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Strategic Management; Ansoff Matrix of P&G

Research · March 2016

DOI: 10.13140/RG.2.2.16564.88963

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Module: BMS 0025 Strategic Management

Name of student: 
Pakzad Saleh

Lecturer: Dr. Radi Haloub and Dr.Mahmoud Alajaty


Date: March 03, 2016

Student Number: U1368829

Word Count: 1598 Words

Procter & Gamble Co. (P&G) is an American multinational consumer goods company
with a wide and diversified product portfolio (refer to Appendix A for a timeline
highlighting the introduction of each product). The company was created in 1837 and
had limited diversification as it specialized in soap and candles only. It was not until
the 1980s that the company began to market a new product (P&G, 2016). Today,
through the use of conglomerate diversification strategy, Protect and Gamble have
diversified into four segments from five units (P&G, 2016). This essay will provide a
review of Ansoff’s matrix and diversification strategy to enhance the product
portfolio of Protect and Gamble.

Ansoff’s matrix is a corporate strategy framework used by organizations to create

effective strategies that help achieve organizational growth in the long run (Peter &
Jarratt, 2015). According to Ansoff, firms usually start at zone A, shown in Table 1
below (Johnson, 2013). Moving forward, the firm can consider two options. The first
option involves the firm to further penetrate within zone A (Johnson, 2013). On the
other hand, the second option is for the firm to increase its diversity within the other
two axes by creating new products or expanding into a new market (Johnson, 2013).
This is known as diversification. Two of the primary strategies of diversification are
concentric and conglomerate (Zhang, 2014). Related or concentric diversification is
when a firm diversifies its activities by expanding into markets or products that are
related to its current business, represented as zones B and C in Ansoff’s Matrix in
Table 1 (Zhang, 2014). Unrelated or conglomerate diversification is when a company
is expanding into industries that are unrelated to its current business (Zhang, 2014).
This is shown as zone D in Table 1.
Table 1: Ansoff’s Matrix
Source: (Ansoff, 1988)
Product/Services

Existing New

A B
Existing Market Penetration New Products and Services

Markets

C
New D
Market Development
Conglomerate Diversification

The first strategy in the Ansoff Matrix is market penetration. This is achieved by
increasing the company’s shares in an existing market by using existing products
(Jones, 2009). When applying this strategy, P&G should consider increasing the
market penetration of its current skin care and personal hygiene segments. This is
because the company has already focused on other segments like fabric care (Allen,
2011). For example, the company introduced liquid Tide and Refill packs for liquid
products. To add on, the company should precisely target customers with low income
in mature markets. To achieve greater economies of scale, P&G can use rebranding to
modify its current goods at a low fixed cost, such as by adjusting the size shape or
quantity of goods (Lowy & Hood, 2004). As a result, the company will be able to sell
its goods at a lower price and gain higher revenue. This is a low risk strategy for P&G
because the company already has strong brand recognition and customer loyalty
among its customers. Therefore, the company can avoid large marketing costs when
introducing its products to the market (Celli, 2013). Moreover, P&G has already
established effective supply chain management and maintains good relationships with
well-known distributors like Hillside Maintenance Supply and Supplyworks
Cleveland (P&G, 2015). This will ease the introduction of these rebranded goods. In
the case that this strategy fails to achieve expected results, the company’s strong
financial position will help cover the losses. However, the lack of brand loyalty in
low-income consumers can be a disadvantage. This is because they tend to prefer the
cheapest alternative (Gbadamosi, 2009). In other words, when a rival implements the
same strategy, P&G will lose its market share. Overall, this strategy is only effective
in the short/medium run.

Product development is the second strategy in the matrix. It involves creating new
products or services for existing markets (Cailluet, 2015). This helps achieve growth
through the expansion of products and services offered by the firm (Cailluet, 2015).
P&G relied on product development strategy when introducing Ariel, Ivory and
Camay (refer to Table 1 for more products) (Unknown Author, 2003). In this
strategy, innovation plays a major role, as it is the first step to creating products that
do not exist in the market (Webster', 2005). The company can also use research and
development to identify the needs of its customers and use that to create products that
fulfill these needs (Powell, 2014). P&G conducted most of its new product
development in its research and development laboratories (Sakkab & Huston, 2006).
The firm invested two billion dollars per year on research and development and had
eight thousand employees in twenty-six labs globally (Sakkab & Huston, 2006). Yet,
the company was still not able to reach its goal of creating innovative new products.
As a result, P&G resorted to its supply base and value network to widen its outlook of
how the firm developed new goods, which has tripled P&G’s innovation success rate
(Lafley, 2008). On February 2013, the company extended its source of innovations
and launched a website pgconnectdevelop.com (Lafley, 2008). The website allows
any individual to submit his/her idea to the business. This enables the company to
strengthen its innovation work as well as build connections with these individuals.

The third strategy is market development, which is related to a company’s expansion

to new markets by using existing products and services (Allen, 2011). In this case, the
firm relies less on existing markets by seeking opportunities elsewhere (Cant, 2006).
Most of P&G’s revenue is generated from mature markets, namely North America
and Europe, where the market is already saturated and revenue is slowly growing
(Dulaney & Ziobro, 2016). On the other hand, emerging markets have a lot of
potential for growth and obtaining market share (Schatz, 2010), which is one of the
company’s objectives (P&G, 2016). However, when implementing this strategy, P&G
will have to adjust its planning in relation to each country’s demographics i.e. ethnic
group with different skin and hair types (Harris, 2011). This strategy can be effective
in the long term, as it would allow the company to offset any losses experienced
during an economic downturn in mature markets (Harris, 2011). As rules and
regulations differ in each country, such as ones that protect local business from multi-
national corporations, alliances or collaborations with local companies will allow
P&G to expand in markets such as China and India (Estrada, 2005). This is because
local companies have extensive knowledge when it comes to customers, trends and
laws and regulations (Estrada, 2005). However, the company needs to bear in mind
the risks associated with such alliances and collaborations and should form a
contingency plan, clearly identify the share and responsibilities, have separate units
for its manufacturing facilities to protect product secrets and get all of its patents
recognized (Estrada, 2005). There is also the risk associated with emerging markets,
as they are unstable (Harris, 2011).

Diversification forms the last strategy. It involves the expansion of a company by

offering new products to new markets (OKI, 2013). This is considered to be a risky
strategy because it involves the combination of both market development and product
development strategies (Hoopes, 2004). There is great uncertainty in introducing new
products to new markets as it means that the company is not an expert in the product
to be introduced or the market in which it is being launched (White, 2007). However,
diversification can help the company avoid unattractive industries that are very
competitive or will decline in the future (McDonald, 2007). Appendix B illustrates
the strength of each strategic business unit of P&G against its market attractiveness
through the use of Mckinsey’s Matrix. This allows the company to evaluate its current
product portfolio (Amatulli, Caputo & Guido, 2011). The company’s wide portfolio
offers customers unique and innovative products that meet the needs of different
market segments and demographics. This gives P&G a competitive advantage
(Amatulli, Caputo & Guido, 2011). Furthermore, the strategy involves acquisition of
companies or heavy R&D investment for innovations and intense marketing and
branding (OKI, 2013). When the strategy adds value, it is considered to be
“synergetic” (Ewah, Efa, Akpan & Umeh, 2008). This was the case when P&G
acquired Gillette in 2005 making it the largest consumer goods company and shaping
the company’s fifth SBU, grooming (P&G, 2015). Gillette introduced the first safety
razor in 1903 and acquired 72 percent of the global market share for razors by 2005
(Kelley, 2010) (Appendix C provides more details regarding the benefits of
acquisition to P&G, whereas Appendix D calculates an estimate on the value created
for P&G). Following the merge, in 2006, Gillette Fusion was introduced (Gillette,
2016). It is a razor with five blades in the front and a sixth blade in the black for
trimming. Furthermore, the company expanded its Fusion line by introducing several
products (refer to Appendix E for a list of the products)

P&G operates in an industry with intense competition, mainly from key players such
as Johnson & Johnson, Unilever and Kimberly-Clark Corporation. When analyzing
the company through Ansoff's Matrix, it can be seen that P&G has implemented each
of the four strategies to grow and expand. Through the use of conglomerate
diversification, P&G was able to gain a competitive advantage, increase its market
shares in different markets and increase its product offerings. This strategy was
greatly effective when the company acquires Gillette and became the largest
consumer goods company in the world. Through that acquisition, P&G was able to
target the male segment, as its main focus was females. The company was also able to
dominate the grooming market by acquiring 65% of the global market share as of
2015.
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0058
 Appendices

APPENDIX A: PROCTER & GAMBLE PRODUCT HISTORY TIMELINE

Source: P&G, 2015

1837 The formal partnership agreement between William Procter and James Gamble was
signed.
1850 The moon and stars appeared as the unofficial trademark of the company.
1859 The business’s revenue reached one million dollars with 80 employees.
1860s The moon and stars appeared on all company goods and letters.
1862 During the Civil War the company provided soap and candles to the Union armies.
With that, P&G built its reputation.
1879 “Ivory” a new inexpensive white, high quality soap was developed.
1882 $11,000 was invested on advertising Ivory across the country in a newspaper.
1886 Production started at the Ivorydale factory.
1887 Pioneering profit sharing program was created for factory workers.
1890 P&G built an analytical lab at Ivorydale to examine and enhance the soap-making
method to increase additional capital for expansion.
1896 The company released its first color advertisement for Ivory on Cosmopolitan
magazine.
1911 Crisco was invented. It was the first shortening to be made completely of vegetable
oil.
1915 First manufactory built outside US, in Canada.
1920s With the invention of the electric light bulb and decline in demand, the company
stopped manufacturing candles in the 1920s.
1924 P&G created a market research department to examine customer preferences and
buying habits.
1926 Camay, perfumed beauty soap, was introduced.
1930 First overseas subsidiary and was established in the United Kingdom and acquired
Thomas Hedley & Co..
1931 A Marketing organization and brand management system was created.
1933 Dreft, the first synthetic detergent, is introduced.
1934 Enters the hair care market with Drene, the first detergent-based shampoo.
1935 Expands internationally with the acquisition of the Philippine Manufacturing
Company.
1937 Revenues reached $230 million.
1939 Air first television commercial for Ivory soap.
1943 The Drug Products Division was creating to sell its increasing line of toilet
products.
1946 Tide was created.
1947- Developed an extensive range of goods like granulated and liquid detergents,
1952 shampoos, toothpastes and household cleaning products.
1948 Subsidiary in Mexico (first subsidiary in Latin America) and new overseas division
established to control company’s growing international business.
1950 Subsidiary in Venezuela (first subsidiary in South America).
1952 Miami Valley Laboratories opens in Cincinnati.
1954 Began operations in Europe, starting with France.
1955 Crest toothpaste was introduced.
1957 Acquired Charmin Paper Mills.
1960 P&G GmbH opened in Germany with 15 employees. Three years later, P&G began
production of Fairy cleaning powder and Dash laundry detergent there.
The Company introduced liquid Downy.
1961 Pampers was introduced.
1963 Acquired Folger’s Coffee.
1967 Ariel is introduced.
1968 Pringle’s is introduced into test market.
1972 Bounce is introduced.
1973 Entered Japan market by acquiring The Nippon Sunhome Company which was
changed to Procter & Gamble Sunhome Co. Ltd.
1978 Didronel is introduced.
1980 Revenues reached $10 billion.
1982 Acquired Norwich Eaton Pharmaceuticals.
1983 Introduced Always/Whisper.
1984 Acquired Oral B and introduced Liquid Tide.
1985 Acquired Richardson-Vicks and the company opened the General Offices Tower
building, to expand its headquarters in Cincinnati.
1986 Ultra Pampers and Luvs Super Baby Pants are introduced as well as Pert
Plus/Rejoice shampoo.
1987 The company acquired Blendax line of products.
1988 Company announced a joint venture to produce goods in China.
Refill packs are introduced for liquid products like Lenor fabric softener.
1989 Acquired Noxell and its Cover Girl and Noxzema products.
1990 Acquired Shulton’s Old Spice product line. P&G’s technology was introduced in
Japan with the Cheer and Ariel brands; it expanded to 36 brands in 20 countries
during the year.
1991 Acquired Max Factor and Betrix.
Opened its first operations in Eastern Europe by acquiring Rakona in
Czechoslovakia, which was followed by operations in Hungary, Poland and Russia.
1992 Pantene Pro-V is introduced.
1993 Opened The Japan Headquarters and Technical Center.
1994 Enter the European tissue and towel market with the acquisition of VP Schickedanz
followed by Giorgio Beverly Hills and Red and Wings.
Re-enter the South African market.
1995 Open Health Care Research Center in Cincinnati.
1996 The U.S. Food and Drug Administration approved the use of Olestra in salty snacks
and crackers.
Acquired Baby Fresh.
1997 Acquired Tambrands.
1998 P&G introduces Organization 2005 to drive innovative ideas.
Introduced Febreze, Dryel and Swiffer.
1999 Acquired Iams Company, a leader in premium pet foods, and Recovery
Engineering, Inc..
2000 Launched the company’s first Internet brand name, Reflect.com.
 The U.S. FDA approves Actonel (risedronate sodium tablets).
2001 Crest WhiteStrips is introduced in the US.
Acquire Clairol, a world leader in hair color and hair care products.
2002 ThermaCare air-activated HeatWraps are introduced.
2003 FDA approves in switching Prilosec to an over the counter drug.
Acquire Wella AG.
2005 Acquire Gillette and add five more brands to its product portfolio, including
Gillette and Braun‘s shaving and grooming products, the Oral-B dental care line
and Duracell batteries.

APPENDIX B: MCKINSEY’S MATRIX

Source: P&G Annual Report 2015

2 5

1
4 3

Unit Global Market Share

1. Beauty, Hair and Personal Care 20%

2. Grooming 65%
3. Health Care 20%
4. Fabric Care and Home Care 20%
5. Baby, feminine and Family Care 30%
 APPENDIX C: ACQUISITION OF GILLETT
Source: (Gillette, 2016)

Why Gillett? • Gillette earns high revenue in the men’s grooming

industry.
• The company has established brand value and equity. In
1999, its brand value was estimated to be worth US$16
billion, which equated to 37% of the company’s value.
• The merge could make P&G the largest consumer goods
company in the world.
Strategic Benefits • P&G has a strong presence in the women’s market
segment and the merge will allow P&G to target the male
market segment.
• Increase P&G’s influence on retailers.
• Increase economies of scale.
• Pressures rivals.
Economic Benefits • Increase P&G’s sales by 20 percent
• The company’s cost savings is anticipated to be around 14
to 16 billion dollars.
Synergies • Value (New P&G) > Value (P&G) +Value (Gillette)
• Effects of synergies:
1) Increased revenues
2) Decreased in operating costs
3) Increased growth rate
• No synergies = no amalgamations
• The economist, “A marriage made in heaven – and in the
bathroom.”
 APPENDIX D: VALUE CREATION FOR P&G
Source: (Barker, 2005)

$Billion $/Share
Cost Synergies 10 - 11 9.50 – 10.50
Growth Synergies 4–5 3.75 – 4.75
Total Value Creation 14 - 16 13.25 – 15.25
Premium Paid to Gillette (8.5)
(8.09)
Value creation for P&G 5.5 – 7.5 5.16 – 7.16

APPENDIX E: GILLETTE FUSION PRODUCT LINE

Source: (P&G, 2015)

Product Description
Electric version of Gillette Fusion that works on
Gillette Fusion Power batteries. It produces “micropulses” that are meant to
increase razor glide.
Fusion Power Phantom Product was introduced in the UK in 2007 and has a
redesigned handle with darker colors.
Fusion Power Phenom Product was introduced in 2008 and has a new color,
blue and silver.
Product was introduced in North America in 2010.
The ProGlide products consist of re-engineered blades
Fusion ProGlide and
with edges that are thinner than Fusion. The low-
Fusion ProGlide Power
resistance coating of the product allows the blades to
glide through the hair with ease.
Fusion Power Gamer Also known as “Cool White” in specific markets.
Product was introduced in 2014. It has a handle that
Fusion ProGlide FlexBall allows the razor holder to rotate. As a result, 20 percent
less hairs are missed, 23 percent increase in skin contact
and the ability to cut hairs 23 microns shorter.

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