Answered: QUESTIONS FOR DISCUSSION How would you…

Principles Of Marketing

17th Edition

ISBN:9780134492513

Author:Kotler, Philip, Armstrong, Gary (gary M.)

Publisher:Kotler, Philip, Armstrong, Gary (gary M.)

Chapter1: Marketing: Creating Customer Value And Engagement

Section: Chapter Questions

Problem 1.1DQ

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Procter & Gamble (P&G), the iconic marketer of seemingly endless lines of household products since 1837, is confronted now with a puzzling marketing dilemma: “What’s happening to the middle class in the United States? The number of midrange shoppers is shrinking.” With its lineup of popular brands such as Folgers, Clairol, Charmin, and Gillette, it is estimated that 98 percent of U.S. households are using at least one P&G product, a position that has grown largely by targeting middleclass consumers. Although its products are sold in more than 180 countries, U.S. consumers provide more than 35 percent of P&G sales and nearly 60 percent of annual profits. The problem facing P&G is the shrinkage of middle-class purchasing power, a change that began with the 2008 recession and continues today. Many once-well-off middle-class families are pinched with rising prices for gasoline, food, education, and health care but little or no wage increases. The nation’s economic condition, as a result, has been dubbed by Citigroup as the “Consumer Hourglass Theory.” Advocates of the theory assert that purchasing power has shifted away from the once massive middle and is concentrated now at the bottom and top. That’s where consumer action is now, at the high-end market and the low-end market, and it will increase even more in those areas. On top of changing economics, preferences also are changing among consumers. Generation Y and Z buyers have been raised on premium brands. Rather than getting their clothes at bargain retailers, younger adults spent their teenage years in clothes from Hollister and Abercrombie & Fitch. As adults, they show a preference for premium brands, even when their incomes are solidly middle class. Will middle-class shrinkage continue, or is it a passing blip that will recover in the near future? Based on P&G’s research, Melanie Healey, group president for P&G’s North America business, expects middle-class downsizing will be a continuing trend. Accordingly, P&G and other companies are rethinking their target markets. Aiming at the high-end segment in 2009, the company introduced its more expensive Olay Pro-X skin-care product. Previously, P&G introduced Gain, the bargain-priced laundry detergent, which is aimed at the growing lower portion of the previous middleclass market following a dip in sales of the mid-priced Tide brand. Near the beginning of the recession, P&G’s lower-priced Luvs diapers gained market share from the higher-priced Pampers brand. Following a path similar to that of P&G, H. J. Heinz has developed more food products for the lower-priced markets. Meanwhile, retailers focusing on lower-income consumers, such as Dollar General, are attracting customers from higher-priced Walmart and Target.

Refocusing from the mainstream middle onto high- and low-end consumers is a new marketing experience at P&G. They have increased market research on lower-income households, often using face-to-face interviews to gain in-depth understanding of these consumers. So far, the low-end and the high-end segments each are generally smaller than the former massive middle-class market, which means P&G is splitting its marketing efforts, rather than having just a single larger thrust. As one company official noted, historically they have been good at doing things on a larger scale, but now they are learning how to deal with smaller sales volumes for products in each of two segments. New product development is affected, too, because the high-end segment often involves fewer products with attractive extra features that will sell profitably at higher prices. P&G is betting that the Hourglass Theory has set the course for the company’s future.

QUESTIONS FOR DISCUSSION

How would you best describe P&G’s marketing strategy for the situation presented in this case? Explain why.
What elements of P&G’s external marketing environment, if any, are influencing the company’s marketing strategy? Explain your reasoning.
Why do you suppose P&G’s marketing research includes face-to-face interviews for the situation described in this case? Would other forms of marketing research also be useful in this situation? Explain your reasoning.
Explain the roles of target marketing and market segmentation as they apply in this case.
In what ways are the components of P&G’s marketing mix being affected by the situation described in this case? Give examples to illustrate.

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