recessionary pressures have led to a reduction in consumers’ disposable income. There is also an increase in production cost for the company because of an increase in the cost of raw materials used by the company (Dyer and Dalzell, 2010, p. 265).
Internal Factor Evaluation (IFE) matrix
This is a business management tool used to appraise and audit the key strengths and weaknesses in a firm’s functions. This is important in formulating a company’s strategies. The main advantage of Internal Factor Evaluation over other strategic tools is that it is more subjective rather than objective (Hussey, 2001, p. 78).
Figure showing Internal Factor Evaluation matrix of Procter & Gamble
According to Hussey (2001) “total weighted scores lower than 2.5 points indicates internal weaknesses in a business while scores considerably higher than 2.5 point out a strong internal company’s situation” (p. 65). The weighted score for Procter & Gamble is 2.79 indicating that the company has a favorable internal strength.
External Factor Evaluation (EFE) matrix
This is a strategic tool, which used by a company’s management to assess the current situation of a company. This enables a firm’s management to identify and give priority to threats and opportunities that a company is going through. The company has also a strong brand, established in its markets worldwide (Hussey, 2001, p. 212).
Figure showing external factor evaluation matrix of Procter & Gamble
The total weighted score for the external environment is 2.56. Since this is above average, the company has more than half the capability to cope with external pressures affecting the company.
Strategic plans
For the last decade, Procter & Gamble has been experiencing low revenues, poor performance in the stock exchange market for lack of focus in its strategies. This has been because of the initiation of new media and technologies resulting in a radical change in consumer preferences. This has in turn strained the company to review its products portfolio and leadership (Septien, 2010, p. 144).
The company adopted an innovation strategy known as Play-2-Win. The company is aware that its sustainability in the unforeseeable future is through proper management of their innovative efforts. Procter & Gamble specializes in consumer goods; the company has invested wisely to ensure that they produce innovative and unique products and services to earn global brand recognition. The company incorporates all its stakeholders in the innovation process. These include partners, consumers, and employees allowed to develop new products on behalf of the company making up half of the new products developed by the company.
Procter & Gamble had failed to use online marketing in its promotional campaigns. With the new generation of customers glued to internet use, the company has revised its strategies to employ e-marketing through smart works as a joint venture (Dyer and Dalzell, 2010, p. 89).
Porter’s Five Forces
Porter’s Five Forces is a competitive analysis tool that helps a company understands its structure (Hussey, 2001, p. 177).
Barriers to entry
This force evaluates how easy it is for new firms to enter the industry. The presence of elevated barriers to entry is better (Hussey, 2001, p. 179).
Most consumer goods production for example deodorants calls for huge capital outlay. Some of the segment production units, however, for example, detergents do not require much capital investment. In addition, small companies that have no potential to compete with Procter & Gamble run such segments. The industry, therefore, experiences low barriers to entry, which is not favorable for the sustainability of Procter & Gamble.
Buyer power
The lesser the customer power, the better for a company’s operations in a specific industry (Hussey, 2001, p. 180).
Procter & Gamble customers are fragmented but have an influence on new product development, innovation, and pricing decisions. The company also distributes its products through retail outlets for example Wal-Mart that have a great influence on buyer power. This is because they buy huge bulks from the company. Procter & Gamble, therefore, experience strong buyer power from its customers.
Supplier power
Supplier power evaluates how a firm can best control costs for its merchandise and services. The lower the supplier power, the better for a firm in the industry it operates (Hussey, 2001, p. 180).
Procter & Gamble have many suppliers who provide raw materials to the company. Switching between suppliers may lead to an increased supplier’s power. There is also little room for bargain with the suppliers. Procter & Gamble therefore, faces a higher supplier power.
Substitute’s Threats
This evaluates whether there exists better or cheaper products in the industry. Procter & Gamble faces stiff competition for its fast moving goods from closely related products from other collaborates for example Unilever and Colgate. Moreover, Procter & Gamble does not offer private labels to retailers. The company therefore, faces a high threat from closely related products by other companies.
Degree of Rivalry
Procter & Gamble consumers enjoy a variety of products from different firms to choose. Although some consumers have preference on brands, it cost them low to switch from one brand to another. This has raised the level of price and non-price strategies among the key players in the industry. Therefore, there exist soaring degrees of contention between companies in the industry.
Competitive profile matrix
This is a business tool used to evaluate the position of a company in the sector relative to other key players in the industry. This allows for comparative analysis between companies in a certain industry segment (Hussey, 2001, p. 201).
Figure showing Competitive profile matrix for Procter & Gamble
Hussey (2001) states that, “total weighted score below 2.5 is considered as weak. Total weighted scores higher than 2.5 are considered as strong, the company with the higher weight score is at an advantage” (p. 146).
The competitive profile matrix indicate Kimberly Clark and Johnsons & Johnsons as the major competitors for Procter & Gamble in the industry, the company also faces competition from Unilever but at a smaller magnitude.
Financial analysis of Procter & Gamble
Figures extracted from the Income Statement of the 2010 to 2007 Procter & Gamble Annual Report and Accounts
Procter & Gamble revenue grew by 9.4% to reach an outstanding $79,257. This was because of the company good performance in emerging markets. Revenues however, dwindled in the year ending 2009 because of competition from key partners in the industry. This has led to a fall in price of the company’s products. There was a slight increase of 2.9% in the company’s revenue for the year 2010. This is because of integration with affiliate partners for example Wal-Mart chain stores, which propelled the company’s revenue higher by 16%. The company also acquired Sara Lee air care unit in the year contributing to the revenue growth.
Gross profit of the company rose with 7.9% in the year 2008 because of a rise in the company’s revenues. There was however, a slight decrease in the company’s gross profit in the resulting year par with the dwindling revenue. The year 2010 saw Procter & Gamble revenue grow by 2.9% because of favourable customer response to the company’s products. This facilitated growth of margin profit by 7.93%. Moreover, every successive growth in the company’s profits led to a rise in earnings per dividend.
Ratios analysis
Figure indicating ratios of Procter & Gamble and its competitors in the market
Analysis
Debt/Equity Ratio
This ratio shows the fraction of equity and debt that a firm uses to guarantee for its property. This is by dividing total liabilities with total equity possessed by a firm’s shareholders. According to Hussey (2001), “if the ratio is more than one, it implies that a company’s assets are financed with debts, if less than one; assets are financed by equity” (p. 199). Procter & Gamble Debt/Equity ratio is less than one implying that debt settling is though equity. The ratio is almost equal to that of the competitors indicating the pleasant position it has in the industry.
Current Ratio
Hussey (2001) argued that, “Current ratio is obtained from dividing total current assets by total current liabilities” (p. 201). He further states that a current ratio of about 1.5 is acceptable for most firms. The current ratio of Procter & Gamble is 0.6. This is below one hence much concern for the company as its inventories are not readily convertible to cash as compared to its competitors.
Quick Ratio
Quick ratio for Procter & Gamble is the lowest among the key players in the industry. This supports the fact that the company cannot convert its inventories to cash at hand in a matter of short time. The competitors however, are in a better position to convert their inventories to cash.
Return on Equity
According to Hussey (2001) “Return on Equity indicates the amount of profit a firm obtains in contrast to total amount of shareholder equity” (p. 214). Procter & Gamble has the lowest Return on Equity in the industry compared to its competitors. This indicates it has an inferior potential of generating cash internally.
Return on Assets
Hussey (2001) states that, “Return on Assets indicates what return a business generates from its assets invested in the firm” (p. 231). Return on assets is lowest for Procter & Gamble as compared to its competitors. It is however, at 10.2, which is favourable for sustainability of the company.
Return on Capital
This is a measure of how effectively a company uses funds invested in its operations (Hussey, 2001, p. 217). Procter & Gamble has the highest Return on Capital compared to its competitors in the industry. This shows that it has effectively deployed finances it has invested in consumer goods industry.
Organization analysis
Procter & Gamble board of directors consist of 11 members. These are Scott Cook, Patricia Woertz, Angela Braly, Kenneth Chenault, Johnathan Rodgers, Rajat Gupta, McNerney Junior, Susan Desmond, Mary Wilderotter, Margaret Whitman, and Ernesto Zedillo (Dyer and Dalzell, 2010, p. 173).
The company’s chief Executive Officer is Robert McDonald. His leadership plan is to win customers in the industry by creating strength in the company’s operations. To achieve this he emphasis on innovation to keep par with changing technology and customer needs. The company markets to create brand recognition and product knowledge in the market. The president also focuses on strengthening the leadership of the company influencing a demand driven attitude among the employees and the management at large (Septien, 2010, p. 118).
Procter & Gamble trades in over 130 countries where it has accumulated a customer base of higher than 5 billion. The company has more than 106,000 employees across the globe. The company outperforms its main competitors in the market who are Kimberly-Clark, Unilever, Johnson & Johnson, and Nestle (Septien, 2010, p. 121).
Organizational structure
The company has three Global Business Units namely Household Care, Grooming, Beauty, and Health. Under Grooming and Beauty, Procter & Gamble offers products such as razors, female blades, skin care commodities, fragrances, hair products, cleansing products, Pantene, home appliances, male cleansing, and shaving products. Health unit offers care to females through products such as Always. Health oriented snacks and pet foods are under this unit. The household unit of Procter & Gamble offers its customers surface and air care commodities such as Ariel, Ace Duracell and batteries. Family and baby care merchandise for example Diapers, Pampers, Paper, and facial towels are under this unit. The company’s products distribution to customers is through retail outlets including departmental stores, groceries, chemists, salons stores owned by its members (Septien, 2010, p. 67).
Procter & Gamble is frequently obliged to develop new strategies to oust its main competitors in the industry. Unilever for example, has in recent times launched major promotional campaigns in a bid to gain competitive advantage over Procter & Gamble. Unilever has also attempted to get rid of its non-performing units and acquired well performing enterprises for example Slim Fast and Best Foods. This has necessitated Procter & Gamble to streamline its activities offering the company a chance to “act locally and think globally” (Dyer and Dalzell, 2010, p. 321).
The company has a Market Development Organization that manages Procter & Gamble operations in the international market. This body is responsible for planning the market for the company’s products and services in the target markets. The company has also a Global Business Service that avails tools and technology necessary to drive demand in the international market. The company has also a Corporate Function Group that comprising of outsourced experts who assist those working within the Global Business Service and the Market Development Organization (Dyer and Dalzell, 2010, p. 304).
References
Dyer, D. & Dalzell, F. (2010). Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble. London, UK: Harvard Business Press.
Hussey, D. (2001). Company Analysis: Determining Strategic Capability. San Francisco, US: Wiley.
Kanter, R. (2009). World Class: Thriving Locally in the Global Economy. London, UK: Sage publications.
Septien, J. (2010). The Procter & Gamble Company – Financial and Strategic Analysis Review. New York, NY: Flatiron Publishing.