IndustryandBusinessofP_G

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Selim GoktugBUS 451 Strategy & PolicyIndividual Industry and Business

Procter and Gamble Corporation in the Personal & Household Products Industry

Todays multi-million dollar international corporation, Procter and Gamble first started its

long journey in Cincinnati. The name Procter & Gamble comes from William Procter, who

established himself as a candle maker, and James Gamble who was a soap maker. On October

31, 1837, William Procter and James Gamble signed a partnership contract and their main

products were soap and candles. In 1920s, invention of light bulb made P&G quit their candle

production. P&Gs sales were about 1 million dollar with its 80 employees in 1859. During

the civil war in 1862, P&G Company was ordered to produce a big quantity of soap and

candles to satisfy the needs of union armies. After seventeen years, a new type of soap, Ivory

was invented by James Norris Gamble. Demand for soap increased after the invention of

inexpensive white soap Ivory. Therefore, to satisfy the customers increasing demand of their

products especially the soap Ivory, P&G Company decided to expand the business beyond

Cincinnati to reach overseas and this increased capacity and improved distribution of products

to customers during 1890s. (Procter and Gamble History)

P&G entered 1900s with its manufacturing plats in Cincinnati and Kansas City, Kansas in

the United States and outside the United States, with a plant in Ontario, Canada. P & G started

to develop more products in 1911. P&G Company introduced Crisco for the first time, which

is a type of vegetable equal to butter, but it was more economical than butter. In 1937, one

century after the establishment of the P&G, sales reached $230 million.

Throughout the years, P&G continued developing new products with variety of

innovations and they proved themselves with unique awards which show the mile stones of


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multi million dollar company. In 1987, the company was chosen to be the second oldest

company among the 50 largest fortune 500 companies. Five years later, P&G received the

World Environment Center Gold Medal for international Corporate Environmental

Achievement. With its full time working research laboratories, P&G continued its innovations

with full speed. Innovations such as Ivory Flakes, which is soap in flake form for washing

clothes and dishes, Chipso, which is the first soap designed for washing machines and Dreft,the first household synthetic detergent were the first products in their markets. Moreover, the first

all vegetable shortening product Crisco was invented by the P&G. For almost every

innovation P&G was successful enough to satisfy its target consumers, therefore innovations

and research costs were paid off. As a result, Procter & Gamble was especially successful for

innovation during 1980s. In 1995, P&G was given another medal, which is the National

Medal of Technology. This award is considered the highest award the United States bestows

for achievement in technology.

Just like most successful large companies, the P&G identify their core values such as

leadership, ownership, integrity, passion for winning and trust as priorities. By implementing

a plan based on these core values, P&G tried to achieve their objectives. According to P&G

objectives, the Procter and Gamble wants to respect all individuals, consumers and their

human resources. Moreover, P&Gs main target is to focus on quality work in order to be the

best seller in the competitive global market. According to P&G Leadership, which is applied

in the areas of responsibility and commitment, is a reason that enables Procter and Gamble to

accomplish their carefully established targets.


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It is important to recognize P&Gs strengths in order to see their way to success in several

different markets. Procter and Gamble Company is a complex organization, which produces

different types of products and most importantly they distribute their products in about 140

different countries. During the early successful years, P&G was always in the state of

innovation by producing new products every day. Learning process was critically important to

create new innovations over the years. The learning process required many steps. Trying to

determine the needs of several different types of consumers and keeping records of different

experiences in many different regions of the world are some of the important steps in the

learning process. As a global company Procter and Gamble had to determine the needs of

different societies of the world in order to be successful globally. Moreover, deciding the right

amount of production was another important issue to stay competitive and profitable in the

market. Therefore Procter and Gamble tried to produce right quantities of products especially

when they became a giant in several markets. Most of the time in the history of Procter &

Gamble, their capital investments paid off because of their well researched and determined

target markets.

My main reasons of considering todays multi million dollar giant, Procter and Gamble

Corporation is their continuing success in many different markets and their branding strategy.

Even though Procter and Gamble is a giant in the household products industry, I believe the

name Procter and Gamble is not familiar to many people especially people in overseas.

However, the Procter and Gamble is actually everywhere in our daily life. I believe it is

extremely difficult to be in many different markets successfully and not using the actual name


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of the company is a very interesting marketing strategy. Because of existanse of P&G in many

different markets, there can be a lot of external affects that can affect Procter and Gamble.

More specifically the new innovations by competitors in the P&Gs current or target markets

must be the biggest concerns that keep the CEO of P&G awake at night.

II. The External Environment

Just like every other company external environment has considerable affects on Procter

& Gambles business operations. The enormous size of the company with many global

operations can easily be affected by external market fluctuations in any parts of the todays

global world. Especially improvements in technology can have large impact on the Procter &

Gambles product lines. The external environment can carry opportunities and threats for

Procter & Gamble which can easily be affected by many different ways.

Rapidly developing advance technology can be opportunity and threat at the same time.

Procter & Gamble must follow every technological update in the world in order to come up

with more and more product innovations. They can link some of the technological inventions

with their projects to increase efficiency or create a brand new product lines. Missed

opportunities in the external environment for technology area can cause the loss of P&Gs

competitiveness in the highly competitive markets.

Economic trends in various parts of the world can affect Procter & Gambles

international business operations. This can be opportunity or threat for the company. For

example, recession in Japan can be a threat as it happened during the year 1997 and 1998.

Procter & Gambles sales were down in the Asian markets because of currency crises in Asian


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countries such as Korea, Thailand, Malaysia, Philippines, Indonesia and Singapore and

recession in Japan. On the other hand, newly opening markets in the third world countries

can be opportunities for Procter & Gamble which is enjoying with its success in the newly

growing Russian market. As a result, there are opportunities and threats in global external

environment that can vary from county to country so the global environment must be watched

closely to avoid possible treats or catch new opportunities.

When we look at the legal environment and Procter and Gamble, we can say that Procter

& Gamble is very involved with legal issues. Rules and regulations in the legal environment

have affect on Procter & Gamble. Licensing products is one of the most popular legal issues

in Procter & Gamble. In order to protect expensive and time costly innovations, Procter &

Gamble tries to license almost its every product. Nowadays Procter & Gambles licensing

deals include everything from Mr. Clean household gloves to Pantene hair dryers to Cover

Girl contacts. Moreover, Procter and Gamble has legal issues when they have to pass FDA

rules for their most new products. Opportunities in the legal environment can be licensing

products and threats could be a poor quality product that creates trouble with FDA.

III. Industry and Competitive Environment

Strong competitive characteristics of Procter & Gamble are unique and most of them

created from its long successful history. First of all, the P&G can be able to compete in five

different market segments which are fabric and home care, beauty care, baby and family care,

health care and beverages. The Companys competitiveness in several market segments

prevents the too much dependability for one particular market segment. More over the Procter


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and Gamble is able to lead its four main market categories, which are fabric and home care,

beauty care, baby and family care and health care. Personal & household products market

some heavy weight competitors such as Unilever, General Mills, Kraft, Johnson & Johnson

and Clorox which are direct competitors of Procter & Gamble. P&G has some advantages and

disadvantages in the intense competitive environment.

In general, Procter & Gamble has well established long term competitive advantages and

several current critical threats in the competitive personal & household products market. First

of all large scale of operation of the company enables them to manufacture about 300

products. Of course that many products can have many small and large competitors. Even

though there are no legal barriers to enter the market for new organizations, there are big

difficulties such as building a brand name creating a distribution channel. Moreover, the

globally large company P&G can manufacture its products in over 40 counties. Valuable

qualities such as strong marketing, advance research development, innovation and technology

helps the companys competitive power. However, just innovation doesnt work to sell new

products because of large amount of competitors and possible substitute products. Pricing the

products competitively is second step after innovation. Procter & Gamble makes the right

balance between innovation and pricing, most of the time but pricing products competitively

is always a treat for every product invented especially in the personal & household products

market. Moreover, keep being innovative is very important rule in the industry of P&G. In the

recent years not being aggressively innovative enough cost P&G loose competitive advantage

in the beauty products market against LOreal. LOreal, which is about to put over hundred

new products in the market, possibly, is a big threat for P&G.


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In todays competitive market place we can look at four main measurements to compare

Procter & Gambles competitive power with other large organizations in the market. Those

critical measurements are leadership in the market, global power, growth and innovation.

About leadership of the market, Procter & Gamble has about the 29 leading brand in 47 core

categories in the United States today. When it comes to global presence, Procter & Gamble

has its operations in over 80 counties. Even though there was some recent weakening about

competition in some global markets, P&G is well operational in global markets. Four percent

to 6 percent growth excluding foreign exchange effects makes the P&G one of the most

growing firms in its market. Innovation is the key to remain competitive therefore research

and development has great importance in order to create new products or extend current

products lives in the competitive environment.

In conclusion, P&G has strong competitive in the personal & household products

market which has some intense competition. Large scale and advance research development

center enables the company to lead the industry with new innovations every year. As a result,

P&Gs competitive advantages are more considerable than its competitive disadvantages.

III. The Internal Environment

In todays world The Procter & Gamble is successfully the leading the market of consumer

products with its approximately 110.000 employees. The headquarters of the company is

located in Cincinnati which is the city that the Procter & Gamble first started its operations.

There are certain extraordinary internal strengths that carried Procter & Gamble to their

leading position in the market but there are also weaknesses that prevent them to take

advantage of new opportunities in the market please.


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Strong branding, which creates better marketing power, is one of the biggest strength of

the Procter and Gamble. Procter & Gamble was always hidden behind its consumer brands.

Many consumers dont even know the name Procter and Gamble. Instead of the main

company name, Procter and Gamble introduces individual brand names for every product line

that they produce. Moreover, there are several marketing advantages of Procter & Gambles

branding strategy. First, the company communicates with the customers through the brand

names (Doyle, 2001, p.256). P&G almost always come up with easy to say brand names.

They also connect the brand name with the performance of the product. Hiding brand is

interesting part of the P&Gs branding strategy. For example, even though the majority of

Reflect Company is owned by Procter & Gamble, the Reflect operates separately and there is

not even a P&G emblem on Reflects web site. For example, if some problems appear in one

product line, consumers possibly reject only that particular product but not all other products

of Procter & Gamble. Consumer research and strong advertising also leads P&G to be one of

the best brand creators in todays competitive markets (Steward 261). As a result different

branding strategies along with prior consumer research and strong advertising well known

P&G brands like Pringles, Folgers, Charmin, Downy, Lenor, lams, Chest, Clariol Nice n

Easy, Actonel, Pampers, Tide, Ariel, Always, Whisper, Pantene and Bounty.

Innovation is the important part of Procter & Gambles internal strengths. Procter &

Gamble invents new products and product categories more than any company in its market.

Between the years 1996 and 2004, P&G created new market leading products every year and

those products were either number one or number two in the market. Advance research and


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development capability enables P&G to have the biggest innovations in the market. P&G has

7500 researches in 20 technical centers for new innovations which is the reason that P&G

carries 29.000 patented technologies for its product lines (Data dominator, 2004).

Procter & Gamble has been improving its human resource management with todays

popular human resource strategies. Nowadays some companies choose outsourcing when it

comes to human resources. Outsourcing in Human Resources has several benefits like time and

energy saving. The time and energy that is spent dealing with human resources issues in the

company can be spent on the core business divisions, when you outsource your human resources.

Outsourcing human resources divisions enables businesses the time to concentrate on growing

their companys profitability and productivity instead of spending time dealing with frustrating,

but critical business administrative issues. In the resent years Procter & Gamble also chose

outsourcing in human resources issue. In year 2003, Hewlett Packard and Procter & Gamble

agreed to have human outsourcing contract, which is worth $3 billion over the 10 years.

Furthermore, Procter and Gamble had another human resources outsourcing deal with IBM

which became affective in January 1, 2004. IBM will provide nearly 98,000 P&G employees

with services including payroll processing and benefits administration, IBM says according to

the market news. Therefore, Procter &Gamble has more time and power to focus on its other

business operation which can be considered as a new strength.

Procter and Gamble showing some unique signs of weaknesses as it get larger over the

years. The first weakness is selling large amount of products to a single customer. For example,

the biggest distribution channel of P&G, Wall Mart was responsible for 18% of P&Gs sales in


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year 2003. Moreover, only ten customers of P&G are responsible for 33% of P&Gs total sales.

Having big customers like Wall Mart and K Mart, may cause a serious problem. In case of

bankruptcy in those large customers, P&G can loose large amount of sales and have even with

too much inventory in some cases.

During the recent years, weakness in cash flow appeared in Procter & Gamble. Recent

analyses indicate that P&G has slowdown in quarterly operating cash flows. P&G had close to

24 billion free cash flow, which is cash flow from operations less capital spending, between year

2001 and year 2004. However, there is a 6% cash flow decrease between last quarter of 2003 and

third quarter of 2004. Increasing cash need from working capital accounts are one of the main

reason of cash flow slowdowns in recent years of P&G.

Over investment in particular international products and markets in recent years shows

some signs of weaknesses in P&Gs international financial plans. Beginning year 2001 P&G

invested heavily in the product, Clairol Herbal Essences shampoos and hair conditioners.

However, despite of heavy advertising, Clairol Herbal Essences did not get the expected

response from consumers in overseas. Clairol Herbal Essences also lost market share in the

United States. Moreover, Procter & Gamble currently focuses on already matured markets like

laundry detergent markets in United States and Western Europe. There are not many new

emerging international markets found recently by Procter & Gamble for its main businesses.

Finding new international opportunities should be one of the main challenges of Procter &

Gambles marketing and research divisions.

Procter & Gamble can be considered successful in year 2004. The Procter & Gamble had


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%19 more revenues in year 2004 than year 2003. Moreover, earnings per share are $2.32, which

is raised 25%. Furthermore, despite of the recent recession the stock price of P&G increased

more than 70% over the last tree year, which is a very important fact for investors stand point.

When we look at the P&Gs performance of the year until October first, overall successful

growing pattern can be seen from P&Gs chart. However, the stock prices had big declines at the

middle of July and September. Moreover the company had a stock split in June 18 2004. Current

price of the P&G stock as of October 1, 2004 is $54.66 with the volume of 4.841.700.

In conclusion, when we compare all the internal strengths and weaknesses, Procter &

Gambless strengths are more important than its weaknesses. Procter and Gamble built most of

its strengths over the years with the help of experiences. Strong ability of brand creation is one of

the biggest strength of Procter and Gamble that can be seen easily from outside of the company.

Most of the P&Gs brands become well known because they are the first inventions in the market

place. Those first inventions come from P&Gs research and innovation facility which is another

advantage of P&G. Furthermore, recent development of P&G in human resources techniques,

which is outsourcing with large professional companies, is considerable growing strength in

todays business environment. On the other hand, most of P&Gs weaknesses created from its

largeness in the local and global markets. Making most of its sales to a few customers like Wall

Mart, growing weakness in cash flow because of its more money requiring working capital

accounts and more unnecessary investments in already matured markets are P&Gs visible

weaknesses. As a result, P&Gs strengths easily overcome it weaknesses when it comes to the

internal environment.


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V. My Observations

Before I had limited information about Procter and Gamble but I knew that P&G created

many brand names. Companys variety of products in many different markets is very interesting

to me. Even though they had a lot of products to take care off, they manage to succeed with most

of their product lines. Before I thought all of their power comes from smart marketing but now I

understand that large amount of their power also comes from their research and development.

Moreover, P&Gs combination in branding strategies, advertisement and marketing is working

perfectly. I believe that the experience of the company plays an important role for that

combination. Most of the time Procter & Gamble is the first to enter a market which is the only

issue that I dont like about Procter & Gamble because cost of going first is very high in most of

the markets. On the other hand, the company is trying to license almost all of its products to

minimize the negative affect of entering first. In conclusion, I would work for Procter & Gamble

or do business with them in overseas.

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