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P&G Analysis

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Autor:   •  July 26, 2010  •  3,757 Words (16 Pages)  •  2,679 Views

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Introduction

Nowadays, the competition in many industries tends to be more intense and there are many changes that can be regarded as threat and opportunity that it is important to managers to cope with. Shampoo industry is one of them that face with some change such as trends of environment concern. This impacts managers to think about their strategies to have competitive advantages. Therefore, the evaluation of shampoos industry by using Five Forces analysis will be applied in one of the shampoo producers, Procter and Gamble Company. Five forces analysis is one of the industry analyses that evaluate the circumstance that can affect to an industry. It can determine the competitive intensity and also attractiveness of a market (Johnson et al , 2009, P.59).

Procter and Gamble (P&G) is a consumer-goods company. They claim themselves as the world's largest consumer-goods company (Key Note, 2009, P.51). Their products are sold in more than 180 countries. The company was established in 1837 (ibid, P.51). Formerly, they started their business as a family-run soap candle company in Ohio, the United State of America (ibid, P.51). Nowadays, the company has sold their products in the United Kingdom by Procter and Gamble (Health and Beauty care) Ltd (ibid, P.51). Both of them are based in Weybridge, Surrey (ibid, P.51). The company has many brands in toiletries market such as Gillette, Oral-B and Olay. (ibid, P.51). Besides, in hair care products of Procter & Gamble (P&G), there are three brands; Pantene, Head & Shoulder and Herbal Essences (ibid, P.51).

There are three parts in this report. The first part is the analysis of Procter and Gamble (P&G) Company by using five forces analysis. The following part will show the insight and limitation of five forces analysis. The analysis of shampoo industry in United Kingdom will be discussed by using five forces analysis in the last part.

Part 1. Procter & Gamble Company

Procter and Gamble Company is a leader company for producing some essential products in daily life such as toiletry products. In recently, the company has established five strategies for sustainability; products, operations, social responsibility, employees and stakeholders (P&G website, 2010).

The first strategy focuses on their products. They attempt to improve their environmental profile from delighting customers with the sustainable innovations such as using biodegradable materials (ibid, 2010). The second strategy is the improvement of their operations with environmental concerning such as using an additional 20% reduction in carbon dioxide emissions (ibid, 2010). The third strategy is the concerning in improving children's lives by social responsibility programs (ibid, 2010). The forth strategy focuses on employees by supporting them to have the sustainability thinking and implementing the thinking to daily works (ibid, 2010). The last strategy considers in stakeholders by supporting in transparent working with them.

The recent change of strategy might be considered as the results of some business environmental changes for example the increasing of environmental concerning behaviors. Therefore, environmental threat and opportunity can be reckoned as the crucial factors for managers. It is their responsible for adapting the organizations to cope with the changes.

Part 2. Five forces analysis

The five forces analysis is a framework for analyzing industry for developing business strategies created by Michael Porter (Narayanan and Fahay, 2005, P.208). Johnson et al said the attractiveness of an industry could be identified by such framework in terms of competitive forces (2008, P.59). Note that the word industry means a group of companies that produce the same products or serve the same services (ibid, P.58). There are five elements in such framework; threat of new entry, threat of substitute products, the bargaining power of customers, the bargaining power of suppliers and the intensity of competitive rivalry (ibid, P.60).

The first force of the analysis is the threat of entry that involve with barriers to entry. Johnson et al (2009, P.61) mentions the barriers to entry are factors that new entrant need to conquer for entering to the business successfully. There are several factors to be considered as such barriers such as scale and experience, access to supply or distribution channels, expected retaliation, legislation or government action and differentiation. The second force is the threat of substitutes. Johnson et al describes, "Substitutes are products or services that offer a similar benefit to an industry's product or services, but by different process (ibid, P.62)". For example, in airline industry, the substitutes can be cars, train, and boats. However, their price to performance ratio should be less than such ratio of industry's products or services (ibid, P.62). It means that substitutes should have cheaper prices if it serves the same product performance. The third force is the power of buyers that tend to be high if some conditions occur such as concentrated buyers, low switching costs and buyer competition threat. The forth force is the power of suppliers that are organizations that supply whatever for producing products or services (ibid, P.63). The power seems to be high if there are low concentrated suppliers, high switching cost and high supplier competition threat (ibid, P.63). The last force is competitive rivalry. This force will be high if the former forces are intense. Moreover, it depends on some factors such as competitor balance, industry growth rate, high fixed costs, high exit barriers and low differentiation (ibid, P.64).

However, there are several limitations of Porter's framework, such as:

One of the limitations of five forces analysis is the underestimate of strength of company competency. Due to five forces tool focuses on the industry layer of the business environment (ibid, 2009), so such tool might lack of concerning in core competency of companies. For example, five forces ignore the strength organization structures such as the advantages of occupying innovative staff.

Moreover, the industry value chains are oversimplified by five forces framework such as the lack of segmentation of buyers and the differentiation of channels, intermediate buyers and end buyers. (Grundy, 2006, P.215).

Besides, the model ignores the interdependence of large organization because it analyzes in individual business strategies (Twelve manage website, 2010). For instance, hardware and software can be the complementors that can be worth than separately.

In addition, the continuous changing

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