Table of Contents

1.

Introduction.................................................................................................................2
1.1

Problems..............................................................................................................2

1.2

SWOT Analysis.....................................................................................................3

1.2.1 Strengths...........................................................................................................3
1.2.2 Weaknesses......................................................................................................3
1.2.3 Opportunities.....................................................................................................4
1.2.4 Threats...............................................................................................................4
2.

Solutions and Answers...............................................................................................4

2.1

Joint Ventures.......................................................................................................5

2.2

R&D and Innovations...........................................................................................5

2.2.1 Entering the European Market..........................................................................6

2.3 Lowering the Price...................................................................................................6
2.4 Implementing New Marketing Strategies.................................................................7
2.4.1 Creating a Marketing System For SK-II............................................................7
2.4.2 Localize and Adapt............................................................................................8
2.4.3 Understanding the how things work in each country........................................8
2.5 Price Discrimination.................................................................................................8

1. Introduction
P&G (Procter and Gamble) was founded in 1873 as an American firm focusing in the
sales of consumer goods. A hundred years later, it entered the Japanese market,
acquiring the Nippon Sunhome Company in the process. Around seven years later, in
1980, P&G Japan went on its own and introduced a luxurious skincare product labeled
SK-II, as of now, SK-II is sold worldwide, maintaining its image as a prestigious beauty
brand.

1.1

Problems

In 1999, Paolo de Cesare wanted to expand SK-II, which was only sold in Japan by
then, to new markets, namely China and Europe. That being said, Paolo did not hesitate
to admit that expanding into these markets arent without its risks. Yes, SK-II was a
huge success in Japan, however, the two markets they were planning on entering
presents a significant contrast compared to the Japanese market in terms of
consumers, distribution channels, and also the competitors.
Another setback is the fact that in 2005, P&Gs global structure has undergone a major
remodeling, while many has given positive feedbacks to the long-term impacts of this
restructuring, it cannot be denied that a change of this magnitude can only serve as an
inhibitor to SK-IIs already slowing growth.
There is also the fact that SK-II is and has always been the odd one out in P&Gs
product portfolio. These questions will also be answered in the following paragraphs:
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Did SK-II have the potential to develop into a major global brand?
If so, which markets were the most to enter now?
And how should this be implemented in P&Gs newly reorganized global
operations?

1.2

SWOT Analysis

Strengths

Weaknesses

A good product with proven

results
Strong brand image
Loyalty
Strong marketing support
High recognition

Niche market
Narrow range of product
Weaker bargaining - under
department stores
Absense of retail flagship
stores

Opportunities

Threats

Men industry
Launching of makeup
series
Growing affleuce
Collaborations with
established brands

Imitation
Strong competition

1.2.1 Strengths
SK-II is a high-quality luxury skin care product which is very successful in the Asian
market. They have a strong brand image which gives it a competitive edge over its
competitors. Having a good image gives SK-II leverage over other products and
consumers from around Asia knows the product as a premium skin care product.
Moreover, due to its effectiveness and efficiency, SK-II products have loyal users.
Being a product that is in the P&G product line, SK-II has the advantage of strong
marketing support due to the strength of trust consumers have over other P&G
products. P&G is a company that has been in the business for many years thus they are
trusted and recognizable by people from around the globe.

1.2.2 Weaknesses
Being in a niche market is a major weakness of SK-II. As the product is concentrated
only on a segmented market, it will be focused only for the high-income group of
consumers. It would be an advantage for SK-II if the product is created for all the high,
middle and low income group to enable it to have a larger market segment.
The product range offered by SK-II is only limited to skin care products. Rivals of SK-II
are providing consumers with a wider range of products that serves as a comparative
advantage for its rivals. Unlike some of its competitors, SK-II are sold in department
stores and specialty stores like Sephora and Guardian. This weakens the product as it
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has less brand exposure compared to its rivals. SK-II should have its own flagship
stores so that its customers can get their hands on the product and be served by SK-II
specialists. Moreover, the weakness of being sold in department stores is that
customers have the power to compare the price of SK-II and other similar products.

1.2.3 Opportunities
Nowadays men are becoming more conscious of their skin care and many companies
are producing skin care products specially for men. SK-II should take the opportunity to
venture into this new business. The variety of men skin care products are not as
extensive as of the womens skin care products.
Moreover, SK-II has recently launched a new product line in the makeup line. Venturing
into a new market may help SK-II improve its recognition as a brand that has a wider
variety of product and may help further increase its market share. Lastly, SK-II has
made collaborations with established brands such as Senze Salus, a spa company. This
move made by SK-II will further strengthen their brand and create good relationships
with future customers.

1.2.4 Threats
The two threats that SK-II has to face is the threat of imitation which is something that
all company are facing. If the consumers are not educated in differentiating imitated SKII products, the brand will have to face consequences. SK-II should create a holographic
design on its product or an authenticity code to help customers check whether the
product is original or counterfeit. The sale of counterfeit goods will leave SK-II with a
bad name and it will not be good for the company.
The skin care product market is not a new market thus there are many existing
competitors selling the same products. This gives the consumers a high buying power. It
will be essential to provide the customers with a loyalty program the enables them to
stay loyal with the brand.

2. Solutions and Answers

After extensive discussions regarding the case study, we concluded that SK-II is
currently in the maturity phase of their business cycle, this is supported by their recent
slow growth in sales compared to their more infant years, as you can see in Exhibit 4,
page 17 of the case study. A business which is currently in the maturity phase of their
business cycle should know better than most of what is to come, which is the postmaturity phase. The latter is considered as one of those make-or-break moments in a
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business cycle, why? Because either 3 of the following might happen, (1) an increase in
sales, (2) a stagnant state of sales, or (3) a decline in sales. Naturally, a business would
want to avoid (3), hope for (1), and would feel grateful if (2) is to happen. However, (2) is
unlikely to happen unless said business is playing monopoly in the market. Hence, the
business would go for (1). Sales do not, however, increase on its own without the
influence of external and/or internal factors, and seeing as how external factors are
uncontrollable, theyll have to make do with what they have, this usually means
implementing renewal strategies. In the following we will discuss the strategies we see
fit for SK-II.

2.1

Joint Ventures

One of the solution for SK-II that we already discuss is joint venture. Since SK-II is
having troubles with entering the European market, they can joint venture with one of
the most famous or the start-up skin care company in Europe to help SK-II enter the
European market. Why joint venture with local company? Because SK-II is based in
japan, joint venture with local company in Europe will help SK-II in terms of studying not
just the regulations, but also culture, basically the needs and wants of the European
country, the local company knows the demanded products of European market, the
local company knows well about the suitable product for the European people, and the
local company can help SK-II maintain their stores in Europe. Hence, joint venture will
make SK-II easier because joint venture with local company will make SK-II reduce
cost, reduce time consuming, and marketing their products. We believe by joint venture
SK-II not only can enter the market but also SK-II will gain more profit because the local
company knows the consumer well. For example, if SK-II joint venture with LANCOME,
LANCOME is a skin care company that based in Paris, France. According to Forbes
LANCOME become 96 worlds most valuable brands in 2015 with its brand value is $6.2
Billion and their sales in 2015 is $4.5 Billion, so SK-II will easily enter the France market
especially in Paris because LANCOME already has loyal consumers in their home town
that always curious with LANCOMEs new product so they will try the new products of
Sephora beside that LANCOME will also help SK-II not only marketing their products
but will also reduce time consuming of SK-II because LANCOME already know the
information of French market. By joint venture with LANCOME SK-II not only can enter
European market but SK-II can enter another market because LANCOME is an
international brand and already being 96 most valuable brands in the world on 2015.

2.2

R&D and Innovations

One of the sources of new idea is to partake in research and development activities.
Research and development (R&D) can be done by Procter and Gamble (P&G) to
develop a new and improved SK-II in order to penetrate the new market. The company
should conduct research to identify new potential products that can be introduced to the
European market. The problem faced by P&G is that it has a 60-person R&D team
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which is miniscule compared to its competitor, Kao which has a 2,000-person team.
P&G should make the move to expand its R&D department so that it would be able to
compete with the tough, technology driven competitors across the globe.
To be innovative, P&G should invent new ways of doing things such as developing a
product that suits the needs of the European market. Doing R&D can uncover critical
strengths and weaknesses. What P&G could do is do a single-country research
whereby the market growth and segment can be identified, to identify the competition in
the foreign market, to identify the consumer needs and consumer perceptions. The
main question P&G should ask itself is will strategy used in country A also work for
country B? And what adaptations are necessary to adapt the strategy.
According to the case study, skincare products in Europe used by women left their skin
moisturized and conditioned but not as clean as they wanted. Different products used in
different countries offer different results. The essential goal for P&G is to create a
product that helps users of SK-II to achieve soft, moisturized, and clean-feeling skin.
Moreover, P&G should focus on the health trend. Health maintenance and concerns
about health care provisions together are one of the biggest trends today that will
continue in the next decade as the world population ages. Many people from around the
globe prioritize their health and would pay for products that are of high quality and is
effective. The most important market for SK-II to enter is the European market.
2.2.1 Entering the European Market
It is known that the European market consist of a large segment of urbane beauty
conscious consumers who are already committed to a multistep regimen using various
types of specialized skin care products. P&G should create a new version of SK-II
product to suit to the local needs. If P&G are able to create a product that have a 3-in-1
function it will appeal to the consumers more as it helps them to save time.
SK-IIs top competitors who are in the same luxury item league is Lancme, Estee
Lauder and Clinique. These major brands have a stronghold in the skin care market and
it will be tough for SK-II to compete with. It is not impossible for SK-II to develop a new
formula that can be suitable for the needs of the European consumers. The R&D
process will take time, effort and money but P&G have the resources to engage in the
costly R&D.
Furthermore, P&G has done research on SK-II in the United Kingdom but the research
has proven to be a failure due to the lack of knowledge that consumers have on full skin
care regimen. SK-II should penetrate the European market even if the risk is high.

2.3 Lowering the Price

This one might seem like a no-brainer to most people, but trust us, implementing this
renewal strategy is so much more than just simply lowering the price of SK-II products.
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SK-II is, as stated before a brand that offers luxurious skincare products to the market.
Take note of the word luxurious, a decrease in price would undoubtedly tarnish its
brand image as a luxurious product, moreover, according to the law of economics, a
decrease in price would almost always result in an increase in demand, and this means
loss in the feeling of exclusivity of SK-II as a product. So clearly, theres a lot to consider
before implementing a strategy like this, but weve only discussed the negative aspects
of said strategy, in the following sentences we will talk about the positive impacts. As
stated before, a decrease in price would almost always result in an increase in demand.
So yes, by decreasing the price SK-II will tarnish its already luxurious brand image, yes,
the customers will lose a feeling of exclusivity using SK-II products, yes profit margins
wont be as high as they used to enjoy before, but on the bright side, SK-II will have the
opportunity to serve a whole new market. They used to only serve the upper-middle
class and above, but if they do lower their prices they would serve a significantly larger
portion of the market. The bottom of the pyramid (BOP) theory states that, if a firm is
able to serve the poorest, socio-economic group hence where the term BOP comes
from in a market, then they would be able to serve anyone in the market. So if P&G
were to think by lowering their prices they would not be able to cater their previous
target market, then they are wrong. Taking into account that their sales is already
starting to decline, would it really be so bad to sacrifice brand image for a significant
increase in sales?

2.4 Implementing New Marketing Strategies

Even with the European Union's economic strength, the various countries and regions
of Europe are separate markets and need to be treated strategically. There are so many
differences in business culture, language, and economic cycles from one country to
another. Some are mature economies, others are emerging. Some European countries
have specialty industries. There are a lot of factors that we need to look at when we
want to establish a partnerships or distributor networks in Europe.
The first thing that a firm needs to do when entering European market is they need to
figure out where your products will sell best and face the fewest barriers to market entry,
and then engage distributors or partners in each. Start in just a few places and then
expand as you achieve success. In terms of marketing strategy there are 3 rules that we
can use if want to penetrate the EU market which are
2.4.1 Creating a Marketing System For SK-II
A market system is the network of buyers, sellers and other actors that come together to
trade in a given product or service.
The participants in a market system include:

Direct market players producers, buyers and consumers who drive economic
activity in the market
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Suppliers of supporting goods and services such as finance, equipment and

business consulting

Entities that influence the business environment such as regulatory agencies,

infrastructure providers and business associations
A market system can be specific to a product (coffee, mangoes, dairy) or a cross-cutting
sector (finance, labour, business development services). A market systems strength
depends on how well the participants obtain financing, launch businesses and adopt
new technologies and best practices direct market players

2.4.2 Localize and Adapt

When doing marketing abroad make sure to understand the culture dos and donts.
How the firm markets their product in their home country can be different. SK-II needs to
strategically plan how to do their marketing. A finely honed sales message can be
easily ruined by a careless translation so be sure to use a copywriter to translate for you
and use some of the best European copywriters to look after our clients translations so
theyre as potent in Sweden as they are in Italy or any other country in Europe.
2.4.3 Understanding the how things work in each country
If SK-II wants to penetrate the European market, they cant market it as a whole
continent but they need to treat each country in EU as different part of marketing
activities. As each of every country in EU have differences, taste and behaviour. By
doing the research SK-II wont have to sell your product in a way that the locals wont
buy.

Germans dont use credit cards.

Italians like to pay cash straight into the bank
French like to pay cash on delivery
Norwegians prefer to order by phone

By doing the research SK-II wont have to sell your product in a way that the locals
wont buy.

2.5 Price Discrimination

After we read the case and discuss it together we conclude the other alternative action
is to use price discrimination. Price discrimination is the practice of charging a different
price for the same good or service. Before explain how to discrimination the price the
P&G have to identify different market segments, such as domestic users and industrial
users in Europe. Also, the company has to think that There must be no seepage
between the two markets, which means that a consumer cannot purchase at the low
price in the elastic sub-market, and then re-sell to other consumers in the inelastic submarket, at a higher price. After the company already thought about this problem
perfectly P&G can divide their price into three type of price discrimination. First, P&G
can charge a different price by divide it into particular level. For example, of price
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discrimination by level is car dealership in Mercedes Benz they have different styles and
sizes of vehicles to satisfy peoples needs and desires from a vehicle (Mercedes Benz
models from the C-Class up to the S, SL, and G-Class vehicles). But the first type is one
of the most difficult to adopt because it requires the company knows each of its
customers perfectly at each level of consumption. Second, P&G can charge a different
price for different quantities, such as quantity discounts for bulk purchases. Which mean
that SK-II can sell the product in pieces and one set of the skincare, the price for the
one set less than in pieces. So the customers prefer buy the one set of SK-II than the
pieces. Third, P&G can charge a different price to different consumer groups such as
location, age, and economic status. Age discounts are a form of price discrimination
where the price of a good or admission to an event is based on age. Location discount
is divide the price based on location or the city between urban and rural city. SK-II can
discriminate the price based on location by selling the same product but slightly different
ingredients to customize the customer's skin in the urban or rural city. Age discounts are
usually broken down by child, student, adult, and senior. SK-II can make product that
can use by age of the customers and divide the price by the customers. Example of age
discount is ticket price for cinema or amusement park. Economic Status are usually
differentiating the middle income to upper income. SK-II can charge same product to the
middle and upper class but middle class they can make the ingredients slightly different
than the upper class. Which mean is SK-II can make same moisturizer skincare for both
of them but there are some advantages obtained by the upper income by paying the
product more expensive but equally same moisturizer product as middle income.