INTERNATIONAL MARKETTING

REPORT ON P&G Entry strategy in China

SUBMITTED BY BALAJI GOPAL (Roll No: 08) (MMS MARKETING)

SUBMITTED TO Prof Kavita

SUBMITTED ON 20 / 10 / 11

Procter & Gamble in China Introduction: P&G was established in April 1837 with the merger of the candle-making business of William Procter (Procter) and the soap-making business of Procter's co-brother, James Gamble (Gamble). They set up a shop in Cincinnati, Ohio and nicknamed the shop "Pork polis" as their candles and soaps were made from the leftover fat of swine. Over its history of more than 168 years, P&G has acquired several companies, strengthening its position in all categories of FMCG. The company manufactured and marketed nearly 300 brands to consumers in over 160 countries across the globe. It employed about 102,000 people. P&G had a high market share in several product categories: laundry and cleaning (Tide, Cascade, Dawn), paper goods (Bounty, Charmin, Pampers), beauty care (Pantene, Olay, Cover Girl), food and beverages (Folgers, Pringles, Duncan Hines) and health care (Crest, Scope, Metamucil). Reason for entering China: P& Gs had a strong presence in the U.S & European markets. However, these markets had reached saturation as far as revenue growth was concerned. As a result of which P&G started to focus heavily on the fast growing developing economies such as India & China. The establishment of SEZS, tax benefits, low cost labour, high labour productivity, low cost of financing, reduced red-Tapism, Chinese government favouring FDI, excellent infrastructure all of which enabled P&Gs entry into China in 1988. P&Gs entry into China: The Chinese government began to open local markets to foreign investment in the early 1980s. At this time, the government started establishing Special
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Economic Zones (SEZ) to promote free trade. One of the most prominent SEZs came up near the village of Shenzhen, in Guangdong province. As a result of the SEZs, there was explosive industrial growth in this belt. By 1984, China increased the number of economic zones to 14, and widened the scope of activity. It was during this time that P&G began to focus seriously on China. P&G conducted its first market research in the Chinese market in Beijing and Shanghai in 1985. During that time, foreign trade was still restricted and was channelled through 'friendship stores' where consumers with access to foreign currency could buy a limited range of imported goods. Thus P&G used the direct mode of entry through FDI and setup its plant in Shenzhen, Guangdong province. This provides P&G an ideal platform to not only build & expand in China but also generate exports from China.

Market Research: P&G was a pioneer in developing the discipline of market research during the 1920s. However, by the early 2000s, the company had made significant changes in the way it handled market research. Instead of finding out what products consumers used, P&G had initiated an exercise to learn how consumers used them. In China too, P&G invested significantly in consumer research. Jim Stengel, P&G's Global Marketing Officer and his team of 3,500 marketing executives visited places where consumers lived and worked, in order to observe their behaviour. P&G conducted extensive studies to understand the preferences of different groups of consumers so as to develop a distinctive product that could also be differentiated at the point of sale.

Culture: China has a dictatorship form of government, as a result of which Chinese leaders exercise maximum control over its people. Thus human rights have been a concern in China for several decades. P & G through its unique community development initiatives managed to earn goodwill among its customers. By 2005, 3.5% of P&Gs global sales came from China. Also, as China has a more conservative, traditional & risk-averse culture in comparison to its American counterparts, P&G carried out intense Market Research before zeroing on the products. After careful deliberations, eight years after the Chinese launch of P&G's Crest toothpaste, it launched 'New Crest' toothpaste in 2004, with a price 30 per cent lower than that of its premium product and on par with its competitor - Colgate's middle-market toothpaste. At the time of the launch of this product, Crest was a premium brand in China and by 2000, Crest held about 55% market share of the up-market segment. About 70% of the total toothpaste market consisted of middle and lower-end segments.

HR Strategy: P&G's HR strategy focused on superior recruiting and retention of its employees. In its initial years in China, P&G brought in experienced Americans to manage the country's operations. The company also hired Chinese at that time but gave them a set plan to follow. It trained these locals to think the American way. With time, the locals gained experience and were absorbed into senior positions. P&G believed in promoting from within the organization and so the company recruited people who were starting their career or had little work experience. P&G was among the first multinationals to conduct campus placements in reputed Chinese universities and had gained strong awareness
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among university students. It provided world-class training programs to build general business skills as well as core functional skills. Achievers were also given overseas assignments. In May 2005, P&G employed 4,000 people in China, out of which only about 50 were not Chinese. Marketing Strategy: Product: In China, P&G had moved away from its 'premium' image to a company that catered to all segments of the population. P&G changed the standard of innovation so it can serve more of the world's consumers. So it's now a better brand experience for the target consumer and a lower product cost structure than the competition can deliver. P&Gs success in China was due to its localisation strategies. The company customised product packing, product formulas, advertising to adapt to the Chinese market. P&G brought variations in products such as toothpastes and cosmetics to suit the needs and preferences of Chinese consumers. However, Head & Shoulders, Pantene, Whisper and Pringles were products that were same across the world, including China.

Pricing: P&G realized that dandruff was the common hair problem among Chinese consumers & the local brands had not addressed that. Hence it came up with Head & Shoulders. P&G although intended to reflect the image of catering to mass market with volume goods, yet the prices of some of its products like Head & Shoulders were three times higher than local brands. Within three years, Head & Shoulders became the largest selling shampoo in China.

Promotion:

The US-based fast moving consumer goods (FMCG) manufacturer - Procter & Gamble (P&G) outbid other major companies for prime-time advertising slots on the China Central Television3 (CCTV) investing 394 million Yuan. Earlier, in 2004, P&G had invested just 180 million Yuan. This sharp step-up reflected the increased importance P&G attached to advertising its products in the fast growing Chinese economy. P&Gs investing in China made sense because demand for items such as Crest toothpaste and Tide detergent was rising faster in developing countries than in developed countries. This sharp step-up reflected the increased importance P&G attached to advertising its products in the fast growing Chinese economy se because demand for items such as Crest toothpaste and Tide detergent was rising faster in developing countries than in developed countries.

Place / Distribution / SCM:

P&G gained a distinctive competitive edge through a strengthened focus on supply network efficiencies. By making consumer the centre of all its core operations, P&G initiated Customer Driven Supply Network (CDSN) that starts from customer choice at the store shelf and works backwards towards product manufacture; a paradigm shift from forecast-based supply chain to the one based on real-time demand. The purchase division worked in union with GBS and made R&D as the backbone of supply chain management. It bridged the gap between suppliers and R&D team by developing new product formulae and
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new packaging for the products. P&G's formulation for liquid laundry detergents like Tide, Gain, and Cheer & Era exemplified the same. These were packed in half the size of the original ones, however, with sufficient detergent to do the same load while saving on fuel consumption, warehouse space, quantity packed and the packaging material. P&G sold its products directly to

consumers through retailers. P&G was faced with several competing priorities meeting consumer value equation amid rising supplier costs, balancing global scale benefits with the need to offer local differentiation, meeting the diverse challenges of developed and developing markets and above all, reaching the global large-scale retailers as well as the small and local street shops. All this made P&G collaborate with its partners across the supply network to win consumers at the point of purchase. It implemented Web Order Management' an online system, which enabled retailers not only to connect with P&G anytime, anywhere but also access P&G's promotions, inventory, scheduling information and easily replenish stocks. P&G's partnership with Wal-Mart exemplifies the success of manufacturer-retailer relationships in China. They also set up a data-interchange link, which enabled P&G manage Wal-Mart's P&G inventory. P&G monitored the shelves across all Wal-Mart stores by receiving continuous satellite data on sales and inventory from individual WalMart stores. As and when P&G products ran low at Wal-Mart distribution centres, P&G would ship the goods, directly from the factory to the individual stores. They also set up a data-interchange link, which enabled P&G manage Wal-Mart's P&G inventory. P&G monitored the shelves across all Wal-Mart stores by receiving continuous satellite data on sales and inventory from individual Wal-Mart stores. As and when P&G products ran low at Wal-Mart distribution centres, P&G would ship the goods, directly from the factory to the individual stores. P&G used cross-docking very effectively. Thereby, instead of shipping the required quantity to Wal-Mart distribution centre and then break up for each store, P&G tailored its shipments according to the requirements of each
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store. Thereby, as and when P&G truck would arrive at Wal-Mart's distribution centre, shipments would be transferred to Wal-Mart truck to be sent to the individual stores without any necessity for storage. Electronic invoicing and electronic transfer of funds completed the transaction cycle. This sped the orderto-delivery cycle by nearly 10 days and Wal-Mart paid for P&G goods shortly after they were sold to the end customer. Thus, an effective supply chain helps manufacturers by reducing a retailer's out-of-stocks, which in turn prevents lost sales. Those sales also benefit the retailer, while efficient delivery of products to meet demand can also reduce the costs of holding inventory to the retailer.

Challenges: Though P&G's Chinese operations were highly successful, the company faced challenges in the form of fierce competition from local Chinese manufacturers and the presence of fake products. P&G faced stiff competition from local companies such as the Nice group (that manufactured detergents) and C-Bons (a national shampoo and skin care products company). To avoid direct competition from global FMCG companies such as P&G, these local companies had concentrated on lower segment consumers and had emerged as leaders in this