Proctor & Gamble ( A ) Case Analysis

Proctor & Gamble ( A ) Case Analysis

By

Harpreet Singh Boparai

 (Roll Number 29)

Assignment being submitted as part of the Pre Work for

Session 4 of the course

Marketing Management

   EPGDIB

2011-2012

Problem Statement:

If P&G were to go ahead with the launch of a new brand, which segment should it target -mildness, performance or price segment? Why?

Executive Summary:

In 1981, the Packages Soap and Detergent division of Procter and Gamble held 42% of light-duty liquid detergent industry sales positioning it as the market leader within the industry. The prime to P&G were Colgate Palmolive (with 24% share) and Lever Brothers (with 7%). The remaining 27% was fragmented and held by private small label brands.

 The LDL market can be segmented on the basis of performance, mildness and price sensitivity. The industry size based on the sales numbers in 1981 is estimated to be $850 Million with volumes clocking 59 million cases. The LDLs are packaged in 4 sizes with the 32 oz and 22 oz being the most popular sizes. As of 1981, the mildness segment leads the volume sales at 37% followed by performance (35%) and Price (28%). The LDL market is very stable with one new premium brand introduced every 2 ½ years and an average of two price brands introduced and discontinued each year. The numbers are not expected to change drastically over the next five years though it is expected that Performance segment would lead the pack with 36% of the total volumes. P&G has 3 products: Joy (Performance, 12.1%), Ivory (Mildness, 15.5%) and Dawn (Performance, 14.1%).

The below pointers summaries the LDL market

a)     High level of penetration already achieved signifying a saturated market

b)    The market is fairly consolidated with 75% of volumes clocked by 3 players

c)     Low growth potential in the LDL market and the primary  opportunities exist primarily through volume consolidation

d)    Effects of cannibalization exist as a benefit achieved from a new product is bound to have an effect in the numbers of an existing segment.

Introduction of a new brand

P&G has an option to launch a brand in performance/mildness/price segments.  The following factors would need to be evaluated while identifying the segment in which the brand is launched

a)     Based on the experience from Dawn’s introduction, it is estimated that the new brand can capture at least 60% of its share from the competitive brands. The remainders of the 40% sales are expected to be a resultant of the cannibalization effect. These numbers however are pure estimates and can vary based on the choice of segment.

b)    The capital investment required to cover the additional production capacity and bottle molds would be $20 million

c)     The marketing expenditure for the launch of the new brand will be $60 million ( $18 million for media support , $37 million for consumer and trade promotion support & $5 million for marketing expenses )

d)    A national wide launch of a new brand will need at least 3 years which would include one year of implementation in a test market.

Based on a company research into the attributes which most users find important in their preferred LDL, the six point scale survey threw the top attributes as

a)     Does a good job on pots and pans

b)    Cuts Grease

c)     Does not spot or streak glasses or dishes

d)    Is low priced

e)     Makes long lasting suds

Recommendation for the Target Segment

Based on the inputs received on all the three segments and the positioning of P&G , my recommendation would be to launch the brand in the price segment. This recommendation has been discounting the fact that the segment clocks the lowest volumes in the LDL market and that the brand loyalty from the consumers is very miniscule.

The below justifications are the primary reasons to support the decision

a)     User Demographics & Macro Economic Environment: The current economy is going through a rough spot and with lower disposable income the budgets in the houses are likely to be tight. This would mean that in times to come , the importance of price sensitive LDL’s will grow and the consumers would demand efficient quality at a cost effective price. This coupled with the fact that 46% heavy users of LDL’s fall under the $15,000 and the unemployment rate at 52% (for households with female head) make it a viable proposition to target the price segment of the market. The other factor to be kept in mind is the increasing penetration of the ADW’s in the US market. ADW households are projected to use half the volume of LDL’s as compared to the non ADW households and the ADW penetration is projected to be close to 44% by 1990. All this results in the shrinking of the growth volumes for the LDL market (projected to grow at a 1% rate for the next 5 years). As per Exhibit 8 , the % of consumers who have not used ADW’s in the past 7 days is the highest in the price segment(53%)  making it the most viable segment to target.

b)    P&G’s current positioning: P&G has 3 brands in the mildness and performance segment which help them capture 42% of the LDL market. Based on research and the impact of a previous brand launch (Dawn), it is estimated that the new brand launched would be able to capture 60% of its share from the existing brands. This effect of cannibalization will negate the positive impact of a brand launch in the mildness and performance segments as it would most likely eat into P&G’s share of existing brands. However in the price segment which is dominated by private labels and hold 28% of the market, the effect of the launch would be a positive factor. P&G would be able to establish a new market (price sensitive customers) which is forecasted to grow at a stable rate in the forthcoming years.

c)     Quality of Competition: The price segment is dominated by generic and private label brands. The companies are offering low quality products offering very little value (besides low pricing) to the consumers. Most of the companies do not have a strong marketing capability due to which they have not been able to establish any brand loyalty amongst the consumers. Based on the inference drawn from exhibit 4 that the fact that marketing expenditures and promotion typically represent 20% of the sales of an established brand and the fact that P&G accounts for half of the $150 million advertising budget, it is very likely that if market well a new brand in the price segment from the P&G stable can polarize the consumer volume in this fragmented segment. The other segments (mildness and performance) are dominated by 7 established brands from the leading three companies which would make it tough for a new brand to attract consumer interest. Considering the dwindling LDL market , the road to success seems easier in the less cluttered price market ( where consumers exhibit no brand loyalty)

d)    Brand Superiority: With P&G’s brand supremacy, it would be easy for the company to attract first time consumers in the price segment. At the moment the consumers in the segment are able to derive only a price benefit from their brand. However with P&G’s manufacturing department committing to the ability to produce a brand with benefits of a performance brand at the price matching the existing price labels , it makes a very strong case for the choice of a price segment brand to be introduced. This parity would also reduce the sales to marketing expenditure (and profit) % from the existing 32% to 14% , thereby leading to better benefits for the company. The launch will complete the bouquet of segments of the LDL market and will give consumers from each segment a choice of their preferred P&G brand. A majority of the top preferences from consumers (listed above in page 3) will thereby be met with this new price segment entry offering the benefits of superior performance and far greater value for the money paid.

Financial Analysis

Total Market Size - $850 million

Price Segment Share(@ 28%) = $238 million

Estimated market share for new brand(60%) = $142 million

Projected Profit from the new brand @ 12% = $17million

Cost of new product launch = $20 Million Capex + $60 Million marketing expenses

One of the important factors to keep in mind is the reduced level of cannibalization in this category due to no presence of a P&G brand. Also the drop in % sales available for marketing and profit. These factor make us believe that the operational expenses of the new brand in the price segment will be lower than the present rate thereby leading to higher profitability.

Conclusion

To conclude, it is recommended that P&G launches a brand in the price segment.  This will help P&G gain market share through increase in volumes from an untapped market whilst retaining the consumer confidence and brand image.

CWC 2011 - Quarter Finals Prediction

With the Cricket fever on its peak and the World Cup well into the latter half I believe this is the time we can predict teams which are more likely to play against each others in the QFs.



Here is my prediction

Organiser's washed away the Summer of 69

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The venue hardly looked like a place befitting a world tour concert. It was shoddy with muck and filth all over. The Ram Lila at the Red Fort grounds is far better organised and managed as compared to the event being promoted by NetSurf Entertainment. No wonder it never got the requisite clearance from the government authorities.

The drama continued and the organisers came out with the idea of holding the concert at Gurgaon on the 20th. Then Bryan Adams tweeted that the fans can take a flight to Hyderabad to watch the concert the next day. I am not sure if he was being cynical or had gone insane to think that people would travel all the way to Hyderabad to watch him perform. Now the Kyazoonga site seems to have mysteriously gone offline and we  have been left wondering how to get the refund on the tickets. I think the scamsters ( organizers ) seem to have drawn inspiration from A Raja's and Kalmadi's of our world and have found an easy way to milk the cat.

Indian Cricket team sense a historic victory in SA

After taking the lead in the MTN ODI series , the Indian's have got their tails up and are riding the wave of momentum. Considering the kind of tracks we have got on the tour so far the next two will be no exception to the bounce, Morkel, Styen & co. Will the South African pace battery stop the raging bull in the last two matches or will this Indian team create history and walk away with the fist ever series win in South Africa. The stage is set for a cracking weekend which will showcase the biggest battle between the top cricketing nations. Will the Indian's be able to exhume the ghosts of their previous overseas excursions or will the Proteas manage to get past the tag of being "Chokers" ?  What do you think ? Vote on the debugging live cricketing poll and let us know your views

Power of Excel

The moment I log in to the office, the first things I need is an Excel spreadsheet. Whether it is getting the result of some calculations or providing a quick summary to my manager, excel has been doing it for me since the time I first stepped into office to start my professional career. This is not only my story but of millions of people around the world. MS Excel is the one of the most widely used software in the world, when it comes to the calculations or generating a summarized report. The first version of Excel was released for the Mac in 1985 and the first Windows version (numbered 2.0 to line-up with the Mac and bundled with a run-time Windows environment) was released in November 1987.

The Excel 2007 version which we are using these days supports much more data than its earlier versions. It has more than 1 millions rows & 16000+ columns. Excel 2007 also supports multicore processor platforms for faster calculation of formula-intense spreadsheets. Major benefits of this version include professional & better looking charts, much enhanced support to filters & tables. One change in this version which has left me speechless is the way we can utilize the feature of conditional formatting. Not only it shows the trends with the help of the traffic lights but can also show you in cell chart with the help of data bars. PivtotTables help me find answers to questions quickly, easily and responsively. I can drag and drop fields to make change the table's view.

Here are some of the things which I utilize for my work every day.

Turning 30 !! A journey into sheer madness

After a long day at work , i was coaxed by my sister into watching the new flick on the cinema screens. My wife's approval of the movie sealed my fate and we boxed into our car to be in time for the opening scene. There was a whiff of anticipation about the movie in the hall but my hopes of surviving this ordeal came crashing down with the opening scene. A sobbing woman who has lost both her love and job screams through the screen and sets the trend for the remainder of the movie. In between there are scenes of her floundering advertising career and her friends trying various things ( including a mindless shopping trip and a bachlerotte party ) to keep her mind occupied. Unfortunately all this drives the poor viewers ( us ) to the brink of madness. By the time the pacy ( oh i meant "racy" ) movie stumbles to the half way mark my cosy bed is reminiscent of a distant dream. To complete the torture the second half introduces "Nothing Different". More wine bottles are downed , cigarettes are stubbed and abuses are hurled. There is the customary gay couple thrown in to fill the obvious void that would have existed incase of their absence( pun intended ). As the end draws near , a sense of relief is felt across the hall. The makers of this disaster need to get a reality check ; Turning 30 is as good as turning 20,40 or 50. It is not a mark beyond which the dreams of our lives come crashing down.

I think directors of today are loosing the plot thick and fast. How can they think that sleaze can make the cash registers ringing ? C'mon , even Malika Sherawat's nude body could not bring any fizz in her last flick , Hssssssssss. The audience has grown up and will only reward movies which bring some entertainment value worth their buck. And as they say , for everything else there is the "Internet" :)

Airbus gets a $ 16 Billion New Year Gift from Indigo... India has not just arrived , Its flown onto the stage in style !!

India has created ripples in the Commercial Aviation Industry as Indigo awarded a deal to Airbus to buy 180 jets for its fleet. The order is being billed as " the largest single firm order number for large jets in commercial aviation history" and will definitely give its rival Boeing sleepless nights. Indigo plans to use these fuel efficient jets to cater to the growing aviation market in booming India.

Brushing away all the corruption , scams galore , poverty , lack of education and even lack of governance , i think India has time and again in the last couple of year announced to the world that it is no longer a nation of snake charmers. It is the centre of economic growth and not a bus to be missed. I think our generation is the sunshine generation and we are very luck to watch a nation being turned into a super power. We are where Japan was in 1960's & 70's and China early 90's when their economies just took off at an exponential rate. While there are sceptics who think that the growth in India is not inclusive but is restricted to only the privileged few , I think the notion is incorrect. Taking a few basic examples like the mobile penetration in India is one of the largest in the world with the current subscriber base at 660 million and rising , India being the fastest growing car market in the world in the last year. Closer home during a recent visit to my village in UP , i was surprised to see a shopping mart called "Hariyali" catering to the farmers needs and getting to watch a cricket match in the wee hours of the morning without having to switch on the genset was unexpectedly pleasant. I will not even mention a plethora of reverse mergers where Indian companies have taken over global giants in the past couple of years , as that would be termed as growth being driven by the "privileged few". Sure we have a lot of problems that still need to be overcome , but then a crown of roses comes with its fair share of thorns. While i do respect our nations media for having the ability to "bring out" a scam a day but i do sit back and wait for a day when a person from media is brought to task for any wrong doings. Sure Ratan Tata , Radia , Raja are now house hold names but i wonder why the initial noise around Barkha Dutt & Vir Sanghvi died down so quickly. Are power brokers exempted for all wrong doings if they are from the media ?

I think we should look past the media headlines and see our nation emerge into a super power. I think we should take pride in the fact that a Gurgaon based company has suddenly become the largest customer of aircraft's in the world. I think we should see that in less than a century we have moved from a nation where its citizens were not able to travel first class in locomotives to a country which has the largest railway network in the world. I think we should all stand up and tell the soldier who is braving the nature and the enemy , that he is protecting a nation of proud Indians and not just sceptics. We owe it to him and to the countless freedom fighters who gave up their lives selflessly for a dream. A dream that our generation has the opportunity to turn into a reality. I am a proud Indian and i choose to look at the bright side. Do you ?