P&G in India
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Marketing business strategy P&G...
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Proctor & Gamble in India
Proctor & Gamble – Marketing in the Indian Context A Critical Appraisal Appraisal
Submitted Submitted By: Shreevardhan Shreevardhan Poddar Guide Name: Affiliation: Date:
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Proctor & Gamble in India Proctor & Gamble – Marketing in the Indian Context A Critical Appraisal Appraisal
EXECUTIVE SUMMARY
The importance of marketing in the organisation has been declining since this function has suffered from lack of innovation and integration with the other functions as a fully networked whole. Multinational organisations like Proctor & Gamble have also failed to understand their customers and the markets in developing countries like India. This appraisal looks at the reasons for failure of P&G to derive the kind of growth and profitability that was possible in India’s booming economy. By addressing the needs of the affluent and urban population, which form a very small minority of the total population P&G have, and and continue to, missed out on an opportunity to establish a brand and an empathy with the largest segment of the market – the poor – who form ‘the bottom of the pyramid’ (Prahalad 2006). An appraisal of P&G’s Indian operations, represented repres ented by Proctor & Gamble Hygiene and Health, indicate that the poor performance is directly a result of concentration on brand extensions and not paying adequate attention to the need for innovation and addressing the needs of the poor. Using the widely accepted management tools like SWOT-TOWS and Porter’s Five Forces analysis this study derives a strategy that can help in improving performance. per formance. Specific suggestions are made that will help shore up performance in India.
1.0 INTRODUCTION
The article “Marketing is everything” (McKenna 1991), appeared in the Harvard Business Review in 1991, this article concluded that: “in the 1990s, all the critical dimensions of a company are ultimately the functions functions of marketing”. marketing”. This perception had undergone a drastic change in the ensuing years, Brady and Davis (1993) argued that marketing marketing departments had often become a “millstone around an organisation’s neck”.
Several symptoms of this decline of the importance of marketing have been reported. The most mo st signi signifi fican cantt being being the the appar apparent ent decli decline ne in the the marke markett share share and profi profita tabil bilit ity y of
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Proctor & Gamble in India Proctor & Gamble – Marketing in the Indian Context A Critical Appraisal Appraisal
EXECUTIVE SUMMARY
The importance of marketing in the organisation has been declining since this function has suffered from lack of innovation and integration with the other functions as a fully networked whole. Multinational organisations like Proctor & Gamble have also failed to understand their customers and the markets in developing countries like India. This appraisal looks at the reasons for failure of P&G to derive the kind of growth and profitability that was possible in India’s booming economy. By addressing the needs of the affluent and urban population, which form a very small minority of the total population P&G have, and and continue to, missed out on an opportunity to establish a brand and an empathy with the largest segment of the market – the poor – who form ‘the bottom of the pyramid’ (Prahalad 2006). An appraisal of P&G’s Indian operations, represented repres ented by Proctor & Gamble Hygiene and Health, indicate that the poor performance is directly a result of concentration on brand extensions and not paying adequate attention to the need for innovation and addressing the needs of the poor. Using the widely accepted management tools like SWOT-TOWS and Porter’s Five Forces analysis this study derives a strategy that can help in improving performance. per formance. Specific suggestions are made that will help shore up performance in India.
1.0 INTRODUCTION
The article “Marketing is everything” (McKenna 1991), appeared in the Harvard Business Review in 1991, this article concluded that: “in the 1990s, all the critical dimensions of a company are ultimately the functions functions of marketing”. marketing”. This perception had undergone a drastic change in the ensuing years, Brady and Davis (1993) argued that marketing marketing departments had often become a “millstone around an organisation’s neck”.
Several symptoms of this decline of the importance of marketing have been reported. The most mo st signi signifi fican cantt being being the the appar apparent ent decli decline ne in the the marke markett share share and profi profita tabil bilit ity y of
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Proctor & Gamble in India manufacturer brands (Doyle 1995). For example, retailer private labels have pushed the share of manufacturer manufacturer brands from over half to under one third of food spending in the last decade (ibid). At the same time margins have been eroded by a decline in brand premiums and a rise in below-the-line spending to obtain retail shelf space. Second, and in the context of this report, the most important, marketing departments have been criticized for their lack of innovation. While there has been an enormous proliferation of brand extensions, it is difficult to find examples of really significant new products or services which have emanated from the marketing function in recent years (Doyle 1995). Finally, marketing appears to have lost its primacy to other disciplines. The ideas that have been shaping businesses since the 1990s – TQM, JIT, business reengineering, reengineering, strategic alliances – have their origins in other functional functional areas (ibid).
Research shows that the roots of a marketing failure lie in two areas. First, as King (1985) observed, marketers have generally made the mistake of seeing marketing as a functional discipline discipline rather than an integrative integrative business process. In order to meet the need for growth in revenues marketing have used brand extensions as an easy substitute for genuine innovation and new product development. In addition, marketers have not adapted to the new type of competition which today pits networks rather than single companies against each other (Doyle (Doyle 1995). 1995). Doyle Doyle further further emphasi emphasises ses that today today competi competitio tion n is increasi increasingly ngly between between networks rather than stand-alone businesses. Kotler (1994, p. 46) notes that “The winner is the company with the best network”. In other words, management has to be concerned with building the right conditions, not only within its own organisation, but also within the other organisations that constitute its value adding network. Instead, marketing has concentrated on generall generally y superfic superficial ial,, segmenta segmentatio tion n and positio positioning ning rather rather than than real innovat innovation ion and the creation of sustainable competitive advantage (Hooley and Saunders 1993).
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Proctor & Gamble in India Multinational companies entering the developing world markets have added to the basic reasons for the decline by not looking at the primary requirement of understanding their customers customers and the markets, which are massive and complex and totally unlike market places in the west.
The majority of multinational corporations have been marketing their products in Asia’s poor countries for decades focussing entirely on the affluent minority; those who tend to live in urban areas and have perceptions perceptions of their needs and shopping habits that are similar to those in the developed countries (Kristula-Green 2007). This is not difficult to understand as it is the easiest way to show results but as this report attempts to demonstrate
this approach only
scratches the surface of the potential that exists in these markets to make quantum changes in growth profiles.
Professor CK Prahalad (2006) urges companies to look at the bottom of the economic pyramid in the markets of poor and developing deve loping countries. co untries. He argues that th at the real opportunity opp ortunity does not lie in changing the package sizes and price points of the same goods that are sold in the West to make them affordable to the poor in the East, but that the opportunity really lies in innovation to meet the needs of the people through new or modified products that can then be sold at affordable prices. The ultimate test remains, as ever, how far the product meets the identified needs of the customer.
Through this focus only on the economically strong urban population the marketers are missing out on the vast opportunity that the market consisting of the middle and poorer classes of these countries present. This bottom of the economical pyramid is not only brand conscious because of the associated perception of quality but also conscious of value for money (Kristula-Green 2007).
Procter and Gamble (P&G) is one of the top 30 companies in the world and is a global leader in the production and distribution of Fast Moving Consumer Goods (FMCG). It has been ranked 24 in the list of fortune 500 companies in the year 2006. Based in Cincinnati, Ohio,
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Proctor & Gamble in India USA, it manufactures a range of FMCG products and markets these virtually in every country in the world (Company Website).
P&G has a long association with India beginning in the early 1950s. However it is only in the 1990s, with the opening up of the Indian economy, that its interest in this market grew. The company has two subsidiaries in the country: P&G Hygiene and Health Care Ltd. (PGHH), in which it has a 65% stake and its wholly owned subsidiary P&G Home Products Ltd (PGHP).
This study briefly discusses the history of the company in India, followed by a critical appraisal of the operations and marketing strategies deployed by them and the success (or the lack of it) so far, with the purpose to understand the underlying reasons behind the success or failure and also to offer some suggestions to bolster performance.
The study compares the performance of one of the subsidiaries of the Company – PGHH with that of the overall performance of the parent company through the market related indices i.e. Sales and profitability and a comparison of the stock performance on the relevant bourses.
The growth of the division and its revenues are studied to understand the drivers of the growth and whether the increase in revenues is because of increase in market share or by the growth of the market itself. In this study it is demonstrated (a) that the growth rate of PGHH (which is negative in the last two years in any case) considerably lags behind the growth rate of the Indian economy and that of its immediate competitors, (b) that the increase in revenue is primarily driven by adding products and brand extensions rather than the growth of existing brands, (c) that there has been no drive towards innovation vital to the well being of the organisation as noted in the opening paragraphs and finally (d) that the financial performance of the division is considerably behind that of the parent company as a result.
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Proctor & Gamble in India With this backdrop the study carries out a SWOT-TOWS analysis for the division. A Porter’s five forces analysis is done to further develop assessment of the situation that confronts the division and to develop a possible strategy guideline for the future.
It is found that P&G have so far exploited the available market in India at the pinnacle of the economic pyramid and perhaps the next layer. However, there appears no attempt to address the bottom of the pyramid. Whether this is a matter of principle and strategy is difficult to comment on but this report demonstrates that the company is missing out on an opportunity which will not remain there for long.
The first section after the description of the methodology adopted (3) following briefly describes the history of P&G in India and this is followed by a detailed exploration of India’s markets in the next section (4). Using some specific instances it is highlighted that the market can not be compared to those in developed countries and that what works in the West may not work in India whether it is product profile or organisation structure. The need to innovate and address the needs, hopes and aspirations of the large mass of India’s poor is stressed.
The report continues (Section 5) to describe the competition that P&G faces from the large companies as well as the unorganized sector. Section 6 discusses the track record of P&G in meeting competition. They have introduced internationally famous brands like ‘Camay’ and withdrawn them, ‘Tide’ has become an also-ran and P&G have been able to maintain revenues only through brand extensions while all existing products continue to lose market share to organised and unorganised sector competitor. The following section (7) discusses the future prospects and how the non-high-tech nature of the existing products will threaten performance. There is a huge market out there that can be addressed by innovative products that give P&G ‘first mover’ status.
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Proctor & Gamble in India
Financial and stock price performance of PGHH and the mother company P&G are compared in section 8 to highlight the above findings of slipping performance. Sections 9 and 10 work on evolving a strategy that may be followed by P&G to improve performance using Porter’s five forces analysis and the SWOT-TOWS matrix to derive S-O; S-T; W-O; and W-T strategy initiatives.
The above analysis is followed by a discussion (section 11) analysing the results of the findings and again emphasising the need to be ‘first mover’; ‘prosumer’ geared; understand the culture and social responsibility in community development; build distribution chains and relationships with the market and importantly use these to innovate and address the unmet needs of the consumers. Specific suggestions on media strategy and reverse engineering are also offered in this section.
The report concludes by a short recap of the analysis and suggestions.
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Proctor & Gamble in India 2.0 METHODOLOGY
As a first step a web based analysis was undertaken; details about the company – Proctor and Gamble – and their history within India was gleaned from their own website and publications on the web as well as the opinions of market analysts posted on the web. Statistics about the financial and stock performance were taken from the reports of reputed companies such as Reuters and Business Week. Information about competition was collected from a few other websites, prominently Quantum Information Services and Bee Management. However, this did not allow collection of information that was up-to-date; a large amount of information gathered showed details up to four or five years old.
This, as well as the need to get the ground realities of the market it was considered essential to talk with someone who has been in the Indian markets and understands the FMCG business. Therefore, telephonic interviews were held with Mr. P Singh, ex V.P. (Marketing) of a large company in India. Mr. Singh obliged by discussing his experiences and knowledge of the market in great detail which has helped inform large tracts of this report as well as its contemporariness that would otherwise have not been possible.
This was followed by a detailed review of relevant literature that has been used as the primary basis for developing this report.
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Proctor & Gamble in India 3.0 COMPANY HISTORY IN INDIA
The following history of the company is almost entirely sourced from their website (available at http://www.pgind.com) and no references are made within the text of this section to facilitate reading.
Procter & Gamble Co. (P&G) is an American company based in Cincinnati, Ohio that manufactures a wide range of consumer goods. In India P&G has two subsidiaries: P&G Home Products Limited and P&G Hygiene and Health Care Limited, both subsidiaries are some of India's fastest growing Fast Moving Consumer Goods (FMCG) Companies. With a turnover of more than Rs. 500 crores (approx $125 million) the Hygiene and Healthcare division is also one of the largest in this area. Products marketed by the company include the brands ‘Vicks’ & ‘Whisper’. P&G Home Products Limited deals in fabric care and Hair Care products. It has in its portfolio global brands such as ‘Ariel’ and ‘Tide’ in the Fabric Care segment, and ‘Head & Shoulders’, ‘Pantene’, and ‘Rejoice’ in the Hair Care segment. It has recently added Oil of Olay to this kitty of products.
Procter & Gamble's relationship with India started in 1951 when Vicks Product Inc. India, a branch of Vicks Product Inc. USA entered Indian market. In 1964, a public limited company, Richardson Hindustan Limited (RHL) was formed which obtained an Industrial License to undertake manufacture of Menthol and de-mentholated peppermint oil and VICKS range of products such as Vicks VapoRub, Vicks Cough Drops and Vicks Inhaler. In May 1967, RHL introduced Clearsil, then America's number one pimple cream in Indian market. In 1979, RHL launched Vicks Action 500 and in 1984 it set up an Ayurvedic Research Laboratory to address the common ailments of the people such as cough and cold.
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Proctor & Gamble in India In October 1985, RHL became an affiliate of The Procter & Gamble Company, USA and its name was changed to Procter & Gamble India. In 1989, Procter & Gamble India launched Whisper - the breakthrough technology sanitary napkin. In 1991, P&G India launched Ariel detergent. In 1992, The Procter & Gamble Company, US increased its stake in Procter & Gamble India to 51% and then to 65%. In 1993, Procter & Gamble India divested the Detergents business to Procter & Gamble Home Products (PGHP) a wholly owned subsidiary of P&G USA, and started marketing Old Spice Brand of products. In 1999 Procter & Gamble India Limited changed the name of the Company to Procter & Gamble Hygiene and Health Care Limited (PGHH).
In 1995, PGHP entered the Hair care Category with the launch of ‘Pantene Pro-V’ shampoo. In 1997 PGHP launched ‘Head & Shoulders’ shampoo. In 2000, ‘Tide’ Detergent Powder was also launched ‘Tide’ is the largest selling detergent in the world. The last product to be introduced by PGHP was in 2003 when they introduced their ‘Pampers’ brand of diapers. In October 2005 the manufacturing part of the detergents and shampoo was divested to P&G.
Today, Proctor & Gamble is the second largest FMCG Company in India after Hindustan Lever Limited.
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Proctor & Gamble in India
4.0 THE MARKET AND P&G
Multinational companies entering the Indian market have tended to build upon what made them successful in the western markets, the fact remains that consumer goods companies cannot export their business models, products and marketing formulas wholesale from their core developed markets and expect them to work in places such as India (Kristula-Green 2007). Emerging markets differ in their governmental policies, regulations
and
macroeconomic behaviours; in the structure of their consumer markets, distribution systems and competitive sets; in the needs and behaviours of their consumers (ibid).
If we explore the possibilities for standardization of marketing elements within a multinational marketing strategy we find that the majority view among international marketers is that each nation is unique, and thus each must be treated as a separate and independent operation (Sands 1979). Sands (ibid), however, finds that there are a number of areas where companies can affect cost and resource savings through standardisation of certain elements of their marketing strategy and that the entire package may not need to be altered completely as soon as national borders are crossed. This standardisation, according to Sands (ibid) may consist of adopting uniform policies with regard to product, packaging, advertising, and pricing. This advice is completely contrary to the theme of this paper and it is argued that this may be a desirable practice, and indeed a very useful one, when considering marketing strategies across countries which have similar demographic and economic frameworks and similar customer preferences. This approach can not hold in a market as diverse and as different as India compared with the US where the P&G mother company is located. A bizarre example of this comes from the interview quoted (Singh 2008) where one was told that in certain, and very large, areas of the country toilet soap cakes of
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Proctor & Gamble in India only the ‘guest’ size (25 grams) sell and not one of them is used for having a bath! Half the cake goes into the knot of hair on the woman’s head as a perfume and the other half is used as a contraceptive of sorts! What kind of commonality can find with any standard in the West? This paper challenges the concepts of Sands (ibid) and their applicability in India.
Prahalad (2006) in his book ‘The fortune at the bottom of the pyramid’ opens his argument with a simple yet revolutionary proposition: if we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value conscious consumers, a whole new world of opportunity will open up. Prahalad (ibid) suggests that the four billion people who survive on two dollars a day can be the engine that drives the next round of global trade and prosperity and can be the drivers of innovation.
To join the bandwagon of companies who will be looking to exploit this opportunity P&G will need to work collaboratively with civil society, organizations, and local governments but the largest hurdle will be in understanding the motivations, needs and aspirations of this sea of potential customers. This can not be achieved sitting in Cincinnati or in Bombay – the information and the ideas will be generated only in the dust and heat of the large hinterlands of the country. While marketing is an important aspect of business growth, it is the development of new products and business ideas that shall have to take the front seat. Selling, promotion and customer education will follow once the company educates itself. Herein lays the crux of the issue informing the suggestion that P&G decentralize operations and devolve responsibility for product, packaging and pricing decisions to the people on the ground in the Indian market.
There is no element of doubt that central control over company policy on finance, ethics, sustainability and corporate philosophy can be compromised under any circumstance.
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Proctor & Gamble in India However, gigantic opportunities need gigantic and out-of-the-box thinking. The traditional bureaucracy of ‘Headquarters’ and ‘Regional Offices’ with ‘Country Managers’ manning them has to be given up and replaced with responsive managements that are tasked with creating value for the organization.
There are only so many lozenges that one can sell in a country that is hot and dry for most of the year and colds are not of a major concern to the populace. Neither does the future lie in attempting to sell more and improved sanitary napkins to women who never even heard of a bra! Selling Pantene, a high end shampoo, in single serve pouches is not the greatest stroke of genius either, the need is to develop a product that has the quality association with the P&G name, is affordable to the masses and addresses an identified need (refer Prahalad 2006) – shampoo is definitely not a priority – not for the moment in any case, even if selling the mini sachets at Re 1 each is profitable, growth is stymied and the results evident.
This is further highlighted by the simple observation that within the country there is a huge differentiation of consumer preferences, for example a toilet soap with jasmine (or sandalwood) as the predominant note in its perfume is the preferred choice in the south but will not sell in the north who prefer eau-de-cologne as the top note (Singh 2008). Similarly, a white bar will sell in the west and predominantly pink or green in the east. One can see this in the numerous colours in which LUX (of HLL) is available with each colour targeted at a region within the country and with its distinct fragrance. P&G attempted to sell a white CAMAY throughout the country, the results of this foray are in the market to see – the brand was handed over to another company to market, a company who has no interest in the brand in any case – there is no CAMAY in the market anymore (Singh 2008).
So where does this lead us? This report stresses upon the need for large multinational companies to innovate on the basis of market information generated in the markets where
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Proctor & Gamble in India these ‘poor’ people buy. The need is to carry out a comprehensive ethnographic research in the Indian market and develop products that are relevant, appropriate and meet local needs. A prime example of such innovation is the recent launch of the ‘Nano’ a car that meets with the aspirations of the large number of the middle class in India to own a car at the same time addresses the affordability – the car is priced at $ 2500 – new! The number of jobs this will create in the ancillary and after-sales service market and help raise living standards have not even begun to be estimated. Where this takes the TATA image, already a household name in the country is easy to estimate. Another example, closer to the P&G business is NIRMA, a detergent that makes no pretensions to image and competition with the large brands, it comes in a plain plastic bag with a modicum of printing, stapled close, and one standard pack of 500grams and an unassuming pale yellow colour. Each of these attributes of the product are individual masterstrokes – the yellow colour is the colour of the bar laundry soap that the poor have been using, the stapling on the top and manual mixing of the components of the detergent helped the company declare that the product was ‘manufactured without the use of power’ and avoid paying excise duty which is 15% for others, the packing and price at which it was introduced allowed the company to sell it at Rs. 10 – no small change required (Singh 2008). The result - while HLL was unloading trucks of Surf, NIRMA was unloading railway rakes (ibid) in the small towns. Today there are two generic names for detergents in India you are either looking for SURF or NIRMA every other brand falls within these categories. P&G could learn from this example – NIRMA today is one of the biggest companies in India – it started in a small shed 20 years back.
Proctor and Gamble have a huge challenge ahead and they need to come up with such innovative products that use local skills, expertise and local materials, are eco-friendly and sustainable, are hybrids of old technology and new, and educate the customer in its desirability and value.
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Proctor & Gamble in India
Stress is repeated on the need to establish an image of responsibility and caring that drives brand equity and customer loyalty. The runaway success of a product like ‘Pan Parag’ – a product that has no equivalent anywhere in the world and is probably the most unethical but it meets a need of the people (Singh 2008) – should help explain the point.
On the one hand P&G tells us that it is the most innovative companies in the whole world (company website), on the other they’ve never quite managed to grasp the challenge of the Indian market. Instead of aiming to ‘delight the customer’ (Mr. Khosla, MD, PGHH in The Times of India), the company must look to base its business plans on understanding the customers they wish to delight. Cutting prices and packing in small sachets, increasing adspend and traditional marketing practices based on western models are leading them nowhere – as the financial analysis clearly shows.
The Indian market demographics are changing continuously, the market has seen three important changes in the past decade a. the market is becoming less homogenous or in other words clear customer segments are beginning to emerge all of meaningful size and potential to grow, b. there is a retail revolution that has begun at the top end of the market and is bound to mushroom and c. the lower end of the market is beginning to have a phenomenal increase in aspirations with increasing exposure to the media, demonstrated, for example, by the huge and growing demand for mobile phones (Singh 2008).
Medicines sold without the requirement of a prescription are referred to as the Over-TheCounter (OTC) medicines. India is currently ranked 11th in the global OTC market in size with sales exceeding $ 2.6 billion and the present growth rate, ranging between 8 and 9% annually, will take it to 9 th position within five years (Source: Bhangale 2006). In comparison
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Proctor & Gamble in India the ‘Vicks’ brand has grown at 5% in 2007 in volume and recorded negative growth in terms of value (Company Annual Report 2007).
The growth in OTC medicines is driven by urban India thanks to the advent of technology, improving literacy levels, increasing health awareness and high work stress levels (Bhangale 2006). Considering the changing mindset and likely changes in regulatory framework, such as, OTC guidelines and open distribution, it is reasonable to estimate that within the next ten years, India will emerge as one of the biggest markets for OTC medicines. Currently, aches/ pains, cough, colds, hyperacidity, minor topical infections, and indigestion are the major OTC categories. Emerging categories include cuts, wounds and burns, muscle pains and sprains, diarrhoea and constipation. In addition there are many prescription medicines whose market can be revitalised by switching to the OTC mode these include vitamins, cough & cold, antacids, and antipyretics (Bhangale 2006).
P&G's ‘Whisper’ dominates the Rs 1.8 bn sanitary napkins market with a 50% market share (in value terms) and about 30% in volume. Whisper operates in the premium range, meaning high margins and low volumes. This segment is growing annually at 25-30% and PGHH at 17% (again in volume of sales only). The segment has low awareness and penetration levels (10-12% in urban areas). P&G competes with Johnson & Johnson (Stayfree, Carefree) and Kimberley Clarke-HLL (Kotex, Secure) (Source: QISPL 2006) and TZMO of Poland (Bella) (Singh 2008). It is important to note that a. the information clearly states ‘in value terms’ and ‘high margins and low volumes’ and b. ‘this segment is growing annually at 25-30%’. The inferences drawn by this writer that P&G is only addressing the top of the economical pyramid and that its growth rate is nowhere close to that of the market appear vindicated here.
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Proctor & Gamble in India P&G also manufactures Clearasil an anti-acne cream, which has been growing at 5-6%, compared to the industry average of 15%. Lakme, Ponds, Charmis and Fair & Lovely are the other major brands in this segment (QISPL ibid).
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Proctor & Gamble in India
5.0 THE COMPETITION
In India competition faced by Proctor and Gamble comes from the Indian arm of Unilever (Hindustan Lever Ltd. - HLL), ITC Ltd. (erstwhile Imperial Tobacco) and some major companies with multinational or indigenous roots. In addition the competition comes from innumerable companies, large and small, in the same line of business as P&G in one or more of its product lines. The competition in the home products division comes from the large companies like HLL, ITC, Godrej, Nirma, Colgate etc as well as smaller companies that literally thrive on shoestring margins and large volumes that abound every nook and corner of the country. For example, it is not uncommon to find several soap factories in a single city that make vegetable oil based soap or add a little AOS (Alkyl Olefin Sulphonate), colour and perfume to Soda Ash and market it as detergent powder – and they have their takers (Singh 2008).
Similarly the hygiene and healthcare division also faces a stiff challenge from virtually street corner manufacturers of sanitary napkins and the ‘Vicks’ range is challenged by such other products like Amrutanjan, Halls, Strepsils, Sualin, D-Cold and many others who base their remedies on the Ayurvedic (Ancient Indian) or Unani (Ancient Greek) schools of medicine, the list is literally endless. However, a brief description of some of the main competitors is provided below.
The following description of competitors and present market structures is based on information gleaned from the websites:
http://www.beemanagement.com/magazine/ciox.asp ; and http://www.domain b.com/companies/companies_p/procter_gamble_india/19990921procter_gamble_india_res.html
The information available from these sources is not up to date and this has been
supplemented through a personal telephonic interview with Mr. P Singh, (ex)
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Proctor & Gamble in India
VP-Marketing of Oswal Agro Mills Limited – a company that has a large presence in Indian markets in FMCG (soap and detergents), chemicals and fertiliser businesses.
5.1 Hindustan Lever Limited (HLL)
The scale of operations, the breadth and depth of its product range, its distribution reach, its clout in the media and most importantly its ability to attract and retain top talent are variables that reinforce each other and have resulted in the actuation of an increasing returns business model. It has got its distribution network spread right across the length and breadth of the country. Increasing amounts of capital have been employed at an ever-increasing rate of return. Return on shareholders funds have increased every single year over the past ten years on an expanded capital base, from 23.55% in CY 1989 to nearly 50% in CY 1998 yielding annual returns in excess of 44% for its shareholders in the last decade.
HLL is a leader in soaps, detergents and household care businesses, personal products, beverages and has taken innovative initiatives in branded staples, culinary products and ice creams. It is number one in six of its nine categories, and number one in all the large categories that account for 65% of the markets in which they operate.
5.2 Colgate Palmolive India Limited (CPIL)
Colgate-Palmolive Company, the parent, with 51% equity stake in Colgate-Palmolive India Ltd., has strong global brands in its core businesses - Oral Care and Personal Care. The Indian oral care segment has witnessed a fierce battle for market shares between HLL and CPIL. The earlier market leader Cibaca, a brand of Ciba has all but disappeared from the market. The other players in the market include Balasara’s ‘PROMISE’ and Dabur’s ‘MESWAK’, ‘FORHANS’ and a few other local players. The most visible ramification of this scenario of fierce competition is fall in CPIL market share in the oral care segment from
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Proctor & Gamble in India 65% in 1995 to the less than 55% presently, and bruised profit margins on the back of increased advertisement expenditure as a percentage of sales.
5.3 Reckitt & Coleman India Limited
Reckitt & Colman India (now Rekitt Benckiser) has a brand portfolio covering a large and diversified product range. It is the market leader in the mosquito coils, shoe care, fabric care, lavatory care and antiseptic liquid segments. Furthermore it is the second largest player in the premium soaps (Dettol) and the surface care segments. Roughly 85% of its sales are from businesses where it has either a number one or number 2 ranking. It has formed a joint venture with Nicholas Piramal India Limited for its OTC products which should be beneficial to the Company in the long run.
The company also makes over-the-counter pharmaceuticals analgesics, antiseptics, cold and flu remedies, and gastrointestinal products; though these are not yet a threat to P&G business these are expected to have a huge impact in the market with the strong brand presence and its association with health - DETTOL.
As mentioned above these are only some of the larger companies. Vicks is facing tremendous competition from Amrutanjan and D-Cold, products of substantial sized Indian companies and a number of companies producing similar products.
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Proctor & Gamble in India 6.0 P&G HISTORY OF MEETING COMPETITION
Proctor and Gamble have a history of being literally forced to take the bottom end of the market in the detergents business. This can not be attributed to P&G marketing alone HENKEL have faced the same fate in a market where SURF is the generic name for all detergents – a retailer will ask you “which brand of SURF do you want?” It has also been forced to hand over its ‘CAMAY’ and ‘MEDIKER’ brands to the fast emerging Indian company in the FMCG market in India – Marico Industries (Singh 2008).
Vicks has lost market share to spurious look-alike brands and a host of new products in the market. To strengthen its brand image, the company has given Vicks the status of a mega brand and all Vicks sub-brands--Vaporub, Action 500, Cough Drops, and Inhalers--have been given a common synergy via packaging to make them look identical.
P&G has been losing market share in sanitary products since mid-1996. This was accelerated by the launch of Johnson & Johnson’s ‘Stayfree’ and ‘Secure’ and Kimberley Clarke Lever’s ‘Kotex’ in end-1997. From a market share of approximately 43 per cent before the launch of Secure and Kotex, Whisper’s share dropped to an all-time low of 28.5 per cent in June 1999. The way that has been found by P&G to keep its share of the market revenue alive is by introducing new variants of ‘Whisper’ at a fast rate while on individual products it keeps losing ground. The total market share in terms of volume remains stagnant at around 30%.
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Proctor & Gamble in India
7.0 FUTURE PROSPECTS
The largest threat that looms ahead of P&G is the entry of Godrej into the sanitary napkins and baby diapers business in the very near future – end 2008. The company has entered into a joint-venture agreement with SCA of Sweden, a European leader in the business, to produce and market personal care and hygiene products (Godrejcp, 2007). Godrej is a highly respected name in the Indian market with products ranging from soap to white goods to business machines to steel furniture to forklift trucks and a host of others and a strong association with high quality and impeccable business ethics. Marketing strength is also considerable as they have held the business in soap (HAMAM & SHIKAKAI) detergents (EZEE) hair dyes etc. and market shares intact despite the fierce competition.
The other threat is the presence of a large number of small businesses that produce spurious and low quality substitutes for the major product lines.
The acts of hiving off the marketing of detergents (Ariel) and shampoos (Head & Shoulders, Pantene) to P&G Home Products while continuing to produce these (also discontinued in October 2005) helps to keep PGHH profits intact by passing on the low margin and products facing high competition to PGHP. However, this is interpreted as a retreat in the face of competition by the market and acknowledgement of defeat (Singh 2008).
Some of the crucial statistics that can impact future markets are: -
Per Capita consumption of toothpaste in India is below 110grams per year as compared with a world average of 320 grams
-
Sale of sanitary napkins covers only 30 percent of the urban female market and less than 10% of the total potential market
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Proctor & Gamble in India -
Sale of anti-cold lozenges and formulations are growing at 17-18% per annum as compared with 5% growth in this market for PGHH.
(Source QISP - Quantum Information Service P Ltd. Website: http://www.equitymaster.com/pdetail.asp?date=1/5/1999&story=1)
Healthcare (Anti-cold) segment consists of menthol-based products in numerous forms like rub and cream, tablets and cough drops, lozenges and inhalers. P&G's brand Vicks operates in all the aforesaid forms and is the No. 1 brand with 35% market share in the Rs 4 bn anticold healthcare segment. Overall, this segment is growing at 17-18% per annum. Vicks main competitors in this segment are Amrutanjan, Zandu and Warner-Lambert (Halls).
The parent company is focussed on P&G Home Products to launch all future products in fabric-wash, hair-care, cosmetics and oral-care segment through this 100% owned subsidiary. Though it will shield P&G from high costs of product launches and brand building, at the same time it will deprive it of leveraging the P&G global brands and high growth areas.
PGHH is in market with products that do not rely on a unique or high level of technology and are therefore easily copied. Its success rate with earlier product launches has been dismal to say the least. In this scenario the company needs to re-examine its strategy of addressing the ‘easy’ markets and look towards a strategy that a. helps expand absolute market size for existing products and b. look to identify and introduce innovative products in which it can be the ‘first mover’ in the market.
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Proctor & Gamble in India 8.0 FINANCIAL ANALYSIS
The financial performance of the parent company and the Indian operations represented by PGHH below show trends of profitability. Figure 1: Performance of the parent company
Performance of P&G
20000 15000
n o i l l i M10000 D S U 5000
0 2004
2005
2006
2007
Ye ar
Operating Income Net Income
(Source – company financial statements) Figure 2: Performance of PGHH
PGHH - Performance Past Four Years
160 140 e r 120 o r 100 c / s 80 e e 60 p u 40 R 20 0 2004 Profit after Tax EPS
2005
2006 Ye ar
(Source – company financial statements)
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2007
Proctor & Gamble in India Stock performance is indicated by the graphs 1 and 2. Graph – 1: Stock Price Movement of P&G (compared with S&P)
Source: http://stocks.us.reuters.com/stocks/charts.asp?symbol=PG Graph – 1: Stock Price Movement of PGHH
Source: http://investing.businessweek.com/research/stocks/charts/charts.asp?symbol=PROC.BO The performance of PGHH in the market can also be understood from the data presented in below:
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Proctor & Gamble in India Figure 3: Sales and Profitability growth of PGHH, India Proctor & Gamble Hygiene and Health Care - India Growth (as percent over previous year) 2005 2006
2007
Sales
20%
-19%
-7%
Profit before Tax
40%
8%
-25%
Profit after Tax
36%
12%
-36%
(Source: Company Balance Sheets)
The sudden decline in sales in 2006 is obviously a result of the discontinuance of contract manufacturing of detergents and shampoo that PGHH were doing for PGHP. However, the decline in 2007 is purely based on market factors. While the volume of sales has been reported to have grown at 17% for the Sanitary napkins business and 5% for Vicks it is obvious that these growths have been achieved through lowered costs, increased market spend, higher input costs etc.
The interpretation of the results presented above lead us to the following inferences:
-
Despite being in a market where the economy is growing at over 8% per annum PGHH has recorded negative growth in value terms.
-
The performance of the Indian arm of the business is not indicative of the overall performance of the company’s operations in India since the impact of the worse performing operations have been cleverly shielded by hiving these off as a wholly owned subsidiary of the American parent and results are conveniently not reported.
However, the important facts are that -
The market is so large that any company can enter and show good results but it is vital to see that neither the growth of PGHH is in keeping with what is possible as also that the growth figures show a declining trend. Both these factors are indicative of the fact that the market is not as easy as it may appear at first glance.
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Proctor & Gamble in India -
The top end of the market and the large margins that can be commanded in the initial stages are bound to be challenged through competition and cheaper substitutes.
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Proctor & Gamble in India
9.0 PORTER’S FIVE FORCES ANALYSIS
Porter’s (Porter 1998) analysis deals with external factors that influence the nature of competition within a industry as well as the forces inside the industry that influence the way in which firms compete to understand the industry’s likely profitability. Every firm is interested in studying the forces that impact their performance and how these can be harnessed to provide competitive advantage and as a result gives a return on investment better than the average for the industry (Thurlby 1998).
The Porter ‘five force’ model helps a company understand the dynamics of the industry and the markets they operate in which in turn helps in effectively competing in the marketplace. Porter defines the forces that impact the performance of a company as:
1. Rivalry among existing firms; 2. Threat posed by new entrants in the market; 3. Supplier Power; 4. Power of buyers; and 5. The threat of substitute products and services. Porter suggests that the intensity of competition is determined by the relative strengths of these forces. The model emphasizes extended competition for value rather than just competition among existing rivals. The simplicity of the model weighed against the deep insights it can provide has led a number of companies to adopt its use (Wheelen and Hunger 1998).
PGHH is engaged in the marketing of OTC medicine products under the ‘Vicks’ brand umbrella and personal care for women under the ‘Whisper’ brand. Both products have no
28
Proctor & Gamble in India inter-relation in terms of the target customer, positioning, promotion opportunities or market segmentation. The only commonality that they share is that they can both rely on the same distribution and retail network in the context of the Indian market since both of them find retail outlets in the medicine shops as well as the ‘kirana’ (grocery) stores, and both address the middle class customer.
The industry that the company operates in is broadly defined as Fast Moving Consumer Goods (FMCG) and is generally regarded as being one of the most profitable areas (Singh 2008). However, as we have seen it is also an area of enterprise that has the maximum competition both within the organised as well as from players belonging to the unorganised sector. The margins and profitability in this industry can only come from large volume, low margin products. Every attempt to identify a niche and target marketing efforts to that niche is quickly nullified by other competitors also entering the market. Within the FMCG market we have identified that the products that PGHH markets are low on technology input and therefore easily copied or matched without requirement of large capital outlays as barriers to entry. Therefore the profitability of the industry can be termed as – low.
Rivalry among existing sellers
The Whisper line of products faces competition at two levels; one from ‘branded’ products from reputable companies and the second from cheap products from small scale producers. Rivalry amongst existing sellers is intense in the limited market – various sources report that market penetration is not more than 10%. In the market for Vicks the rivalry is even more intense as the number of players in OTC medicine market is much larger.
Threat posed by new entrants
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Proctor & Gamble in India The market for ‘Whisper’ faces a new threat with the entry of the Godrej JV (reported above). The market is already facing readjustment after the launch of ‘Bella’ (TZMO of Poland). The barriers to entry into these markets are actually inverted. The incentives and tax holidays offered for the setting up of new projects; the low investment required; and the large mass of qualified unemployed persons looking to start their own business make new entrants a major threat. No new entrant is identified in the market for products like the Vicks line. However, a number of the existing players are introducing new lines with the ‘Herbal’ tag which are automatically presumed to be better than the synthetic ones.
Supplier Power
Suppliers do not appear to have much power over the operations of companies like P&G who have their own manufacturing units where value is added to the most basic of raw materials which may be sourced from a number of suppliers. Vicks depends on menthol, a farm produce that can be affected by vagaries of weather or a shift in plantation patterns and indirectly impact supplier power.
Power of buyers
As discussed earlier the Indian customer is usually a follower and wishes to conform. The power of buyers thus lies with a small number of opinion leaders and innovators. The identification and influencing of such leaders can only be done at the ground level by market savvy people. Film actors and TV personalities are generally accepted as trend setters. Buyer power is low in terms of the large number of small retailers and high in terms of the buyer’s options to switch from one product to another.
Threat of substitute products
Substitute products are not identified for sanitary napkins or for Vicks as of the moment.
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Proctor & Gamble in India
Porter’s model is useful in identifying where new products, services or businesses have the potential to be profitable. It finds limited use in existing businesses since it assumes a static market structures. In the present world industry structure is constantly changing and a Porter’s analysis only yields a snapshot of a moving picture (Haberberg & Rieple 2001) and must be supported by other frameworks like SWOT analysis.
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Proctor & Gamble in India 10.0 SWOT-TOWS ANALYSIS
Systematic analysis of the strengths and weaknesses and comparing these with the opportunities and threats in a SWOT-TOWS matrix enables formulation of strategy options to improve performance in the market. While this is understood to be an excellent tool for informing strategic decision making some writers claim that the system does not yield enough understanding to be able to actually take decisions. Mintzberg (1990) states that “the assessment of Strengths and weaknesses may be unreliable, being bound up with aspirations, biases and hopes.” It therefore becomes imperative that the assessment of strengths and weaknesses be put in an informed assessment of the market environment as exists at the time of defining the strengths and weaknesses. Gathering information through creative problem solving tools such as brainstorming can be of considerable value to the analysis (http://coursework4you.co.uk/swot.htm). The commonly highlighted difficulties with SWOT analysis (Mintzberg 1990) are: •
Strengths may not lead to an advantage
•
SWOT focus on the external environment is too narrow
•
SWOT gives a one-shot view of a moving target
•
SWOT overemphasizes a single dimension of strategy
Specific to PGHH we have identified the following strengths, weaknesses, opportunities and threats in our discussion of the company’s background, the market, competition and financial analysis: Strengths:
-
Large cash surplus from existing operations
-
Established presence in the Indian market
-
Existing distribution network
-
Availability of a strong R&D facility with the parent organisation
Weaknesses:
-
Knowledge of the market limited to elite markets only 32
Proctor & Gamble in India -
No competitive edge, me-too products
-
Limited product portfolio that targets urban upscale markets
-
Lack of management freedom to tailor strategy according to market need
Opportunities:
-
Massive virgin market size and possibility for growing market instead of share in existing markets
-
Growing economy and increasing capacity to pay among the rural poor
-
Growth possibility in existing lines through market expansion
-
Not much relationship built by competitors in these markets
-
Internet penetration in major towns – e-retailing
Threats:
-
Stiff competition in present markets and products
-
Unethical products and cheap substitutes
-
Entry of market majors in existing lines of business
-
Chances of other multinationals also entering the country
A furtherance of this model is to carry out a SWOT-TOWS analysis where we can combine the different strengths, weaknesses, opportunities and threats to derive a set of strategies by compensating one against the other. 10.1 Strength-Opportunities Strategies:
-
Using the strengths of cash and R&D availability address the opportunity presented by the large and untapped markets by developing products in which the company is the ‘first-mover’
-
Use distribution network to gain knowledge of the market and to build relationships with the market movers/ innovators.
-
Employ distribution network and use presence in the market to educate potential customers and increase market size for existing products.
10.2 Strength-Threats Strategies
-
Educate customers on quality and the threat of cheap and unethical substitutes.
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Proctor & Gamble in India -
Find new products and markets through research and development strength and reduce dependence on products facing competition and threat of new entrants.
-
Use cash flows to increase awareness through innovative product promotions
10.3 Weaknesses-Opportunities Strategies:
-
Get knowledge of the market and build relationship marketing with a thrust on ‘cause marketing’
-
Use internet to offer products especially of intimate nature – and build a relationship with the female customer – she normally also decides what other brands will be purchased for the household
10.4 Weakness-Threat Strategies:
-
The dependence on me-too products should be reduced
-
Empower and free management of the local company to meet competition on the ground using strategies appropriate to the realities of this market instead of strategies that worked in other markets.
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Proctor & Gamble in India 11.0 DISCUSSION
A firm must generate and retain value to justify its existence in a competitive scenario and when it fails to do so, it implies that the firm is not making optimal uses of its resources, and therefore destroying value (Drucker, 1995). Simmonds (1986) states that marketing can be viewed as organised rational innovation, a function concerned with identifying the opportunity for change, inducing the action required and monitoring the change once introduced. This paradigm of innovation directly focuses on what the marketer actually does, wherein innovation is taken to be, something done for the first time by that firm. In these terms P&G may, through an overall assessment of their marketing strategy, be described as being a ‘follower’ rather than an ‘innovator-leader’ (Kotler & Keller, 2005).
A ‘first mover’ is defined as a firm that is the first to produce a new product, use a new process or enters a new market (Lieberman and Montgomery, 1990). The first mover enjoys a host of advantages associated with its being a first mover. Research suggests that though the first mover may not enjoy spectacular gains, it enjoys several competitive advantages (Robinson 1998; Rogers 1983; Tellis & Golder 1996). One advantage is that its promotional messages are not lost in the clutter of those of the competition. The product may even become the industry or category standard against which consumers compare the offers of late entrants while making a purchase decision (Howard 1989).
Surf, promoted by Hindustan Lever in 1959, was the first detergent powder in the Indian market. Proctor and Gamble entered the Indian detergent market as late as 1990. Despite heavy promotion, and cutting prices to almost half the company’s Ariel brand detergent has failed to even come close to the market share that Surf has (A&M). Surf, is today the generic name for detergents and Ariel just one more brand among hundreds.
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Proctor & Gamble in India In his prophetic book: The Third Wave , Alvin Toffler (1980) predicted the emergence of the ‘ prosumer ’. This concept has been interpreted in different ways which are provided at the website: www.logophilia.com/WordSpy. Two of those, relevant to the present context, are:
1. Persons who help design or customize the product they purchase (Producer + Consumer). 2. Persons who take steps to correct difficulties with markets and to anticipate future problems (Proactive + consumer) In deploying strategy to generate market presence and share the use of this concept is essential. In addition, one may ask the following questions (adapted from Ghosh, 1998):
1. Can I offer additional services to my existing customer base? 2. Can I address the needs of new customer segments by repackaging my current assets or by creating new business propositions? 3. Can I use my ability to attract customers to generate new sources of revenue such as advertising or sales of complementary products? 4. Will my current business be significantly harmed by other companies providing some of the value I currently offer? These in combination with the concept of addressing the Prahalad’s bottom of the pyramid can help in finding new products and new markets to strengthen the company and improve the bottom line.
Culture is considered as the most important determinant of a person’s wants and behaviour (Kotler, 1999). Culture is normally defined as set of values and beliefs that a society as a whole upholds and therefore expects its members to subscribe to. Culture in India is better defined as collective rather than individualistic as in the western countries. An individual is expected to follow or conform to what the others are doing, and therefore it is essential to understand who the opinion leaders are for they decide. Because of this insistence on group conformity once the innovators in society begin using a new product others will follow to 36
Proctor & Gamble in India avoid discomfort of being left out. The other factor that typifies the Indian society is the relatively large size of the family; average of 5.5 members as compared with 2.64 in the US (Kotler 2001). The large family size and low per capita income the average consumer suffers from the non-availability of significant amount of disposable income. New products therefore need to address the existing needs rather than creating an expansion of needs. This situation also makes the customer extremely conscious of value, while the need to conform may drive a preference for a brand it is, ultimately, the quality and value for money that will engender continued use and loyalty. The P&G strategy, and indeed that of most other companies in the market, to reduce packing sizes to sachets (e.g. single serve Pantene shampoo) and blister packs (e.g. Vicks single lozenge) addresses the need of such consumers by allowing them to buy what they need without a large outgo of cash (Prahalad & Liberthal 1998).
Social responsibility and community development activities have been considered as philanthropic not for profit activities and separate from the main for profit business by companies for long. This perception is undergoing a change with ‘cause marketing’ emerging as a new field for business to exploit for the improvement of their bottom lines.
It is now established that community development and support can be successfully positioned at the intersection of business objectives – revenues and profits – and societal needs. Supporting a specific cause and being public about this support gives companies identifiable personalities, demonstrates what they stand for, and helps them connect with customers, suppliers, investors, employees, and the community (Sundar, 2006).
The 2004 Cone Corporate Citizenship Study (Cone 2004) report reveals that 8 in 10 Americans say that corporate support of socially relevant causes wins their trust in that company, a 21% increase since 1997. Another revealing finding of the report is the response to the statement, “I am likely to switch from one brand to another that is about the same in 37
Proctor & Gamble in India price and quality, if the other brand is associated with a cause”. As many as 86% respondents confirmed that they would do so, a rise from 81% in October 2001. Therefore, we can conclude that ‘cause’ marketing programs allow the consumers to overtly and publicly express their belief in and support for, the companies that are working on causes that are most important to them.
‘Cause’, has therefore become an important differentiator, a means to promote products and enhance bottom lines for marketers today. Cause marketing allows a company to put its brand, marketing might and people behind a non-profit cause that can provide mutual benefits to the company and the non-profit entity. In the most common type of relationship, for each purchase made by its customers during a specified period of time, a portion of it is donated to the non-profit entity. The company may also take up a cause to fight/ campaign for or assist local communities in on a long term support strategy. It is a win-win situation for both partners – Companies increase their sales, non-profits get more funds and the consumer benefits because he feels a part of his purchase is going for a good cause.
This leads us to the role of the company in the milieu that it operates in. Large corporations are perceived as centres of major financial (and sometimes political) power and can not stay distant from issues that that concern the society they operate in. This perception is based on the simple reason that they contribute to the economy through payment of taxes, rents and levies; through providing employment to the local people; but simultaneously and most importantly looking for gain through utilization of local resources. They corporation is therefore expected to contribute to the well being of the society they operate in. P&G have spent Rs. 500,000 on ‘Shiksha’ (Company Annual Report, 2007) a initiative to take education to the doorstep of some deprived children. This represents less than 0.1% of their profit after
38
Proctor & Gamble in India tax! It is obvious that this level of activity will neither find appreciation nor any positive response from the society.
The key to success in FMCG marketing in India also depends very greatly on the distribution and retail chain. It is necessary to understand that many of the retailers are extremely small sized operations which are run by poor people and generate very small sale volumes. They can not afford to carry large inventories. It becomes vital to establish a distribution network that is capable of replenishing stock almost on a daily basis. For example ITC and Coca Cola have distributors who are capable of reaching even the remotest location to replenish stock every day. This is why they have such dominant market shares bordering on monopolies in their respective lines, cigarettes and soft drinks. An unmatched distribution network is the TSR (Territory Sales Representative) also known jocularly as the ‘Thela’ (handcart) Sales Representative that HLL employs. The TSR, every day, places even as less as 4-5 cartons of soap on a hand cart and goes from shop to shop selling, collecting money, cleaning and arranging display shelves and putting up point-of-purchase promotional material (including removing those of the competition). He does this every day of every journey cycle (each JC is 4weeks) 13 JCs a year – on days that he is on leave his Sales Officer substitutes for him!, (Singh 2008). It comes as no surprise that HLL controls 55 % market share in toilet soaps.
Another issue that impacts marketing wherever it operates but that has a huge impact in the Indian markets is the concept of ‘relationship marketing’. Relationship marketing involves a paradigm shift from the more traditional measurement of success in terms of ‘‘market share increase’’ to a long term gauge of success in terms of gain in the share of a customer’s business. Ambler (1994) highlights ‘‘Guanxi’’ as marketing’s ‘third paradigm’. Ambler considers three paradigms that identify marketing: neo-classic, conflict and relational. The neo-classical school is based on microeconomic analysis, i.e. the famous ‘‘4 P’s’’. It is based
39
Proctor & Gamble in India on the simple equation “input = Output” and accordingly explains that sales or profits are generated by the right economic marketing mix. In the conflict paradigm, the primary emphasis is on competition. Marketing plans start with strategies to achieve advantage and may or may not cover the classical marketing mix. The third paradigm recognises that marketing owes its success more to cooperation than competition – cooperation between the various elements in the supply chain and up to the ultimate consumer. In this, Chinese believe that one should build ‘‘relationships’’ and if successful, transaction will follow. Westerners, however, build transactions and if successful, a relationship will follow. The Indian market works more on the Chinese principles rather than following the western concepts.
It is not that relationship marketing is typical of large transactions only, Peppers and Rogers (1995) insist relationship marketing is an innovative alternative even while undertaking mass marketing. Addressing customers individually and entering into dialogue with them can be done even while offering mass customised goods and services.
The influence of strategic relationships, market orientation and learning, superior customer value, distinctive competencies and organisational change on “marketing strategy” is vital to understand as the market-driven era unfolds (David 1998). The shifts will include a significant de-emphasis on the functional perspectives and instead an organisation-wide perspective will have to be developed, wherein the perspective will be toward the customer and strategies for providing superior customer value (ibid).
In the context of globalisation, Singh (2003) states that the word ‘globalisation’ tends to create a homogenous image of the world; a world in which everything and everybody is getting integrated with the rest, which is not actually the case. The world consists of diverse people and societies and can never become one homogenous mass that can be understood using one percept. What globalisation actually means is that opportunities to establish global
40
Proctor & Gamble in India connections exist and it is up to corporations to use these opportunities. In this development of ‘‘global markets’’ and ‘‘world without borders’’, for those who are looking at addressing Indian markets must understand that this is a huge country – a world within itself - and the diversities of societies, languages, cultures, religions and economic habits are immense and extremely complex (Merchant 1999). One can see this as a difficult challenge to face or as a huge untapped marketing potential.
This report, through the details and discussions, attempts to demonstrate that there is a huge untapped market that is available at the bottom of the economic pyramid in India and so also in other emerging markets that are not cluttered with the fierce competition that one observes in the market segments that presently form the focus of P&G’s marketing efforts.
In addition to the strategy suggestions emerging from the Porter’s five forces and the SWOTTOWS analysis this reports offers the following suggestions to PGHH to help improve performance.
11.1 Media Planning
Companies worldwide are realising that the traditional print and television, are not the most effective means of promoting a product. An example of this is the latest launch of the nocalorie, no-caffeine soft drink ‘Tava’ where the entire gamut of traditional advertising has been given a go-by. The launch campaign is entirely based on the use of the internet in combination with promotional free sampling at popular shops and delivery of free samples to the staff of Google and MTV. This promotion is not targeted at a young customer but rather identifies men and women between the ages of 35 and 49, whom the company calls the ‘reborn digital’ segment (NYT News Service 2008). This example demonstrates the need for a complete rethink in media planning for product promotion.
41
Proctor & Gamble in India
In India the print media consists of newspapers and magazines that are largely regional and cater to the needs for local news, gossip and a modicum of news of national relevance, international news is almost completely absent. Added to this is the massive level of illiteracy, especially in the rural and tier III cities that prevent accessibility to a majority of the target customer. Television has achieved a deep penetration of the households across the entire country and a number of soaps and some news channels enjoy a large popularity and viewer ship. This media, therefore, presents a viable media for promotion of products like the ones that P&G market, and indeed is being used with a lot of ad-spend being allocated to promotion on prime-time television. So do the main competitors like HLL, Colgate, and ITC.
The use of the internet, is not as widely prevalent as one is led to imagine looking at the emerging e-enabled service sector. Good Internet connectivity and use is, as yet, limited to the metros and the tier II cities. The smaller towns (Tier III), where required, still use the dialup services provided by the telephone companies. The mobile phone has made a remarkably quick and deep penetration and using it as a very useful media for promotion of products, especially FMCG, is not so prevalent. This is an area that P&G could look at.
However, the entire discussion above is not aimed at developing an understanding of the media and its relevance in India but to form the background for the following suggestions:
1. The most powerful media in the country is films. Hiding in the melodrama of heroes, beauties and villains is a massive opportunity for marketing success. Some companies have already realised that Bollywood is a highly effective backdrop for brand building. Placing a brand in the landscape of a film is not uncommon. Several recent examples may be cited, consider Coca-Cola’s in “ Raang de Basanti ” or Motorola phones being used by the godfather in “ Don” or indeed the Reebok brand promotion in the film “Goal ” – some of the most successful films (blockbusters?) of recent
42
Proctor & Gamble in India times. P&G need to consider using this media. Endorsement by popular movie stars in an obviously paid for advertisement is just not the same thing! 2. The second media that draws most attention at present is the reality shows on television, where the host is often one of the ‘superstars’ of Indian filmdom. This is one vehicle, which P&G has not used so far, but has been effectively utilised by competitors but only as sponsors to the shows. The impact, of say, Shahrukh Khan (the top actor of Bollywood) taking out a Vicks lozenge and popping it into his mouth and saying ‘I always rely on this to keep my voice smooth’ or something like that, is beyond all that tons of advertisements can achieve – probably cost the same! 11.2 Reverse Engineering – Marketing
One way of approaching the task of increasing sales and profitability is to ask the question "how to create economic opportunities that are sustainable and create new value for the bottom of the pyramid?" However, there is not enough new wealth being generated to purchase new products for global enterprises to get excited about. The other way to approach this opportunity is to develop a global marketplace that allows people and corporations to purchase from people that live in developing countries. For example, consumers in the developed countries can be made aware of all the exciting products and services that create jobs, new levels of income and opportunity for growth for the poor in the developing countries. There are a number of opportunities like this that exist in markets like India which are not limited to handicrafts and spices, a number of small enterprises produce ethical, sustainable and good quality products at a fraction of what it would cost to produce them in the developed countries – they all face the same difficulty – marketing. By creating a demand for such products and by providing cost effective channels for collection, transportation and distribution companies like P&G can help create wealth for the people at the bottom of the pyramid. This in turn would lead to increasing purchasing power and therefore a demand for their products in India.
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Proctor & Gamble in India 12.0 CONCLUSION
The Indian economy is slowing down – for the first 10 months of 2007-08 core industries grew by 5.5% as against 8.9% for the same period last year and the overall industrial growth was 8.7% compared with 11.2% last year (TOI, 2008). The rising rupee against the dollar has also hit exports and inflation has risen to 5.9% for the week ended March 8, 2008. The optimism generated for the economy in the last four years can disappear very fast – impacting both investment and growth.
The main thrust of the recent annual budget was to increase disposable incomes for the middle class mostly through lowering of taxes and interest rates. Income of the middle class has risen very fast and they have been the most to benefit from the growing economy. However, in a country of 1.1 billion people this middle class accounts for only 250 million people or about 23 percent. The other 77 percent are outside the ambit of the benefits of economic growth (Sengupta, 2007).
For the economy to be strong and be able to tide over temporary fluctuations in currency and economic shocks it is vital that more goods are produced that are consumed by the masses. This will lead to more people being involved in the production and in the consumption of such goods which in turn will generate more demand for other mass produced goods.
How do companies like P&G take part in this essential restructuring of the economy and as a result deriving benefits for themselves and their stakeholders? The concept of inclusion has to be added to their strategy and conscious drive to address the need of the excluded three fourths of the population who for the bottom of the economic pyramid.
In sum P&G has to move away from the traditional description of the role of marketing from understanding the business as meeting the customer need for a service or product to be
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Proctor & Gamble in India provided on time, appropriately and at a fair price; the traditional 4P’s and on to generating the need in the first place and developing a product or service to meet that need.
The company in the last six decades of presence in India, established itself as a front runner in the FMCG sweepstakes. It has targeted the urban and rich society and has grown to become one of the largest FMCG companies in the country. Some of its marketing and promotion strategies have helped it gain market share in its product lines. However, its growth rate appears stymied and growth is only in its revenues and that is driven by frequent brand extensions. In an attempt to target the middle class it has successfully introduced smaller, and therefore more affordable packing while simultaneously reducing prices to align with the market forces that prevail.
This study has attempted to emphasise the need for Proctor and Gamble, as indeed other such companies, to identify which part of the customer base in India holds maximum promise for growth and address the needs of these customers. This report takes the position that these customers are the poor and excluded sections of Indian society and equitable and sustainable growth is possible through them only.
So, rather than, or as a complement to, trying to make money off of the poor as new market opportunities, when companies help create value by allowing families to create wealth through their creations or products, lends itself to more robust investments. Otherwise, companies will continue to scratch their heads on how to capitalize on the bottom of the pyramid opportunity.
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