DECISION MAKING&CREATIVE

PROBLEM SOLVING

MAGISTER MANAJEMEN
UNIVERSITAS KRISTEN KRIDA WACANA

Effendy Onggo Saputra

CHAPTER I: P&G SUMMARY

William Procter, a candlemaker, and James Gamble, a soapmaker, immigrants

from England and Ireland, respectively, who had settled earlier in Cincinnati, who
met as they married sisters, Olivia and Elizabeth Norris,[6] formed the company
initially. Alexander Norris, their father-in law, called a meeting in which he
persuaded his new sons-in-law to become business partners. On October 31,
1837, as a result of the suggestion, Procter & Gamble was born.
In 1858-1859, sales reached $1 million. By this point, approximately 80
employees worked for Procter & Gamble. During the American Civil War, the
company won contracts to supply the Union Army with soap and candles. In
addition to the increased profits experienced during the war, the military contracts
introduced soldiers from all over the country to Procter & Gamble's products.
In the 1880s, Procter & Gamble began to market a new product, an inexpensive
soap that floats in water. The company called the soap Ivory. William Arnett
Procter, William Procter's grandson, began a profit-sharing program for the
company's workforce in 1887. By giving the workers a stake in the company, he
correctly assumed that they would be less likely to go on strike.
The company began to build factories in other locations in the United States
because the demand for products had outgrown the capacity of the Cincinnati
facilities. The company's leaders began to diversify its products as well and, in
1911, began producing Crisco, a shortening made of vegetable oils rather
than animal fats. As radio became more popular in the 1920s and 1930s, the
company sponsored a number of radio programs. As a result, these shows often
became commonly known as "soap operas".
The company moved into other countries, both in terms of manufacturing and
product sales, becoming an international corporation with its 1930 acquisition of
the Thomas Hedley Co., based in Newcastle upon Tyne, England. Procter &
Gamble maintained a strong link to the North East of England after this
acquisition. Numerous new products and brand names were introduced over
time, and Procter & Gamble began branching out into new areas. The company
introduced "Tide" laundry detergent in 1946 and "Prell" shampoo in 1947. In
1955, Procter & Gamble began selling the first toothpaste to contain fluoride,
known as "Crest". Branching out once again in 1957, the company
purchased Charmin Paper Mills and began manufacturing toilet paper and other
paper products. Once again focusing on laundry, Procter & Gamble began
making "Downy" fabric softener in 1960 and "Bounce" fabric softener sheets in
1972. One of the most revolutionary products to come out on the market was the
company's "Pampers", first test-marketed in 1961. Prior to this point disposable
diapers were not popular, although Johnson & Johnson had developed a product
called "Chux". Babies always wore cloth diapers, which were leaky and labor
intensive to wash. Pampers provided a convenient alternative, albeit at the
environmental cost of more waste requiring landfilling.
Procter & Gamble acquired a number of other companies that diversified its
product line and significantly increased profits. These acquisitions
includedFolgers Coffee, Norwich Eaton Pharmaceuticals (the makers of Pepto-
Bismol), Richardson-Vicks, Noxell (Noxzema), Shulton's Old Spice, Max Factor,
and the Iams Company, among others. In 1994, the company made headlines for
big losses resulting from leveraged positions in interest rate derivatives, and
subsequently sued Bankers Trust for fraud; this placed their management in the
unusual position of testifying in court that they had entered into transactions that
they were not capable of understanding. In 1996, Procter & Gamble again made
headlines when the Food and Drug Administration approved a new product
developed by the company, Olestra. Also known by its brand name Olean,
Olestra is a lower-calorie substitute for fat in cooking potato chips and other
snacks that during its development stages is known to have caused anal leakage
and gastrointestinal difficulties in humans.
In January 2005 P&G announced an acquisition of Gillette, forming the largest
consumer goods company and placing Unilever into second place. This added
brands such as Gillette razors, Duracell, Braun, and Oral-B to their stable. The
acquisition was approved by the European Union and the Federal Trade
Commission, with conditions to a spinoff of certain overlapping brands. P&G
agreed to sell its SpinBrush battery-operated electric toothbrush business
to Church & Dwight. It also divested Gillette's oral-care toothpaste line,
Rembrandt. The deodorant brands Right Guard, Soft & Dri, and Dry Idea were
sold to Dial Corporation. The companies officially merged on October 1, 2005. In
2008, P&G branched into the record business with its sponsorship of Tag
Records, as an endorsement for TAG Body Spray.
P&G's dominance in many categories of consumer products makes its brand
management decisions worthy of study. For example, P&G's corporate
strategists must account for the likelihood of one of their products cannibalizing
the sales of another. On August 24, 2009, the Irish-based pharmaceutical
company Warner Chilcott announced they had bought P&G's prescription-drug
business for $3.1 billion

CHAPTER II: CASE QUESTIONS & DISCUSSION

1. What strategy were Procter and Gamble pursuing until the late 1990’s?
Procter & Gamble initially expanded internationally when it entered Canada in
1915. However, even after expanding into Western Europe and Asia in the
1960s and 1970s, the company still maintained all product development at its
headquarters location in Cincinnati, Ohio. Subsidiary units were responsible for
manufacturing, marketing, and distributing the products in their local markets.
However, by the 1990s several factors caused Procter & Gamble to reconsider
its international strategy. Barriers to low-cost trade were falling rapidly
worldwide, and fragmented national markets were merging into larger regional or
global markets. In addition, the retailers through which the company distributed
its products were growing larger and more global, and were demanding price
discounts from Procter & Gamble.
The company now appears to be moving towards a transnational strategy in
which there are seven self-contained business units, each responsible for the
complete generation of profits from its products, and for manufacturing,
marketing, and development. A transnational strategy is complex, and the
company will have to balance the demands of responding to local market needs
for its consumer products, while at the same time reaching its cost savings goals.

2. Why did this strategy succeed for so many years? Why was it no longer
working by the 1990s?
By the early 1980s, manufacturers, retailers, and the media bombarded the
market with new products and line extensions to fill the demand for variety and
selection. Volume expanded due to inflation and population growth. But as both
slowed down in the late 1980s, it became apparent that there were fundamental
changes in the dynamics of the marketplace that had been masked by the
artificial gains of inflation.
Fragmentation had put consumers in power. In the new marketing chain
those with the closest relationship to the customers – the retailers – had the most
influence on the marketplace. In the 1990s, national brand manufacturers were
no longer in control. Retailers, armed by electronic scanners with better
information about consumer habits than many manufacturers, had turned into
auctioneers of coveted shelf‐space. And they found ways, such as forward
buying, to take advantage of trade promotions. There had been a complete
restructuring of the relationship between manufacturer‐retailer and consumer.
Procter & Gamble was in the midst of the change.
Micromarketing was the response. Retail micromarketing can be defined as
the strategy of targeting specific audiences – typically store‐specific audiences
– for the purpose of marketing to them with the right message and appeal.
Procter & Gamble three strategic decisions amounted to using information
systems to develop new products and push them to the consumer. The strategy
was flawed and ended up raising costs for everyone in the retail channel, from
manufacturer, to retailer, to consumer.
The marketing mix or four Ps – product, price, place, and promotion –
represent the ingredients that go into a marketing program. Procter & Gamble
strategy was the marketing mix taken to the limit: 55 price changes per day
affecting 110 products, and 440 price promotions per year. Furthermore, since
the sales force was credited with a sale when product was shipped, the incentive
was to produce and ship more, even if the consumer was not buying. This push
strategy was borderline chaotic.
When retail activities cease to address solely consumers’ shopping habits and
move on to influence consumption preferences, they also cease to simply
complement industrial activities and rivalry explodes. It is interesting to see how
Procter & Gamble strategy changed the competitive environment: retailers were
no longer just customers; they were now acting as the competition, against its
own supplier.
 A SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis
would have allowed Procter & Gamble to correctly assess its own and the
environment’s characteristics. Ultimately, that would have resulted in a more
adequate strategy.

3. What strategy did P&G adopt in the late 1990s and early 2000s? Does
this strategy make more sense? Why?
The most important strategic decision at Procter & Gamble in 1993 was to
change the supply chain model, from a Push‐Based model to a Pull‐Based
model. The company moved from brand and product management towards
customer management. This meant a change in the business processes, but
perhaps most important, a change in mindsets.
In order to achieve this, the company built systems that would trigger
shipments only when customers actually bought a product. The company now
used data from retailers’ point‐of‐sale terminals. Procter & Gamble and its
retailers were now united in an extended industry value chain. Furthermore,
sales force was equipped with laptop computers in order to send daily reports on
changing customer buying habits. At headquarters, specialists adjusted
production based on data analyses from these reports.
This helped Procter & Gamble deliver only what was needed based on
customer sales. Retailers also benefited, saving over $250 million in inventory
costs alone. Overall, the decision benefited the whole industry, addressing the
problems that had amounted since the 1980s. Information systems played a vital
role, without which the change would not have been possible. Through
data‐sharing Procter & Gamble was now closer to:
 • Optimizing its profits and its operations.
• Building loyalty with retailers and consumers.
• Staying in touch with what was actually selling in the marketplace.
Along with the changes of supply chain strategies, in 1990 Procter &
Gamble cut costs dramatically in manufacturing and marketing. In 1993, the
company eliminated 13,000 jobs and closed 30 manufacturing plants. It also took
a one-time charge of almost $3 billion to cover costs for restructuring its
operations and disposing of its unsuccessful Citrus Hill juice business. The
results of this program were dramatic. In 1996 Procter & Gamble's revenues,
earnings, and profit margins were at record levels, due primarily to the company's
cost cutting measures, according to Fortune magazine. Procter & Gamble
reduced expenses by $3 billion from 1992 to 1996 and planned to cut an
additional $2 billion through 1998. As part of the move to cut costs, Procter &
Gamble dramatically reduced the number of products it produced. Instead of
having many different versions and sizes of the same product, the company
"slimmed down" its product lines by concentrating on only the best-selling
versions.
As a dominant producer of consumer products in many food and non-food
categories, Procter & Gamble has often initiated significant changes in marketing
strategies that are copied by other companies. In the 1990s, the company
attempted to offer fewer "deals" to the stores that sell its products and fewer
coupons to consumers. Instead, Procter & Gamble established an "everyday low-
pricing" policy that reduced the retail price of its products without hurting the
company's profits. While the move succeeded in reducing "peaks and valleys" in
the process of manufacturing and selling products, it was not without
controversy. For example, in January 1996, Procter & Gamble announced that it
would end the distribution of all coupons and reduce regular prices in three New
York cities: Syracuse, Buffalo, and Rochester. Other manufacturers said they
would reduce or eliminate couponing in the area. However, Procter & Gamble
soon encountered consumer boycotts, public hearings, and a petition drive
demanding that they reinstate coupons. In March 1997, the New York State
Attorney General’s office demanded that Procter & Gamble end the test. In April
1997, they ended the test early, calling it a success, and denied that adverse
publicity led to the decision. However, Procter & Gamble did not say if it would
use the "no coupon" strategy in other areas of the country.

CHAPTER III: LINKS AND NOTES

o Wikipedia
http://en.wikipedia.org/wiki/Procter_%26_Gamble
o Novel Guide-Literary analaysis
http://www.novelguide.com/a/discover/cps_02/cps_02_00223.html
o HARVARD BUSINESS REVIEW
http://blogs.hbr.org/kanter/2009/09/fall-like-a-lehman-rise-like-a.html