Analysis of Procter & Gamble’s Marketing Strategy in China and UK

The Procter and Gamble Company known popularly as P&G, is a multinational corporation that deals with the manufactures a wide range of consumer products. P&G was founded by James Gamble and William Proctor in 1837 and has its headquarters in Cincinnati, Ohio. This report critically analyzed the company’s international marketing strategy by comparing its marketing activities in the UK and in China. For in-depth analysis, activities concerning its cosmetic products were analyzed in the two markets. These products included Max Factor, Wella, and Scope.

One of the significant environmental factor that influence P&G’s marketing activities in the UK is the exit of Britain from the European Union (EU) and the outcome of ongoing negations to broker and economic deal between UK and the EU. As Britain is trying to lock its local market from foreign influence, the China is entering into more trade agreements and amending immigration laws to allow free entry of citizens from its neighbors. For instance, China has completed a mega bridge connecting it with Hong Kong. While the current Chinese mainland population is about 1.386 billion by 2017, the UK population is only about 66.57 million. This means that the marketing activities of P&G will be intense in China than in Britain leading to increased sales volume.

 In the UK, P&G’s main market strategy is geared towards the retention of market share. However, this strategy is negatively affecting the company’s net profits. Given the conservative nature of Chinese people and the protectionist approach by government, cosmetic brands that have a local touch normally gain increased consumer acceptance. In the UK, P&G has segmented its consumers according to demographics and product characteristics but in China, it has segmented its market according to customer behavior and demographics. In the UK, the company has chosen ‘the same for less’ value proposition to position itself at a superior brand that offer the same quality product as its top competitors at a discounted price. In China, it has adopted the ‘more for less’ Value proposition.

The Procter and Gamble Company known popularly as P&G, is a multinational corporation that deals with the manufactures a wide range of consumer products. P&G was founded by James Gamble and William Proctor in 1837 and has its headquarters in Cincinnati, Ohio (Coleman-Lochner, 2012). Its product range includes fabric and home care, beauty, baby items, feminine and male grooming products, and family care. Given its wide product range, P&G is the global leader in terms of annual sales volume, surpassing even giant retail chains like Walmart. Its products are sold all over the world except in strongly communist countries of North Korea and Cuba, reaching over 4 billion consumers globally. Its revenues are also high, averaging at about $80 billion annually since 2010.

This report critically analyzes the company’s international marketing strategy by comparing its marketing activities in the UK market and in China. In this paper, the UK market will be taken as the local market while the Chinese market will be treated at the foreign market. For in-depth analysis, only P&G’s cosmetic products will be analyzed in the two markets. This product set is crucial because consumers and policy makers are keen on the quality, side effects and price of cosmetics. In terms of cosmetics, this paper will concentrate on P&G’s Max Factor, Wella, and Scope given their worldwide popularity and varying consumer perceptions in different destinations in the world about these products (Coleman-Lochner, 2012).

Environmental Analysis of China and UK

One of the significant environmental factor that influence P&G’s marketing activities in the UK is the exit of Britain from the European Union (EU) and the outcome of ongoing negations to broker and economic deal between UK and the EU. If new tariffs, communications channels and border controls are implemented as a result, UK market will be isolated and P&G will not enjoy the current seamless movement of consumers across the UK borders as an EU agreement. As Britain is trying to lock its local market from foreign influence, the Chinese are doing the opposite.  China is entering into more trade agreements and amending immigration laws to allow free entry of citizens from its neighbors. For instance, China has completed a mega bridge connecting it with Hong Kong. This is in attempt to amend ties and regain control of its former territories such as Singapore, Honk Kong, Tibet, Taiwan, and Vietnam (Holbeche & Matthews, 2012). P&G is getting more penetration in China and its neighbors than it is in UK.

Another factor is the population of potential consumers in the two destinations. While the current Chinese mainland population is about 1.386 billion by 2017, the UK population is only about 66.57 million (World Bank, 2017). This means that the marketing activities of P&G will be intense in China than in Britain leading to increased sales volume (Issa, Chang & Issa, 2010). When the former Chinese territories are included, P&G gets much wider market coverage than the small British market that is also dominated by other local and international competitors such as HUL. Moreover, the percentage of people aged between 16 and 45 in China is about 54% while this group forms only 40% of the total British population. Given that this group is curious with cosmetics and beauty products, China looks a larger market than the UK.

P&G has traditional been channeling its cosmetic products to consumers through physical retail outlets and hyper stores. However, technological advancements in the two destinations have forced a consumer shift to e-commerce (Ryan & Jones, 2009). Online stores like Amazon are increasing their sales volume exponentially while giant corporations like P&G and Unilever are stagnant with their traditional approach (Cheng, 2016). To adapt to the changing environment, P&G needs to invest more in online retailing activities.

Industrial Analysis in UK and China

One of the crucial industrial factors that influence the marketing activities of P&G in the UK and China is consumer tastes and preferences that are anchored on brand reputation (Porter, 2007). It has been a general conception that since consumers are looking to get the best value for their money, price and quality of the products or services dominate consumer purchasing decisions. The influence of brand reputation on customer purchase behavior is gaining momentum in the UK because of the apparent shift in the customer preference from the cost of product to the brand’s commitment to health living and environmental conservation (Noel & Hulbert, 2011). Cosmetic companies in the UK that work on high ethical standards are quickly attracting more customers. However, in China, consumers are highly conservative and tend to consumer locally manufactured products than foreign-based brands. Their culture influences their choice of cosmetic products and foreign companies such as P&G are getting a rough ride because they do not customize their products to reflect the Chinese local culture (Bai, Law & Wen, 2008).

The cosmetic industry is highly competitive because of the reduced barriers to entry and the ease with which even small companies can customize products to fit consumer preferences (Porter, 2007). In Britain, the main competitors are Unilever, Natura, HUL, Dunhill, and Occitane. In the UK, P&G’s main market strategy is geared towards the retention of market share. However, this strategy is negatively affecting the company’s net profits. For instance, despite its steady rise in sales volume from 2010 to 2017, its diluted net earnings per each share has been experiencing a steady decline from 4.11 in 2010 to 3.32 in 2017 (World Bank, 2017). This suggests a huge comprise in terms of net profit in an attempt to reduce price so as to maintain market position and sales volume (Porter, 2007). Its main competitors HUL and Unilever are focused on profit and use product differentiation strategies to counter P&G’s price cuts within the UK market.

In China, P&G is getting a stiff competition from unbranded local cosmetic products, Fragrance, and Unilever. Given the conservative nature of Chinese people and the protectionist approach by government, cosmetic brands that have a local touch normally gain increased consumer acceptance. A company like Unilever is investing in research and product development to fit the Chinese preference. Fragrance Company is partnering with local brands to enter into niche Chinese markets. To favorably compete with popular local unbranded products, HUL has set a manufacturing base in China and is using product customization strategy to attract Chinese customers. P&G is also trying to offer the highly conservative Chinese consumers with a variant of its cosmetic products that reflect the Chinese way of life. P&G is also seeking to acquire C-Bons, a local company to help penetrate the interior markets. 

Marketing Strategy Analysis: STP

In Britain, P&G is dedicated to known and appreciate the diversity of its customers. It spends about $50 million annually to undertake market research and product development. The company is spending more than 50% of its closest rival, Unilever, within the UK market and its products constitute about 18% of the cosmetic products in this market (Wearden, 2011). This is because its cosmetic products are non-cyclical customer products whose price elasticity of demand is conspicuously high (Sabol, Šander & Fučkan, 2013). The company has strong brand equity because it owns some individual brands that are highly popular by themselves. For instance, its products such as Well and Scope are top 200 cosmetic products. Given that the parent company, P&G, has a formidable valuation, these brands are winning consumer trust and contributing to its brand equity and reputation.  

P&G lacks a strong single brand identity because it acts as an umbrella brand that has numerous independent brands that operates below it. Other competitors in the fast moving consumer goods industry such as Unilever and Dunhill has established a single brand name that has helped built their brand reputation. According to Wearden (2011), an absence of a strong brand identity has led to much imitation from rogue companies that produce fake cosmetic products using the umbrella name of P&G or its brands. Moreover, the stretching strategy of P&G has resulted in brand cannibalism because the acquired sub-brands can have bad experience with customers hence adversely affect P&G as a whole. This is more pronounced more in China than in the UK market.  

Segmentation, targeting and positioning (STP)

In the UK, P&G has segmented its consumers according to demographics and product characteristics but in China, it has segmented its market according to customer behavior and demographics. Since its inception in the UK, P&G has targeted middle class and high income earners because these two groups tend to be ready to spend extra dollars on luxury, quality cosmetics. The group has sustained disposable income to buy high-end quality cosmetics throughout the year. However, in China, the company targets less conservative urban population aged between 20 to 45 years. These are the digital generation that is trying to set themselves apart from the conservative lot and are greatly affected by globalization hence apply foreign-based cosmetics to look classy (Sabol, Šander & Fučkan, 2013). In both UK and Chinese markets, the company tends to target women more than men given their desire for fashion and great looks.

In terms of positioning strategies, the company has chosen various winning value propositions for the two markets (see figure 1). In the UK, the company has chosen ‘the same for less’ value proposition to position itself at a superior brand that offer the same quality product as its top competitors at a discounted price (Noel & Hulbert, 2011). This is part of its cost leadership marketing strategy in Britain. In China the company had adopted a winning value proposition by adopting the ‘more for less’ strategic position. It offers the target consumers best quality products at a much lower price compared to its closest rival (Noel & Hulbert, 2011). This is in an attempt to outwit the local brands and benefit from the increased sales volume. However, in the long run, this best-of-both ends position is leading to reduced profit margins.

Figure 1:

Value propositions showing winning propositions in green and losing propositions in brown (Cadle, Paul & Turner, 2010).

Marketing Strategy Analysis: Promotional Activities

In these two markets, P&G has adopted an expectation-based promotional approach. Cadle, Paul and Turner (2010) in their expectancy disconfirmation paradigm used the terms confirmation

and disconfirmation to indicate the degree to which consumer’s expectations of establishing a priori are met, failed to be met or exceeded the expectations.  The paradigm suggests that customers are satisfied if the product or service performs better that earlier expected – this is termed as confirmation or Zero disconfirmation – and customers are dissatisfied if the prior expectations far exceed the product or service’s actual performance (Robbins & Coulter, 2012). Using this approach, all promotional activities of P&G are aimed at increasing consumer trust that their expectations will be met.

The company has adopted a wide range of promotional channels such as traditional TV broadcasts, digital marketing, sponsorship, direct mail, social media, trialing and sampling of events as well as in-store, point-of-sale activities. To maintain contact with the customer, the company has opened an interactive customer feedback system that is integrated with its customer relationship management system (Kracklauer, Mills, & Seifert, 2014). This provides real-time customer reactions to its products and value while giving the company an opportunity to respond as soon as possible. This has helped track reactions to its products and those of its rivals.

According to Campbell (2007), the company has also introduced a vibrant customer loyalty program where customer equity is increased by rewarding loyal customers and identifying new market niche where corporate social responsibility programs are undertaken to woo new customers to its brands. It has contracted retail chains such as Harrod and Tesco to distribute its cosmetic products like Olay, Maxi-Factor and SK-II to niche markets.

Conclusion and Recommendations

When a company’s brand creates meaningful and fascinating mental images in a consumer, these images serve as differentiating tools from its competitors by positively influencing the consumer’s purchasing decisions. P&G should try to create lasting images of its cosmetic products in the consumer’s mind so as to influence their purchasing behavior. Since the aim of P&G is to attract the middle class and high income earners by giving them high quality cosmetics at premium prices, it should strive to improve its quality to gain a competitive advantage over its rivals. Its current diversification strategy is working well within the two markets. For instance, each lipstick variety is offered in many colour shades. To penetrate more, the company needs to offer cosmetics with the least side effects, made from natural extracts and having environmentally friendly content.

References List

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Appendices

Appendix I: SWOT Analysis for P&G

Appendix II: Porter’s Five Forces of competitiveness for P&G