Porter’s Five Forces
Porter’s Five Forces analysis describes the reflections of decision-making in strategic way for the company (Thompson, 2017).
Bargaining Power of Customers (Low – Medium force)
Customers are price sensitive and can easily switch one brand from another but they have little power on price because they cannot change the product’s price (Morningstar, 2015). But P;G’s biggest customer; Walmart, which is a multinational retailing cooperation in United States can negotiates the pricing with the P&G Company as it purchases dozens of different products types for their stores. Based on these factors, an individual customer has low bargaining power and big retailer company like Walmart has moderate impact on bargaining power of customers of the P&G Company (Morgan, 2015).
Bargaining Power of Suppliers (Low Force)
P&G buys raw materials from their suppliers and it provides ordinary pricing to its suppliers (Morgan, 2015). As there is more than 80,000 suppliers worldwide working together with P&G, the supplier’s bargaining power has low force on P;G Company (Autry and Moon, 2016).
Threat of Substitute Products (Medium Force)
Customers have chances to alternate their consumed products from the P;G Company to another brand because they have low switching costs (Thompson, 2017). For example, customers can substitute Colgate for Oral-B and Persil for Ariel for laundry detergent (Unilever, 2017). Concerning on the product use, these substitutions have negligible effect on customer experience of the products (Thompson, 2017).
Threat of New Entrants (Low Force)
P;G has different kinds of product segments like Fabric and Home Care, Beauty Care, Health Care, Baby, Feminine and Family Care, and Grooming (CSI Market, 2017). Because of the wide range of the P;G products, it is very difficult for the new entrants to compete with the P;G Company (Thompson, 2017). Furthermore, P;G has already gained consumers’ trust and has established a good reputation between consumers (P&G, 2012). These factors weaken the new entrants to compete against the P&G Company (Thompson, 2017).
Competitive Rivalry (Strong Force)
There are various companies operating in the consumer goods industry (Thompson, 2017). P&G has its key competitors from local and foreign countries. They are Unilever, Colgate-Palmolive, and Church and Dwight Co, for Fabric and Home Care, and Baby, Feminine and Family Care, Avon for Beauty Care, CCA industries, Colgate-Palmolive, Church and Dwight Co, Ecolab, Stepan Company and United Guardian for Health Care and BIC for Grooming which are operating in the consumers goods industry (Investopedia, 2017). It means that P&G needs to fight against different companies to maintain its success (Thompson, 2017).
This Porter’s five forces analysis shows that P;G has high intensity in competition and needs to highlight this fact of how P;G stays persistent within the strong competition in the future. Although P;G has low force of new entrants, they can compete the P;G with specific product line (Morningstar, 2015).
Macro Environmental Analysis of P;G
Political Factors
Changes in political factors have substantial consequence on companies. Every country has different rules and regulations of taxes and trade restrictions (T) (Thompson, 2017). It means that P;G has to keep on the laws of specific foreign country when they enter their markets into. For example, Nigeria has restricted imports for medicines, soaps and detergents, sanitary wares, plastics and rubber products, etc. When P;G exports their goods to Nigeria, it cannot trade Paracetamol, Aspirin, Clotrimazole cream etc. and also soaps and detergents must be in retail pack (Export.gov, 2017). P;G also needs to consider the income tax rate of their customers because when the customers have to pay lower tax, they might have more chance to spend more money on consumers’ goods (Simister, 2011). In the UK, the basic tax rate for income is 20% while the higher rate is 40% after allowances (Gov.uk, 2017). But in India, the highest income tax rate is 30% and the lowest is 5% (Cleartax.in, 2017). Differences in income tax rate of the countries make the P&G not to set the same price for all countries. It has to vary the goods’ price depending on the consumers’ income level and government tax rate (Hartman, 2017).
Economical Factors
Economic factors have influence on how the business is operating and how profitable they are (Wason, N.D.). Mainly in Asia and Europe, Fast Moving Consumers Goods industry is significantly competitive (T) (Coleman-Lochner, 2017). P&G’s Chief Executive Officer Taylor criticized on the economy and stating that “characterized by a slowdown in market growth, continued geopolitical disruptions and foreign-exchange challenges” (Coleman-Lochner 2017) because he has been trying to increase sales after years of consumers spending less on goods. Also foreign exchange rate affects the rate of inflation and P;G has to change the price of exported goods (Keythman, 2017). P;G had to make profound cuts in the Gillette razors, which is a previous cash cow of the company and changed strategies by aiming on cheaper products because lower cost shave products like Schick razors and Dollar shave club enter the market (T) (Tuttle, 2017).
Social Factors
The population growth in developed countries (e.g. Western Europe and North America) has declined because of the dearth in new generations. The declined population growth makes lower spend in P;G consumers’ goods. Also consumers’ behaviours are changing day by day and P;G cannot make the same marketing patterns or advertising to get responsiveness from the consumers and needs to innovate new products not to lose customer’s satisfaction (Veldhoen and Soundararajan, 2017).
Technological Factors
Consumers’ purchasing decisions and behaviours are effected by the technological improvements (O) (Thompson, 2017). P;G does not have digital advertising (T) because it stops to spend money on online marketing (Johnson, 2017). P;G cooperates with Co-Create to develop new ideas in technology and products (Brokaw, 2014). P;G spend more than $2 billions in each year in research and development to create innovative products for consumers (Beckley, Herzog and Foley, 2017).
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Legal Factors
Nowadays, consumers are becoming more sensitive about the eco-friendly and healthy products and they are willing to pay more money for environmental safe and healthy products to them (O) (Gagliardi, 2015). Moreover, some countries have environmental law for their countries to have less impact of waste in atmosphere. For example, when P;G exports their products to the EU, it needs to meet the requirements of the products’ packaging because EU has environmental regulation regarding the controlling of packaging and packaging waste in order to minimize the negative impact on the environment (Austrade.gov.au, 2017).
Environmental Factors
Nowadays, most of the customers are concerned about the undesirable results of the environment and trying to buy the products that are eco-friendly (O). As to fulfil the customers’ demand, P;G has set 10-year goal to use 100% renewable or reused ingredients for all goods and packaging and to make sure that having no industrial wastes go to landfills (The Guardian, 2010). For example, P;G launched diaper-recycling technology that will remanufacture into unimportant raw materials like plastics and absorbing materials from used diapers (P;G, 2016). Moreover, to reduce their effect on climate change, P;G also aims to reduce 30% of green house gas emission (T) by 2020 (Bloomberg, 2015).
By analysing the PESTLE, P;G can know what are the opportunities and threats for the company and ways of how to overcome threats and develop the market using the opportunities available to them.
SWOT Analysis of P;G
Strengths
P;G is one of the leading companies with distinctive consumers goods brands which are leading products in worldwide (E.g. Head ; Shoulder, Pantene, Gillette, Olay, etc.) (Fernando, 2015). P;G has 26 research and development centres with 8,000 employees in global. This R;D team researches on consumers’ buying behaviours and improves existing products or advances new products based on consumers’ behaviours (Dyer and Gregersen, 2012). Because of this R;D team, P;G can innovate new products (P;G, 2017). These are the strengths of the P;G Company.
Weaknesses
One of the main weaknesses of P;G Company is products are imitable for other companies (Thompson, 2017). Besides, P;G relies on Wal-Mart because 15% of sales of P;G get from Wal-Mart (Business Insider, 2012). Most of the P;G health and beauty care products are for women (P;G, 2017).
Opportunities
Consumers are demanding for sustainable and healthy products, P;G can manufacture new products or develop existing products by taking this advantage of that opportunity (Gagliardi, 2015). And also technological improvements like using website to shop from home is popular today. Therefore, P;G would put more focus on e-commerce and advertise their products at online (Thompson, 2017).
Threats
Since FMCG industry is competitive, P;G has to maintain its quality regarding to their goods to maintain its brand reputation (Coleman-Lochner, 2017). As products of cheaper price than P;G are available in consumer market, P;G faces the threat of price (Tuttle, 2017). Because of that threat, P;G needs to the cut the price of some products (E.g. Gillette Razors). Changes in taxation and trading law also play as threats to P;G (Thompson, 2017). The lack of online marketing causes the less of consumers’ awareness for goods (Johnson, 2017).
TOWS
Strengths
Having 26 research and development centres with 8,000 employees in global (Autry and Moon, 2016).
Innovation of new products (Beckley, Herzog and Foley, 2017). Weaknesses
P&G products are imitable (Thompson, 2017).
P&G health and beauty care products are mainly for women (P&G, 2017).
Opportunities
Sustainable and healthy products
Using E-commerce S-O Strategies
Highlight on natural products because of the tendency of healthful consumer goods
Enter foodstuff market with the help of R&D team W-O Strategies
Manufacture more organic products for men
Threats
Competitive Industry
Lack of digital marketing S-T Strategies
Uses R&D efforts to gain competitive advantage W-T Strategies
Invests funds in online marketing
Resources and Competences
Resources Competences
Threshold Capabilities 80,000 suppliers worldwide (Autry and Moon, 2016).
Innovative products (Beckley, Herzog and Foley, 2017).
Strong brand name (Euromonitor, 2017)
26 R&D centres worldwide (Autry and Moon, 2016).
Leading in FMCG market (Euromonitor, 2017)
Capabilities for Competitive Advantage Knowledge of understanding consumer’s behaviours (Autry and Moon, 2016). R;D plan to improves goods by consumers’ demand and brand dominance (P&G, 2017)
VRIO Framework
Resources V R I O Result
80,000 suppliers worldwide Yes No Yes Yes Temporary Competitive Advantage
Innovation of products Yes No Yes Yes Temporary Competitive Advantage
Strong brand name Yes Yes Yes Yes Long-term Competitive Advantage
R&D with 8,000 employees Yes No Yes Yes Temporary Competitive Advantage
