The company during that time was shaken from its heart as Jagar tried to implement some of the fundamental changes at the root of the consumer goods giant. Jagar’s efforts included modification of company’s culture, shifting P&G product portfolio into expensive market segments. The strategy proved failed and resulted in P&G poor performance in terms of market share, profitability, stock price as well as employees’ morale. Not until current CEO A.
G. Lafley takeover in 2000, the company’s profits have more than tripled.
Under the new leadership and modification in the company’s strategy, the company returned to its core competences such as corporate culture, innovation, competent people, consumer understanding, go-to-market capability, sound marketing practices and scale, meanwhile struggled to adapt with social, technological, economic trends and market uncertainties. The turnaround of P; G as the world’s leading producer of consumer goods products has many strategic implications that will be analyzed and illustrated in this case write-up.
Some important strategic alternatives will be discussed and strategic recommendations will also be suggested in this essay.
2. Problem Statement: The problems of P; G rooted from the incompetent strategic directions of Jagar. As a person who did not come from genuine P; G culture, Jagar possessed little knowledge and understanding of P; G long and admired history and tradition, and therefore resulted in the lack of appreciation of the company’s culture and willing to sustain its legacy. He initiated ranges of decisions which did not fit the company tradition, competitive situation.
Those decisions included the introduction of expensive new products, planning to buy two huge pharmaceutical companies and companywide reorganization. Those strategic directions stretched company’s resources, diluted its core capabilities.
Moreover, the soaring of commodity prices, unfavorable currency trends and situation in stock market also hindered Jagar’s efforts. As the consequence, Jagar was pressured to resign in June, 2000. 3. Market Analysis Market Size: P; G traditional battlefield is consumer goods market.
Company’s products are distributed in 180 countries, in five continents. P; G divided its market into six major segments including: ? Fabric and Home Care ? Beauty Care ? Baby and Family Care ? Health Care ? Snack and Beverages Market growth: Because of ongoing global financial crunch, consumers are facing the decrease in disposable income, declining home values, and rising levels of unemployment and instable future, therefore they have to be more frugal in their consumption, even for the less expensive commodities.
However, economic recession does not stop consumers from shopping essential products such as detergent, tooth-paste, toilet paper, shampoo, as well as beauty care. The possible shift is that they will cut back consumption on pricier products and spend more of P; G’s affordable brands. As the results, P; G is still able to maintain a certain level of positive market growth expectation. Cost structure: the fluctuation in commodity prices, raw materials, labor costs, energy costs, foreign exchange and interest rate significantly affect the success of consumer goods producers in general and P; G in particular.
Therefore, the better the company manage the fluctuation through value chain management, pricing and cost saving actions, the more profit they will be likely to have.
Distribution system: P; G, Johnson ; Johnson, Kimberly Clark, Unilever generally distribute their products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, and high-frequency stores. The power shift from producers to large distributors such as Wal-mart, Kmart, Woolworths, etc. is of the concerns of those onsumer goods producers. Trends and Development: Social and economical changes and continuous innovation of P; G as well as other companies in the industry lead to the creation of new categories of products, brands, performance standards. For examples, the introduction of Febreze, the product which eliminates odors from air and fabrics in home and car created entirely new product category.
Rivalry among existing competitors: The consumer goods market is characterized by intense degree of competition with global, regional and local competitors.
P; G competitors include many arch-rivals such as Colgate – Palmolive, Kimberly Clark, L’Oreal, Johnson Johnson, Unilever and many retailers’ private-label brands. The drivers of this competition are innovation, price, brand names and many other factors. Nevertheless, P; G fundamental business philosophy is based on innovation and with high level of investment on R; D as well as flexible outsourcing new inventions from outside of the company, thus P; G is likely to effectively sustain its competitive advantage over its competitors.
Bargaining power of customers: Because of its diverse customers, from mass merchandisers, grocery stores, department stores, salons to drug stores, P; G has to develop different systems, mechanisms, procedures to satisfy those customers.
However, to maintain a certain degree of profitability to please shareholders and ensure company’s long-term development, P&G has to compete with the growing power of its customers. Mass retailers such as Wal-mart, Kmart are able to significantly affect P&G’s profit by forcing down prices, demanding more services.
Bargaining power of suppliers: Owing to its massive production as well as purchasing power, P; G can considerably possess some degree of bargaining power against its suppliers. Threats of new entrants: With strong financial base, diverse products portfolio, existing viable and huge brand names, P; G has the ownership of many weapons that potentially heighten entry barriers and drive away aggressive actions from new players. Threats of substitutions: While focusing on its traditional core brands such as Crest and Tide, P; G still strives to renovate themselves.