England Capstone report 1

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1 Procter & Gamble Amy England MGT-5093: Organizational Strategy Dr. Liu March 24, 2024

2 Overview: Procter & Gamble Company is a global corporation that specializes in a wide range of products, including beauty, grooming, healthcare, fabric care, and home care. The company was founded in 1837 and has company headquarters in Cincinnati, Ohio, USA. (P&G, 2023a). Procter & Gamble, also known as P&G, is one of the largest and most successful consumer goods companies in the world, with a market capitalization of over $350 billion as of March 2023 (P&G, 2023a). Procter and Gamble employs 107,000 people worldwide, and their brands are used in at least 180 countries (P&G, 2023a). P&G operates in a highly competitive industry, with its top competitors including Unilever, Johnson & Johnson, and Colgate-Palmolive. P&G has a strong competitive position in the market, with a reputation for high-quality products and a strong brand presence. The company's brands include some of the most recognizable in the world, such as Pampers, Tide, Gillette, Head & Shoulders, and Olay. P&G has a strong commitment to sustainability and has implemented initiatives to reduce its environmental impact and promote social responsibility (P&G, 2023a). P&G product’s portfolio consists of ten categories of products, including personal healthcare, oral care, fabric care, home care, skin, and personal care, haircare, grooming, baby care, feminine care, and family care. In each of these categories, P&G has a market-leading share, and the company strives to leverage its position to scale (Smith, 2023). Procter & Gamble is divided into six different geographical segments: Asia-Pacific, Greater China, India (the middle East & Africa), Europe, Latin America, and North America. According to Smith (2023), P&G gets nearly 49% of its revenue from North America and 21% from Europe. The company has a long history of innovation and has introduced many products to the market, such as the first liquid laundry detergent and the first antiperspirant deodorant (P&G, 2023b). P&G has a strong leadership team, with CEO Jon. R. Moeller at the helm. Moeller has been with the company for over 30 years and has a proven track record of success in driving growth and innovation (Smith, 2023). Shailesh Jejurikar is the Chief Operating officer. He has been with P&G since 1989 (http/us.pg.com). Andre Schulten is the Chief Financial Officer. He joined P&G in 1996. P&G offers multiple programs to help employees grow in their career and work toward joining management ( P&G, 2023c ). References: (P&G, 2023a) Procter and Gamble. (2023, September 14). Procter & Gamble. https://us.pg.com/ (P&G, 2023b) Procter and Gamble. (2023, September 14). Our brands. https://us.pg.com/our- brands.com (P&G, 2023c) Procter and Gamble. (2023, September 14). Purpose, Values, and Principles. https://us.pg.com/policies-and-practices/purpose-values-and-principles/

3 The Investopedia Team. Smith, Adam Editor, (2023, July 12). Who are Procter & Gamble’s main competitors? Investopedia. https://www.investopedia.com/ask/answers/120114/who- are-proctor-gambles-pg-main-competitors.asp Mission: Procter & Gamble’s mission statement is “We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. 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” (P&G,2023c). Top innovative brands are the core of P&G's mission. This differentiates their brands against competitors. For almost 200 years, Procter and Gamble's purpose has been to transcend the consumer-goods industry and surpass the competition. Procter and Gamble value statement is as follows: "Procter and Gamble is the people and the values by which we live. We contract and recruit the finest people in the world. We build our organization from within, promoting and rewarding people without regard to any difference unrelated to performance. We act on the conviction that the men and women of Procter and Gamble will always be our most important assets" (P&G, 2023c). Procter and Gamble's goal is "meeting the needs of consumers better than the best competitors to deliver winning total share return" (P&G, 2023c). Procter and Gamble is going through a transformation said to yield positive results for shareholders, outlined in their letter to the board. (P&G, 2023a). The plan addresses increased productivity, cost savings, brand restructuring, increased innovation, and organizational leadership changes, all of which are needed to regain ground and make good on its mission and vision. References: (P&G, 2023a) Procter and Gamble. (2023, September 14). Procter & Gamble. https://us.pg.com/ (P&G, 2023c) Procter and Gamble. (2023, September 14). Purpose, Values, and Principles. https://us.pg.com/policies-and-practices/purpose-values-and-principles/ Product and Market: The consumer good market is very competitive (Smith, 2023). Consumer needs and wants are very different across countries and cultures. To be able to be a top competitor in the market, P&G must be innovative and diverse in its product lines, brand names, and marketing strategies (Smith, 2023). P&G pursues excellence in its products, packaging, communication, retail execution, and value offerings. The company understands superiority matters and is an unparalleled opportunity that can give it a competitive advantage. P&G has set the superiority bar quite high and continuously tracks the category growth, market share, household penetration, sales, and profits (Petruzzi, 2024).

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4 Another factor that has contributed to Procter & Gamble's success is its extensive product line. The company offers a wide range of products in beauty, grooming, healthcare, fabric care, and home care categories (P&G, 2023a) This has allowed them to cater to a wide range of consumer needs and preferences, and to appeal to a broad customer base. Procter & Gamble has developed several innovative products, such as Tide Pods, which have helped to set the company apart from its competitors. Procter & Gamble has also been able to maintain a low-cost structure, which has allowed it to offer competitive prices to consumers. The company has a well- developed supply chain management system that allows it to purchase raw materials at a low cost and to manufacture products efficiently. This has helped to keep its production costs low, which has allowed it to offer competitive prices to consumers (Smith, 2023). According to Statista (Petruzzi, 2024), Procter and Gamble is the largest consumer goods company in the world. In the financial year 2022, Procter & Gamble's sales amounted to over 80 billion U.S. dollars worldwide. This revenue was generated as a result of the company's numerous billion U.S. dollar brands within the consumer goods industry. As of 2022, three of the company's brands were ranked within the top fifteen personal care brands in the world; the leading one being Pampers, which had a brand value of approximately 20 billion U.S. dollars. Procter & Gamble is also one of the biggest spenders in the world when it comes to its advertising campaigns. Recently, the company’s advertising expenditure amounted to approximately eight billion U.S. dollars. In the United States alone, Procter & Gamble spent 163 million U.S. dollars promoting its Olay brand in 2021 (Petruzzi, 2024). The company’s most profitable business segment is fabric and home care. According to Statista (Petruzzi, 2024), P&G generated global net sales of over 27 billion U.S. dollars in 2022. Some of its fabric and home care brands, like Mr. Clean and Dawn, made it in a ranking of the most popular among U.S. women in the third quarter of 2022. In the same year, P&G’s brand Tide ranked first as the leading liquid laundry detergent brand in the United Sales in terms of both dollar and unit sales. References: Petruzzi, D. (15 Feb. 2024). Topic: Procter & Gamble . Statista. https://www.statista.com/topics/1625/procter-and-gamble/#topicOverview (P&G, 2023a) Procter and Gamble. (2023, September 14). Procter & Gamble. https://us.pg.com/ The Investopedia Team. Smith, Adam Editor, (2023, July 12). Who are Procter & Gamble’s main competitors? Investopedia. https://www.investopedia.com/ask/answers/120114/who- are-proctor-gambles-pg-main-competitors.asp Industry Summary: Procter & Gamble started as a partnership in 1837. Procter and Gamble was established as a publicly traded company in 1890. At nearly 200 years old, P&G is the 19th-largest public company in the world. The key to its success is focusing on customer delight, according to Dylan Walsh (2023). Currently, the company operates with nearly 70 brands in more than 180 countries

5 all over the world while earning net sales worth $65.1 billion (P&G, 2023a). As a result, the company has achieved a respectable rank in the list of popular consumer goods firms highlighted by Forbes, Fortune, Barron and Glassdoor (Alonso, 2023). This success has come to Procter and Gamble since the Leadership team puts emphasis on the fulfilment of the needs and preferences of employees. This helps ensure their satisfaction and motivation which lead to high productivity of the company. Apart from employees, the management process of Procter and Gamble can address the needs and preferences of the local retailers who act as the marketing agents of the company (Alonso, 2023). The company has introduced significant use of technology thus creating automation of all the operational units of the firms. The global consumer packaged goods (CPG) market size was worth around USD 160.75 billion in 2022 and is predicted to grow to around USD 244.92 billion by 2030 with a compound annual growth rate (CAGR) of roughly 5.40% between 2023 and 2030 (Zion Market Research, 2024). According to Bloomenthal (2024), the CPG market is valued at around $2 trillion. CPGs, generally, have a short shelf life and are replaced often (Bloomenthal, 2024). This can be a good and bad thing. It allows for new packaging, improved formulas, and special promotions during holidays and other events. P&G offers products in different packages, sizes, and flavors. This allows for different marketing and pricing strategies. References: Alonso, T. (2023, February 23). How Procter & Gamble went from soap and candles to multinational giant . Strategy Study. https://www.cascade.app/studies/procter-and-gamble- strategy-study Bloomenthal, A. (2024, March 14). Consumer Packed Goods (CPG): What Are They vs Durable Goods . Investopedia. www.investopedia.com/terms/cpg Walsh, D. (2023, May 2). Procter & Gamble’s CEO on Navigating Rapid Change. MIT Sloan. https://mitsloan.mit.edu/ideas-made-to-matter/procter-gambles-ceo-navigating-rapid- change Zion Market Research. (2024). Consumer Packaged Goods (CPG) market size, share, growth, demand 2023-2030. https://www.zionmarketresearch.com/report/consumer-packaged-goods-cpg- market. Industry Environment: Scalability is critical at a company the size of Procter & Gamble. If we can’t scale our processes, they don’t have much value for us (Lafley, 2008). A. G. Lafley said,” In fact, scalability is often the justification for our existence as a multinational, diversified company. Our innovation practices are thus designed for deliberate learning, across all our functions, product categories, and geographic locations. Once people understand a particular process, they can replicate it and train others. It soon becomes a part of normal decision making” (2008).

6 The global consumer packaged goods (CPG) market is led by players like Johnson & Johnson, Procter & Gamble (P&G), Nestlé, Unilever, Kraft Heinz, Kellogg Company, The Coca- Cola Company, Colgate-Palmolive, PepsiCo, Clorox, Mars, Incorporated, The Hershey Company, Mondelez International, Conagra Brands, and General Mills (Zion Market Research, 2023). This market is subject to price sensitivity. Consumers are price sensitive, especially when the economy is down, so P&G must balance the need for profit with pricing strategies that will catch the customers ’eye. With so many competitors, P&G must market to all socioeconomical groups. P&G offers products affordable for all groups. References: Lafley, A. G. (2008). P&G’s Innovation Culture: How we built a world-class organic growth engine by investing in people. Strategy Business, (52). (P&G, 2023a) Procter and Gamble. (2023, September 14). Procter & Gamble. https://us.pg.com/ Zion Market Research. (2024). Consumer Packaged Goods (CPG) market size, share, growth, demand 2023-2030. https://www.zionmarketresearch.com/report/consumer-packaged-goods-cpg- market. Industry Challenges, Competition, Change: Procter and Gamble’s organization strategy is fundamentally backed by has six core competencies: consumer understanding, innovation, branding, go-to-market capabilities, and scale and productivity (P&G, 2023a). Moreover, the company is still the leader in the United States consumer goods industry but must improve on its core competencies to continue further growth. We are constantly innovating how we innovate. We keep refining our product-launch model — from idea to prototype, to development, to qualification, to commercialization (Lafley, 2008). Procter and Gamble’s Gillet brand was a significant leader in revenue but has lost market share to private label brands, which use a subscription-based approach (Lucas, 2019). As a major player in the global consumer goods industry, Procter & Gamble has an evolving set of strategies that keep the business successful and fulfills Procter & Gamble’s mission statement and vision statement. P&G monitors the industry environment to ensure the appropriateness of strategies in addressing the external factors. Looking at Porter’s Five Forces, we can get a better view of how Procter & Gamble id doing in their industry. Competitive rivalry in the CPG industry is high. There are many companies in this industry (Thompson, 2023). There is a high variety of companies, making it harder to compete in the industry. The costs to switch are low, so that means there are fewer negative consequences from moving from one brand to another with similar products (Thompson, 2023). Customer satisfaction is what ultimately drives a consumer to buy a product in the CPG industry. There is a high market demand for CPG products. A person can buy products almost anywhere. The suppliers for P&G are numerous. The suppliers and consumers have low bargaining power (Thompson, 2023).

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7 P&G customers can easily switch between brands because of low switching costs, so the threat of new entrants to the market is high. According to Thompson (2023), the capital costs that it takes to start a company that manufactures products similar to P&G’s are high. To be able to directly compete with P&G, a company would have to be large. The moderate economies of scale also limit entrants into the market (Thompson, 2023). New entrants cannot compete with the global scale operations of P&G. Strong brands ensure P&G’s competitive advantage. Customers are loyal to brands and the economies of scale are on a global level (Thompson, 2023). P&G has an efficient global product distribution network that involves company owned facilities and third-party service providers (Thompson, 2023). Despite being a market leader, P&G has a limited online presence (Thompson, 2023). One of the weaknesses of P&G is that the goods can be imitated, which can lead to a reduction of the market share. The global market has many opportunities for growth. Business diversification is a good strategy. P&G could acquire other businesses to reduce their threats. P&G can introduce new products or improvements on already existing products to increase its place in the market. References: Lafley, A. G. (2008). P&G’s Innovation Culture: How we built a world-class organic growth engine by investing in people. Strategy Business , (52). Lucas, A. (2019, July 30). Procter & Gamble writes down Gillette business but remains confident in its future . CNBC. https://www.cnbc.com/2019/07/30/procter-gamble-writes- down-gillette-business-but-remains-confident-in-its-future.html (P&G, 2023a) Procter and Gamble. (2023, September 14). Procter & Gamble. https://us.pg.com/ Thompson, A. (2023, August 10). Procter & Gamble (P&G) Five Forces Analysis & Recommendations. Panmore Institute. https://panmore.com/procter-gamble-five-forces- analysis-porters-recommendations Markets: The decision to focus on innovation as a core strength throughout the company has had a direct influence on our performance (Lafley, 2008). P&G sold off most of its food and beverage businesses allowing them to concentrate on products that they knew best. According to Lafley (2008), P&G created a practice of “Open innovation”. This means P&G looked at the skills and interests of the people in the company and partnering with other companies. P&G needed to broaden their capabilities. Building an open innovation culture was vital to the growth opportunity that was presented by emerging markets (Lafley, 2008). With all the global changes, between 1 billion and 2 billion people in Asia, Latin America, Eastern Europe, and the Middle East will move from rural life to a more urban life. This will create changes in the choices they make in many things. To reach this “new market” of consumers, P&G had to develop new

8 products, processes, and form a community presence. P&G knew they needed to involve people, inside the company and out, who are familiar with the values and needs of consumers in this situation, according to Lafley (2008). The idea for a new product may spring from the mind of an individual, but only a team effort can carry that idea from beginning to end. If innovation is to be integrated with both business strategy and work processes, it requires a broad network of social interactions (Lafley, 2008). P&G experimented with new ways to build social connections through digital media and other forms of direct interaction, (Lafley, 2008). Web sites were built to reinforce consumer connections, to better understand consumers’ needs, and to experiment with prototypes. Lafley (2008), “For example, we used to hand-make baby diapers for a product test. Now, we show people digitally created alternatives in an onscreen virtual world. If the consumers we’re talking to have an idea, we can redesign it immediately and ask them, “Do you like that better? How would you use it?” It allows us to iterate very quickly. In effect, we are building a social system with the purchasers (and potential purchasers) of our products, enabling them to codesign and co-engineer our innovations.” One of the ways P&G started defining the target consumer, was by fragrance brand. They started by identifying subgroups of consumers for some brands. We didn’t walk away from the traditional approaches of the fine fragrance business. We still maintained partnerships with established fashion houses, such as Dolce & Gabbana, Gucci, and Lacoste. We also made the consumer our boss. According to Lafley (2008), “We focused on a few big launches and on innovation that was meaningful to consumers, including fresh new scents, distinctive packaging, provocative marketing, and delightful in-store experiences. We also took advantage of our global scale and supply chain to reduce complexity and enable a significantly lower cost structure.” Finally, Procter and Gamble must capitalize on its scale and productivity as an advantage to increase its profitability. Procter and Gamble diversity of their business portfolio allows the company to leverage each of their respective segments. For example, their Health and Beauty segments purchasing pools created by Household business, like diapers, laundry, and paper products (P&G, 2023a). In turn, enables other segments to purchase packing materials and basic commodities at lower cost, than direct competitors (P&G, 2023a). This leveraging allows segments such as Household Care benefit from economies of scale created by the massive advertising budgets supporting our Health and Beauty Care businesses (P&G, 2023a). References: Lafley, A. G. (2008). P&G’s Innovation Culture: How we built a world-class organic growth engine by investing in people. Strategy Business , (52). (P&G, 2023a) Procter and Gamble. (2023, September 14). Procter & Gamble. https://us.pg.com/ Thompson, A. (2023, August 10). Procter & Gamble (P&G) Five Forces Analysis & Recommendations. Panmore Institute. https://panmore.com/procter-gamble-five-forces-analysis- porters-recommendations

England Capstone report 1

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