T

Procter & Gamble

“Touching and Improving lives”

Submitted by:
Ronak Sacheti
20091041
Nov, 25 2010

Analysis of Procter and Gamble Page 1

Contents
Introduction:..........................................................................................................................................3
Mission statement:................................................................................................................................3
The Vision:.............................................................................................................................................3
Operations for P & G.............................................................................................................................4
Brands of P & G.....................................................................................................................................4
Manufacturing operations of P&G:.......................................................................................................4
Organization structure:.........................................................................................................................5
Competitors of P&G..............................................................................................................................5
Competitor Profile matrix..................................................................................................................6
Strategic Focus......................................................................................................................................6
Strategies by Procter and Gamble to achieve those targets:.................................................................7
International strategy:...........................................................................................................................8
Industry analysis: (Porters five forces model)..............................................................................9
SWOT analysis of P&G.......................................................................................................................9
External Factors Evaluation:............................................................................................................10
Internal Factors Evaluation..............................................................................................................11
Financial analysis.............................................................................................................................12
Conclusion:......................................................................................................................................14
Bibliography.........................................................................................................................................15

Analysis of Procter and Gamble Page 2

Introduction:
Three billion times a day, P&G brands touch the lives of people around the world. This happens
because P&G provides branded products of superior quality and value to improve the lives of the
world’s consumers. Procter & Gamble Co. (P&G, NYSE: PG) is a Fortune 500 American multinational
corporation headquartered in Downtown Cincinnati, Ohio that manufactures a wide range of
consumer goods. It is 6th in Fortune's Most Admired Companies 2010 list. P&G is credited with many
business innovations including brand management and the soap opera. The P&G community
consists of over 138,000 employees working in over 80 countries worldwide and providing products
and services of superior quality and value to consumers in over 180 countries. The below map shows
the presence of P&G in world. The company has substantial presence in Europe.

Mission statement:
To provide branded products and services of superior quality and value that improves the lives of
the world’s consumers. As a result, consumers will reward us with leadership sales, profit, and value
creation, allowing our people, our shareholders, and the communities in which we live and work to
prosper

The Vision:
“Be and be recognized as, the best consumer products & services company in the world.”

Analysis of Procter and Gamble Page 3

Operations for P & G
The company's operations are categorized into three "Global Business Units" with each Global
Business Unit divided into "Business Segments" according to the company's March 2009 earnings
release.

 Beauty & Grooming : 1. Beauty segment

2. Grooming segment

 Household Care : 1. Baby Care and Family Care segment

2. Fabric Care and Home Care segment

 Health and Well-Being: 1.Health Care segment

2. Snacks and Pet Care segment

Brands of P & G
23 of P&G's brands have more than a billion dollars in net annual sales and another 18 have sales
between $500 million and $1 billion .

Source: [ CITATION Pro10 \l 1033 ]

Manufacturing operations of P&G:

P&G manufactures its products in United states, Canada, Mexico, Latin America, Europe, China,
Africa and Australia

Analysis of Procter and Gamble Page 4

Organization structure:
Four pillars — Global Business Units, Market Development Organizations, Global Business Services
and Corporate Functions — form the heart of P&G's organizational structure.

 Global Business Units (GBU) : The primary responsibility of the GBUs is to develop the overall
strategy for the brands. They identify common consumer needs, develop new product
innovations and upgrades and build our brands through effective commercial innovations and
marketing plans. The three GBU’s of the company are- beauty and grooming, household care
and health and well being.

 Market Development Organizations (MDO) builds local understanding as a foundation for

marketing campaigns. It is responsible for developing go-to-market plans at the local level. The
MDO includes dedicated retail customer, trade channel and country-specific teams. It is
organized along five geographic units- North America, Western Europe, Central & Eastern
Europe/Middle East/Africa (CEEMEA), Latin America and Asia.

 Global Business Services (GBS) GBS provides technology, processes and standard data tools to
enable the GBUs and the MDO to better understand the business and better serve consumers
and customers. The GBS organization provides world-class solutions at a low cost and with
minimal capital investment.

 Corporate Functions (CF). CF provides Company-level strategy and portfolio analysis, corporate
accounting, treasury, external relations, governance, human resources and legal, as well as other
centralized functional support.

Such structure enables P&G to think globally (GBU) and act locally (MDO).

Competitors of P&G
 Unilever
 Sara Lee Corporation
 Kraft foods
 L’Oreal SA
 Johnson and Johnson
 Kimberly Clark

Analysis of Procter and Gamble Page 5

Competitor Profile matrix

Sara lee P&G Johnson & Unilever

Corporation Johnson
CRITICAL WEIGH RATIN SCOR RATIN SCOR RATIN SCOR RATIN SCOR
SUCCESS T G E G E G E G E
FACTORS
Advertising 0.20 1 0.20 4 0.80 3 0.60 4 0.80
Product quality 0.10 4 0.40 3 0.30 3 0.30 3 0.30
Price 0.15 3 0.45 2 0.30 3 0.45 2 0.30
competitivenes
s
Management 0.05 3 0.15 4 0.20 3 0.15 4 0.20
Financial 0.10 4 0.40 4 0.40 3 0.30 4 0.40
position
Customer 0.10 3 0.30 3 0.30 3 0.30 3 0.30
Loyalty
Global 0.20 4 0.80 4 0.80 2 0.40 3 0.60
expansion
Market share 0.05 2 0.10 3 0.15 3 0.15 3 0.15
Organization 0.05 3 0.15 4 0.20 3 0.15 3 0.15
structure
Total 1 2.95 3.35 2.80 3.30

On the basis of critical success factors the highest score of 3.35 is of P&G, which means that P&G as
a company has been able to digest the competition very well and has emerged as a leader among its
competitors. The thing here to be noted is score of 3.35 doesn’t mean that P&G is 20% better than
Johnson and Johnson it rather means that on some of the higher weighted critical success factors it
has outperformed its competitors.

Strategic Focus
The Company’s long-term financial targets are:

 Grow organic sales 1% to 2% faster than market growth in the categories and geographies in
which we compete,

 Deliver earnings per share (EPS) growth of high single digits to low double digits, and

 Generate free cash flow productivity of 90% or greater

Analysis of Procter and Gamble Page 6

Strategies by Procter and Gamble to achieve those targets:
Innovation: They have a global innovation network of 18 technical centres in nine countries on four
continents. They believe that consumers will pay a premium for products that offer improvements
over either private-label products or the brands they have bought for years. Through product
innovation they are also serving consumers who are more price conscious through lower-priced
offerings with superior performance versus other mid-tier and value-tier alternatives.

Brand building through heavy advertising: Company is spending heavily on advertisement just to
create loyal customer base through building a brand. Company has now 23 billion dollar brands, the
success of which can be attributed to heavy advertising. For each country the company has its own
sets of advertisement strategies which are influenced by local factors.

Focus on Higher Growth Segments: Procter & Gamble has always aimed to produce high quality
products with the best margins as it has been seen operating margins expand from 15% to over 20%
over the last 5 years. But they can no longer continue this margin expansion without some change.
They have recently begun a growth strategy in which they are attempting to get rid of a few of their
low margin brands in favour of higher growth segment brands. This strategy that Procter & Gamble
has engaged in should prove extremely beneficial with the current increase in manufacturing costs
due to higher commodity prices.

Brand and Line extension: The concept of brand extension as well as line extension is used by P&G
very well. For e.g. Procter & Gamble’s Crest brand is an excellent illustration of both line and brand
extension. On the line extension side, Crest has twelve categories of toothpastes. On the brand
extension side, Crest has entered the tooth whitening, toothbrush, mouthwash, and floss categories.

Diversification through acquisitions and mergers: The company has used diversification has one of
the strategies for entering into new markets. Through this the company has created uncontested
market space, giving them an edge over their competitors. The various acquisitions by P&G are as
follows:

Major P&G’s Series of Acquisitions

 1963, Folgers Coffee, thereby entering the coffee business

 1985, Richardson-Vicks, owners of Vicks® respiratory care and Oil of Olay® product lines.

 1989, Noxell and its CoverGirl, Noxzema thus entering the cosmetics and fragrances
category.

Analysis of Procter and Gamble Page 7

  1990, Shulton's Old Spice product line thereby expanding its presence in male personal care
market.

 1999, the company entered global pet health & nutrition business by acquiring the Iams
Company

 2003, acquired a controlling interest in Wella AG, a leading hair care company.

 2005, P&G and Gillette merged into one company and added five more billion dollar brands
to the product portfolio i.e. Gillette and Braun shaving, the Oral-B dental care line and
Duracell batteries

International strategy:
Intially the company took Long time to internationalize ie almost 100 years after the inception of
P&G operations. It was in 1930 P&G began to sell its products overseas ie it adopted international
strategy. But what was lacking was both local responsiveness and global integration. In 1950’s P&G
focused on the largest emerging market in the world (China) with a multi-domestic strategy. with
such strategy the company was able to adapt itself to the local market conditions but found difficult
in transferring knowledge from one country to another. At the same time there was high cost due to
duplication of resources. Ultimately in 2005 the organizational structure of P&G changed and the
strategy used by them was transnational strategy. The company not only gained their ability to local
responsiveness but also attained economies of scale, thereby achieving global efficiency. The below
picture shows the strategic movement of P&G

Analysis of Procter and Gamble Page 8

 Industry analysis: (Porters five forces model)

Analysis of P&G:

Analysis of Procter and Gamble Page 9

 SWOT analysis of P&G .

On the basis of the company SWOT, various strategies that the company should implement which
will take into the account its strength, weakness, opportunities and threats are as follows:

S-O strategies W-O strategies

1. Source new products meant to target niche 1. Partner with established consumer product
markets goods distributors such as Amazon. Com in
order to increase Internet based sales
2. Utilize managerial competencies to develop
a more aggressive marketing strategy to take 2. Utilize niche markets to lessen dependence

Analysis of Procter and Gamble Page 10

 advantage of its competitors lack of on just a few product categories
differentiation

3. Continue to diversify products to meet

increasing consumer demand

S-T strategies W-T strategies

1. Utilize volume buying in order to put further 1. Establish a partnership with Internet
pressure on competition consumer product goods such as Ebay.com
or Amazon. Com in order to increase sales in
2. Continue to expand product diversity in
different product categories.
order to offset increased competitor entry.

External Factors Evaluation:

Key external factors Weight Rating Score

Opportunities

Global markets are .13 4 .52

significant growth
market
Increased demand due .07 4 .28
to new health and
beauty needs
Internet advertising .08 2 .16
growth
Increasingly heath .05 3 .15
conscious public
Launch competitive .10 4 .40
products
Develop distribution .07 2 .14
centres in other
countries
Threats

Economic downturn .10 4 .40

Increase competition .15 3 .45
from Unilever,
Kimberly-Clark and
Johnson & Johnson
Lack of product .05 3 .15
acceptance
High core commodity .07 3 .21

Analysis of Procter and Gamble Page 11

 prices affecting
product cost
Culture norms and .06 3 .18
values
New entrant .03 3 .09
Government .04 3 .12
regulation
Total 3.25

Internal Factors Evaluation:

Key internal factors Weight Rating Weighted score

Internal strengths

Largest home .08 3 .24

consumer product
goods manufactures
Innovative product .10 4 .40
formats
Increasing free cash .07 3 .21
flows
Strong management .08 4 .32
team
Discount pricing .06 3 .18
structures
High quality products .15 4 .60
Outperforming .05 3 .15
financial ratios
Internal weakness

Little unified brand .07 2 .14

focus
Narrow margins .08 2 .16
High operating costs .10 2 .20
Less distribution .08 1 .08
network
Low level of internet .08 1 .08
marketing
Total 2.76

The score of 3.25 on external factor evaluation indicates that the company is above midpoint (2.5)
and is doing business successfully taking advantage of the external opportunities and avoiding
threats facing the firm. Now considering internal factor evaluation, the score of 2.76 indicates that
the company has strong internal position. Now after knowing the scores of both external and
internal factor, the suggested strategy has to be determined. Therefore Internal-external matrix is

Analysis of Procter and Gamble Page 12

used and P&G score is plotted both for external and internal. P&G is being mapped in the second
quadrant and the recommended strategy is to go for product development, market development
and vertical integration. Two of the suggested 3 strategies are already being followed by P&G hence
they are going in right direction.

Financial analysis:
In the year 2010 the net sales of the company increased 3% to $78.9 billion. On the other hand Net
earnings decreased 5% to $12.7 billion. The graphs of the company net sales from different GBU’s,
markets are as follows:

Source: [ CITATION Pro10 \l 1033 ]

The reason why net sales from European and American countries is proportionately more than Asian
countries is that P& G has substantial presence in European countries. Considering the segments,
Household care has always been the core competency of the firm which is reflected in their
contribution to Net sales. The comparative analysis of various financial performance indicators over
past 3 years are as follows:

Net sales: There has been increase in the net sales by 3% from the previous year. If one considers
the percentage contribution by the developing markets to the net sales one can clearly identify that

Analysis of Procter and Gamble Page 13

there has been continuous increase in past years. This shows that substantial efforts are put in by
the company towards emerging markets to gain competitive advantage,

Source: [ CITATION Pro10 \l 1033 ]

Net profits: Net earnings decreased 5% to $12.7 billion. Primarily due to the loss of contribution
from the pharmaceuticals business divested in October 2009 and coffee business divested in
November 2008

16000
14000
12000
10000 2010
2009
8000
2008
6000 2007
4000 2006
2000
0
Net profits in $ millions

The company net margins remained constant at 13.9% as compared to previous year. This show that
the company has managed efficiently the rising prices of raw materials and its margins has not been
affected by competitive pressures. The EPS has declined from $ 4.26 to $ 4.11 due to decrease in net
profits but it is 16% higher as compared to EPS of 2008 and 32% higher as compared to EPS of 2007

Financial ratios:

Current ratio: .792

This means that the current assets of the company are not sufficient enough to meet the
current liabilities. One possible reason could be longer credit period availed from the
suppliers.

Analysis of Procter and Gamble Page 14

Quick ratio: .52

Since the quick ratio is less than current ratio, the company is having more of current assets
than cash/quick assets. One of the possible reasons may be holding of inventory by the
company. Such situation can have a substantial negative impact on the profitability for such
type of industry

Debt ratio: .52

This means that the funds of the debenture holders are secured and therefore solvency risk
is low.

Conclusion:

P&G as a company has emerged as strong competitor through its innovation, product
quality and effective international strategy. The change in the organization structure in 2005
has not only helped in achieving global efficiency but also had laid the foundation for further
growth. The ability of P&G to respond to both external factors is very high primarily because
of its internal strengths. The company is also moving towards their strategic focus which is
reflected from its income statement and balance sheet. Therefore in couple of years I see
this mammoth Giant of consumer product industry having presence nearly in all countries
worldwide through rapid expansion and diversification.

Bibliography
(n.d.). Retrieved October 2010, from www.wikipedia.com:

http://en.wikipedia.org/wiki/Procter_%26_Gamble

(2010, october 10). Retrieved from www.scribd.com.

Johnson and Johnson. (n.d.). Retrieved October 2010, from www.jnj.com:

http://www.jnj.com/connect/

Kimberly-Clark. (n.d.). Retrieved october 2010, from www.kimberly-clark.com: http://www.kimberly-

clark.com/

Procter & Gamble. (n.d.). Retrieved october 2010, from www.pg.com: http://www.pg.com

Analysis of Procter and Gamble Page 15

Procter & Gamble. (2010). P&G Annual report 2010.

Procter and Gamble. (2005). P&G Annual report 2005.

Sara lee corporation. (n.d.). Retrieved October 2010, from www.saralee.com:

http://www.saralee.com

Unilever. (n.d.). Retrieved October 2010, from www.unilever.com: http://www.unilever.com/

Analysis of Procter and Gamble Page 16