In which industry does P&G compete? Apply Porter’s Five Forces Model to the industry. Is this an attractive industry? P&G is one of the leading companies that are operating in the household consumer product industry.
P&G’s threat of substitution is extremely high as there are many companies producing household consumer products, both national and international such as Clorox, Kimberly-Clark and Colgate-Palmolive CL. Also, P&G is also competing with retailers private label brands such as Walmart’s Great Value.Because the consumer’s switching costs between products are low, the quality, price, brand loyalty and differentiation of a product is very important in influencing consumer’s purchasing decision. The barrier to entry of an average incumbent firm for this industry is relatively low.
This is because the capital investment that is needed to enter this industry is relatively low. However, because of the extremely high competition and also the existence of very established companies such as a P&G, it is very hard for a new entry to be as big as current products.This is because these companies have been able to capture a large market share over the years of their existence as well as able to create brand loyalty among their customers. Therefore, for a new firm to be successful, they would have to invest a lot in research and development to be able to produce a differentiated product.
The threat of substitutes for this industry is low because most of the products that P&G sells are necessity products. Consumers need these products for their daily uses.The only time when the consumers choose to substitute these products is when they choose not to use it. The power of buyers for this industry is moderate. Although, companies in this industry are able to sell their products straight to the end buyer, which are the consumers, most of their sales go through retailers such as Walmart. And because they are able to sell more products through distribution channel such as retailers, retailers are very demanding about getting a lower price.
Based on the Porter’s five forces analysis, it seems as if this industry is not a very attractive industry as it is difficult to compete with big and established companies such as P&G who are able to create economies of scope and scale, therefore able to sell their products for a cheaper price. It is quite difficult for an average incumbent firm to compete with price and brand loyalty unless they are able to differentiate their products significantly.What factors are critical for success of this firm given the competitive environment? P&G focused on global marketing and innovation to meet the demand of its products and services. The management paid attention to what customers wanted and produced the highest quality products to survive in the competitive environment. To achieve industry leadership the company planned some innovative strategies as to speed up innovation process and the commercialization of new products.Innovation can be considered as one of the critical factors for the company’s success.
P&G acquired other companies and as a result their product line was diversified which helped to increase the organizations profits. The company was able to gain sustainable competitive advantage in innovation strategies and a temporary competitive advantage in their product line. Effective leadership qualities in the management team could also be considered as one of the critical factors in company’s success.The management team reorganized and integrated all the manufacturing process of the acquired companies to achieve cost leadership and hence increase the economic value of the company. Diversity in the workforce and management helped with different creative ideas to make the company more successful.
The skilled employees working at P&G were of great help to the company. Company invested heavily in the research and development department and developed new product and market research teams.Surveys were conducted to find more information about the P and G products that the consumers were using. This does help us explain how the company emerged successful as compared to its other competitors. The innovative products and services have helped the consumers to reduce their costs on heath care products. The company also enhanced its distribution network through vertical integration.
P&G were able to form alliances and partnerships with their suppliers which resulted beneficial for the company’s success. What are your concerns about P&Gs strategic position in 2005?After Lafley’s innovation strategy, P&G regained its market shares and enjoyed a fast sales growth. However, some concerns still existed for its strategic position in 2005. From the case, we know that the cuts in capital and R&D spending led to some increases in profit. But this kind of increase cannot be long lasting because the certain amount of investment in R&D is required to implement the innovation strategy. To keep its market share and sales growth rate, P&G should have more innovative actions to respond any attack.
However, just as case presented, since Lafley was focusing more on upgrading the existing brands rather than introducing new brands, they might have risk of losing emerging markets and was unable to meet the changing demands of customers. If P&G couldn’t provide the relevant products, the only way to compete with other firms might be decreasing prices. The profit margins of incremental innovation tend to be lower because of the fast introduction of new products by other competitors and intense price competition of mature products, so radical innovation should be necessary for P&G to keep its brand loyalty and market share.Then another concern is coming.
According to the case, we know that the rate of failure to commercialize a new product is very high. Therefore, P&G must take some actions to collect accurate data from its retailers and walk closer to its customers. Analysis of the trend of customer demand must be done before invention so that the investment in invention would finally lead to successful innovation. P&G would also control its expense and make its R&D spending more efficient.Moreover, the competition in consumer product industry must be fiercer in 2005 since P&G’s main competitors were making effort to regain their market share.
Because of its leading position in this industry, P&G would face more competitions from its challengers especially aiming at its price or the products. P&G must pay attention to any form of alliance of its competitors which would be a big threat. Besides, P&G should also avoid missing opportunities of acquisition or joint venture to increase its market power and gain synergies.
