ASSIGNMENT 2 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 1: Business and Business Environment

Submission date 29 - 08 - 2019 DateReceived1stsubmission

Re-submissionDate DateReceived2ndsubmission

Student Name Tran Thu Huong Student ID GBD18535

Class GBD0825.2 Assessor name Le Hoang Phuc

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 Table of Contents

Introduction ................................................................................................................................... 4

I. The macro environment impacts upon P&G ...................................................................... 4

1. Five forces model ................................................................................................................. 4

2. Pestel .................................................................................................................................... 7

3. The positive and negative impacts the macro environment has upon P&G ........................ 9

II. Internal analysis of P&G ...................................................................................................... 9

1. Internal factors of P&G ........................................................................................................ 9

2. Strength and weakness of P&G ......................................................................................... 12

III. How strengths and weaknesses interrelate with external macro factors ....................... 13

1. Decision-making of P&G .................................................................................................. 13

2. How the decision-making is affected by internal and external factors .............................. 14

3. How SWOT analysis influence the decision ..................................................................... 15

Conclusion ................................................................................................................................... 16

Reference ..................................................................................................................................... 17

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 Introduction
A company that wants to succeed in the market, it has to fully understand what factors will
impact on its development. Once the company knows the positive and negative impacts inside
and outside the company, it can build up appropriate strategies to deal with any risks. So,
examine the internal and external elements are considered to be the most important mission for
the business before implementing any strategic marketing plan. And thus, this assignment will
fully analyze the impact of external elements on the company, and demonstrate its strengths and
weakness and how these elements influence the strategic decisions of the company.
P&G is an American multinational consumer goods company whose headquartered in
downtown Ohio, United States, and founded on October 31, 1837 by William Procter and James
Gamble. Based on total assets and sale revenue, P&G is a leading consumer goods brand in the
world. Slogan of P&G is “Touching lives, improving life”. (Pg.com, 2019)

I. The macro environment impacts upon P&G

1. Five forces model

Five forces model. Source: (the cima student, 2019)

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 a) Threat of new entrants : MODERATE
Consumers of the P&G Company can easily switch to other good consumer brands, based on
low switching costs. This external element allows new entrants to create s strong force against
the company. Nevertheless, the moderate capital costs restrict this threat to P&G. New
companies face difficulties in direct competition, considering the size of the organization and the
capitalization of the company. Besides that, the moderate economies of scale restrict the impact
of new entry for P&G. So, the threat of new entrants is moderate for P&G. (Panmore Institute,
2019)
 How the P&G Company can resolve the threat of new entrants
Innovate new products and services. New products not only attract new customers but also
give old customers a reason to continue buying P&G products.
Build economies of scale to lower fixed costs per unit.
Build up capacities and using the money on research and development. Because new entrants
are less likely to participate in a dynamic industry where established players like P&G keep
defining the regular standards. (Fern Fort University, 2019)
b) Competitive Rivalry : HIGH
P&G is operating in the consumer goods industry. This is an industry with really fierce
competition. There are many companies in this industry that producing very similar products. All
products made by P&G are also being produced by other brands like Unilever, Johnson &
Johnson and more. The switching cost of the customers in almost zero. For example, customers
can easily move from shampoo products of P&G such as Pantene to Dove shampoo products of
Unilever. Thus, we can easily see that consumers have many brands to choose from. And there is
very little loyalty between customers and a brand in this industry. Therefore, the competitive
rivalry is strong for P&G. (Porter Analysis, 2019)
 How the P&G Company can resolve competitive rivalry in the customer goods
industry
Build a sustainable differentiation.
Build scale to help it can compete better.
Coordinate with the competitors to increase market size instead of just competing for market.
(Fern Fort University, 2019)

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 c) Threat of substitute products : LOW
There are no substitutes that can replace most of P&G products. For example, consumers are
difficult to find suitable substitutes for shampoo and soap products made by P&G. Specially, in
the personal hygiene category, almost customers don’t want to try substitutes because of health
risks. Customers will continue to use P&G products or other brands but will not substitute.
Therefore, threat of substitutes is very low for P&G. (Porter Analysis, 2019)
 How the P&G Company can resolve the threat of substitute products
Service oriented instead of specifying product oriented.
Understand customer’s core need rather than what customer is buying.
Increase the switching costs for customers. (Fern Fort University, 2019)
d) The power of suppliers : LOW
The supplies of P&G consist of raw materials, packaging for products and technology
products. There are many suppliers in the market fulfill all of these supplies. The suppliers
switching costs is low for P&G. In addition, P&G always buys in very large quantities, making
P&G ideal for any supplier. So, suppliers have no ability to bargain or try to influence the price
of the P&G product. This threat is weak for P&G. (Porter Analysis, 2019)
 How the P&G Company can resolve the power of suppliers
Build effective supply chain with many suppliers.
Experimenting product designs with different materials so that if price raise of one raw
material, the company can switch to another.
Develop dedicated suppliers that business depends upon the company. (Fern Fort University,
2019)
e) The power of buyers : MODERATE
P&G faces low switching costs, because consumers can easily switch from this consumer
goods brand to another. Nevertheless, the low availability of substitutes restricts the intensity of
the bargaining of P&G’s consumers. Furthermore, high overall market demand minimizes the
impact of the purchase decisions of personal consumption on the company’s business
performance. Therefore, the power of buyers against P&G is moderate. (Panmore Institute, 2019)

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  How the P&G Company can resolve the power of buyers
Build a large customers base. This will be useful in two ways. Firstly, it will decrease the
bargaining power of buyers. Secondly, it will create opportunities for the company to streamline
the sales and production process.
Rapidly innovating new products. Buyers often look for discounts and offering for
established products thus if P&G keep on producing new products then it can minimize the
bargaining power of buyers.
New products will also reduce P&G’s existing customer’s defection to its competitor. (Fern
Fort University, 2019)

2. Pestel
The success of any company is not just about the effectiveness and management of the
company. There are other factors related to market performance. The macro business
environment refers to the overall external environment forces or uncontainable influences which
affect organizations and its business environment. These elements include political, economic,
technology, legal, social and environment. (Uniassignment.com, 2019)

PESTEL factors. Source: (Academy, 2019)

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 Political factors: American laws
P&G must comply with the restrictions and guidelines provided by the Food and Drug
Administration in the United Sates. If P&G was unable to comply, it would face legal issues and
risk fines. P&G is also responsible for overall local and regional laws (within America) and any
global rules are set in each country where its products are distributed in. (Frue, 2019)
Economic factors: Important to P&G
Recently, the inflation rate has decreased so this can lead to increased consumption of P&G
products. Besides that, the exchange rate also has an impact on P&G products. As the US dollar
is appreciating in recent times so this may have a positive impact on P&G. (Steemit.com, 2019)
Social factors: Insist on image
With so many different brands, P&G has decided to concentrate on developing a strong
reputation. It insists on issues related to environmental and social. Most of P&G products
concentrate on well-being and personal care, it expresses a desire to help people can feel good
and look good, and live the life they deserve. (Frue, 2019)
Technology factors: Automatic is a key
P&G always produces new products and sell them online at their respective brand locations.
It insists on developing digital marketing and selling method. P&G also has a higher degree of
automation, when compare to its competitors. (Frue, 2019)
Legal factors: It never ends
As a consumer goods company, P&G is suffered to many laws and legalities. It owns more
than 50 brands in home care, health, personal care and more. Each brand and location of the
stores must follow product safety, copyright, and taxes (international and regional). (Frue, 2019)
Environmental factors: A friend of the Earth
P&G promotes sustainable and renewable resources. Its products are always designed for
consumer safety in every location it distributes. The materials are extremely eco-friendly, from
packaging to design. P&G wants to be recognized as an environmentally friendly organization
thus it has worked hard for the nearly past hundred years to do that. (Frue, 2019)

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 3. The positive and negative impacts the macro environment has upon P&G
Positive impacts
Political stability of almost countries help for P&G has the opportunity to thrive in these
markets. (Panmore Institute, 2019)
The increasing capita income in developing countries create opportunities for P&G earns
profit more. (Panmore Institute, 2019)
The economic stability in developed countries help P&G avoids risks in other markets,
simultaneously facilitating gradual growth, but stable. (Panmore Institute, 2019)
Increasing business automation is an opportunity with P&G to increase operational
efficiency. (Panmore Institute, 2019)
Negative impacts
The decreasing population growth rate in many developed countries also negatively affects
P&G. (Panmore Institute, 2019)
The growing opposition to the conversion of forest to oil palm plantation is the potential
threat to P&G. (Panmore Institute, 2019)

II. Internal analysis of P&G

1. Internal factors of P&G
Vision and Mission
For over 180 years of operation, P&G always sets goals, strategies, vision to deliver products
and services of the best quality and value to consumers in worldwide. And these are vision and
mission of P&G in recent years.
Vision: “Be, and be recognized as the best consumer products and services company in the
world.” (Pg.com, 2019)
Mission: “Provide branded products and services of superior quality and value that improve
the lives of the world’s consumers. As a result, consumers will reward with leadership sales,
profit and value creation, allowing our people, our shareholders, and the communities in which
live and work to prosper.” (Pg.com, 2019

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 Organizational structure

David S. Taylor

Chairman, President, CEO

Shailesh G. Jejurikar Laura Becker Jon R. Moeller

Fabric and Home Care Global Business Vice Chairman, CFO

Services

Tracey Grabowski

Fama Francisco Juan Fernando Posada HR

Baby and Feminine Care Latin America

Kathleen B. Fish

Research, Development
Jennifer Davis Matthew s. Price
and Innovation
Feminine Care Greater China
Julio Nemeth

Loic Tassel Product Supply

Mary Lynn Ferguson-McHugh
Europe
Family Care and P&G Kirti Singh
Ventures
Carolyn Tastad Analytics , Insights

North America, CFO

Steven D. Bishop Craig Buchholz

Health Care Communications

Magesvaran Suranja

Asia Pacific, Middle East Philip J. Duncan

Thomas M.Finn
and Africa
Design
Personal Health Care

Deborah P. Majoras
Gary Coombe
Legal and Secretary
Grooming
Javier Polit
R. Alexandra Keith
Information
Beauty
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 P&G has a matrix organizational structure. Its organizational structure is organized according
to the importance in the company’s operations. The first is product-type divisions, following by
geographical divisions, and finally functional groups.
Human resource
In 2018, the number of employees of P&G is 92.000. In which 35% of total employees that
are women and 65% are men. And almost employees at here are between the ages of 18 and 45.
(University, 2019)
Brand equity

Famous brand of P&G. Source: (Pg.com, 2019)

The brand equity, one of the best advantages of P&G is that the ownership of brands is very
valuable. It owns Gillette, the 138th ranked brand in worldwide and has a brand valuation of $20
billion. Besides that, P&G also owns Ariel and Tide that are in the top 500. In addition, Olay,
Pampers, Pantene, Whisper are all well-known brands of it. Naturally, P&G is a company has
fantastic valuation. (Bhasin, 2019)
Financial strength
According to the (Gurufocus.com, 2019), P&G has a financial strength ranked 7 out of 10. It
shows that the strong financial strength of P&G and the company is unlikely to fall into difficult
situations. The interest coverage of P&G for the quarter ended in Jun 2019 is 28.41. The higher
this ratio, the stronger financial strength of company is. Besides that, the debt to revenue ratio
also in Jun 2019 is 1.76, quite low. This is also an advantage of P&G.

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 Market share

Market shares of consumer goods industry in 2018. Source: (PadraicLau, 2019)

According to the chart, the market share of P&G in 2018 is 60%. This means that it occupies
the highest market share in consumer goods industry.
Technology base
The current time, P&G is using advanced technologies in its product lines. P&G focuses on
putting artificial intelligence and sensors into things such as skin advisors, razors and blemish
removers. Some of the products make up the P&G’s LifeLab concept include Gillette self-
heating razor, DS3 is an engineered soap can be cleaned with les water, SK-II Future X Smart
Store is a pop-up store uses smart sensors, facial recognition to provide smart skincare
counseling. (Takahashi, 2019)

2. Strength and weakness of P&G

Strength of P&G
P&G has matrix organizational structure. The advantages of the P&G company’s
organizational structure is support for product innovation. Every product-type division is able to
support the focus on P&G research and development. Through focused support so, P&G has the
ability to enhance current products or design new products. This structural platform increases
brand competitiveness. (Panmore Institute, 2019)

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 About the human resources, P&G has experienced and qualified leadership team. They have
many years of experience in the market and hold major positions at famous companies before
working at P&G. So, this leadership team leads and makes P&G into a global company. (Pg.com,
2019)
P&G brand is always in the top of famous brands and is considered the leading brand in the
consumer goods industry. The statistics showed that P&G products touch the lives of people in
worldwide four billion times per day, and most of every family in America has at least one
product of P&G in their home. (Pg.com, 2019)
P&G has a soil financial strength, the ratio interest coverage quite high as well as the debt to
revenue ratio quite low. It indicates that P&G is unlikely to fall into difficult situations.
Weakness of P&G
The statement of P&G’s mission and vision lacks specificity and ambiguity. Its vision
statement does not address financial success but to “Be recognized as the best consumer products
and services company.” This is not a clear vision of the future and extremely general. As well as
the vision statement, its mission statement nor does it clearly show how the company is investing
in a better financial future. (Pratap, 2019)
Besides the advantages, a disadvantage of matrix organizational structure is P&G’s limited
support for advanced innovation in product development. (Panmore Institute, 2019)

III. How strengths and weaknesses interrelate with external macro

factors
1. Decision-making of P&G
On January 28, 2015, P&G announced that it has signed a deal to purchase 100% shares of
Gillette Company. This transaction was valued at $57 billion and became the largest acquisition
in P&G history. “This combination (…), at a time when they are both operating from a position
of strength, is a unique opportunity. Gillette and P&G have similar cultures and complementary
core strength in branding, innovation, scale and go-to-market capabilities, making it a terrific
fit,” Chairman and chief executive of P&G, A.G. Lafley said. (Penzkofer, 2019)

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 Sources: Procter & Gamble Co; Gillette Co; Yahoo Finance
After acquiring Gillette, P&G became the second-largest consumer products company in the
world with the revenue of approximately $61 billion. At the time of merger, P&G expected
cost-saving and total profits of $14-$16 billion by layoff 6,000 employees. Just a short time later,
P&G’s unit volumes had increased by 27% and net sale also increased by 27% and reached
$18.34 billion. Net earing of P&G also grew by 29% and reached to £2.55 billion.
(UKEssays.com, 2019)
2. How the decision-making is affected by internal and external factors
Strengths of P&G
P&G has a huge capital resource and it is willing to invest heavily in research and
development to improve and develop new products. (Uniassignment.com, 2019)
P&G is one of the best marketers in the world because it has extensive experience in
marketing in various market sectors. P&G has been wise to use marketing in acquiring Gillette.
Therefore, before signing the contract with Gillette, its stock price has skyrocketed.
(Uniassignment.com, 2019)

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 Weakness of P&G
Following the acquisition, P&G was forced to merger Gillette’s weakest products, to cover
its debts and often create a major financial exposure that would not easily be covered in a short
time.
Difficulties in managing departments that P&G didn’t understand well and force P&G to
keep all staff of Gillette, which means that increased costs.
Factors of macro environment (PESTEL)
After the acquisition, P&G applied advanced technologies to create new razor products.
Currently, US market has great potential for P&G. Because of North America is the market
with the highest revenue for P&G.
Competitive forces of the competitive environment
In American, grooming brands such as Axe, Nivea, Scotch Porter… account for about 25%
market share. Therefore, P&G acquired Gillette to increase its market share and compete with
brands in the grooming industry.
3. How SWOT analysis influence the decision (Nikolaos, 2018)
Strengths
Strengthen the company’s position in the market against Unilever, with a stronger product
portfolio, increased profit, increased position compare to buyers and suppliers.
Improve the promotional processes that boosted the company’s brand name in all its market
actions.
Promote innovation through strengthening research within P&G, following the acquisition of
Gillette and thus merging their research departments.
Targeting in almost market segments that resulted in an enhanced in P&G profit and treated
the better the competition in each division.
Weakness
Difficulties involved in the change in the organization, which initially will affect the
operation of P&G.
Following the acquisition, P&G was forced to merger Gillette’s weakest products, to cover
its debts and often create a major financial exposure that would not easily be covered in a short
time.

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 Difficulties in managing departments that P&G didn’t understand well and force P&G to
keep all staff of Gillette, which means that increased costs.
Threats
Possible internal conflicts would weaken the company in the future.
The economic crisis has narrowed the market and customers switched to cheaper products.
This could affect future sale of P&G.
Before the acquisition, Gillette had shown a downward trend that after the acquisition was
merged by P&G, with the ability to influence the near future.
Opportunities
Gillette consolidated its products through product portfolio of P&G, thereby proving the
room for sell cheap products to help keep up with consumer trends and economic crisis.
Internationalization is a great chance for companies such as P&G. The acquisition allows
future opening in other markets around the world.
Ultimately, by calculating the value of company, based on the discounted cash flow method
after cooperation of the two companies, noted that with the enhancing in the percentage of the
sale, the value of each stock is $66.72. From this merger, shareholders of both companies are
profitable. On the one hand, Gillette shareholders repurchased a premium of $8.65 and P&G is
expected to benefit after the merger, because this will strengthen Gillette in the market and value
of the company will enhance significantly in the future.

Conclusion
In this assignment, the influence of external factors to P&G in the US consumer goods
market was highlighted. Based on the internal factors like vision, mission, organizational
structure, human resources, financial strength and technology base…it pointed out the strengths
and weaknesses of P&G. In addition, one of the historic decision of P&G is acquired Gillette, the
leading brand for men’s products that was also clearly analyzed based on internal factors and the
SWOT analysis method. Therefore, based on these analyzes, it is shown that investing or
becoming a P&G partner is the right decision and will bring a great benefit.

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