Posted: July 19th, 2023

Business Model, Business Strategy and Innovation

P&g Japan

There are a number of factors that Paolo DeCesare needs to take into consideration in deciding what to recommend to the global leadership team. This paper will outline the situation facing Procter & Gamble and then make a recommendation about the approach that Paolo should take.

DeCesare must decide if he should propose to sell the Japanese cosmetic SK-II internationally. If he decides to proceed, he can recommend China, Europe or both, or perhaps go with another option should one be attractive. There are two key issues within the case. One is that Japan’s cosmetics market has many distinctive characteristics — products that succeed there might not succeed anywhere else, not even in other Asian countries. The other complicating factor is organizational readiness, as P&G is in the midst of a fairly disruptive re-organization program (Bartlett, 2004).

Outside Concepts

One of the most important concepts at play is internationalization Procter & Gamble has built its success on the internationalization platform, taking products to multiple international markets, but sometimes launching distinctive domestic products where unique market conditions support such a strategy. SKII is one of the products that emerged out of that latter strategy. However, the Japanese market is slow-growing, and therefore the brand will only experience growth if it can be taken to international markets.

The parallel concepts of organizational change and organizational design are also relevant. P&G is in the midst of a change that will reshape the organization. This reality might put a constraint on the ability of the organization to implement whatever strategy that DeCesare might wish to recommend. There could be cultural issues at work as well, as different areas of the organization try to work together and as they seek to sort of the power structure within the new and uncertain organizational framework.

Qualitative Data

At times, P&G has struggled in Japan. That market is one of the most competitive in the world, but P&G has made adjustments to build some strong brands in the country. Now, the Japanese strategy is being blended into the global Organization 2005, the major reorg that is billed as a “blueprint for global growth” (Bartlett, 2004). Under this reorganization, the strategy of Procter & Gamble is to foster growth despite what it expected would be a flatlining of many key markets in the coming years. There are aggressive quantitative targets within the program. Clearly, in order to execute that kind of growth, the company would need to identify and execute on a number of different opportunities.

Another part of the program was that P&G wanted to effect culture change on its organization with the organizational re-design The objective of the culture change was to build a company that moved more quickly, and was more innovative. The company was trying to move away from activities that did not add value to the organization towards activities that did. Product development was intended to be streamlined, and the company has had some success, for example with Swiffer, which went from test market to global distribution within 18 months. It is entirely possible that the SK-II should take the same rapid path to internationalization There is the risk, however that in moving from an overly cautious organizational culture to one that moves quickly, the pendulum could swing too far. Managers not accustomed to gathering information and making decisions quickly could make decisions without due consideration, the result being a catastrophic flop.

The SK-II product is a high end skin care brand that was developed by the Max Factor subsidiary for the Japanese market. This product had been internationalized to some degree, having been launched successfully in both Hong Kong and Taiwan. The product is quite different from the skin creams normally marketed to Western audiences, so there is some question as to whether this product will translate to the European market. The successes in the more Westernized parts of Greater China give the company hope that it can succeed in the People’s Republic. It is worth considering that the case does not make clear of P&G management actually knows why this product is such a success in its present Asian markets. The company was able to build brand awareness for SK-II quickly in Japan but the brand remains unknown in most of P&G’s markets. In Europe, for example, Olay is the major skin care brand for the company.

With the rollout of O2005 and a renewed push for innovation, innovators can expect to be rewarded at P&G, and it does not pay to be seen as too conservative. This is an internal factor that DeCesare must weigh, because some of his career mobility might be affected by the success of whatever strategy he recommends. It is also worth considering that the company believes there is a global market for skin cleansing products, or that is to say a market for a global brand, if such a brand and product can be found.

Quantitative Analysis

SK-II is currently sold in three different countries. Arguably, the product is more people among the Chinese customers than it is among Japanese. While it quickly grew to 70% brand recognition in Japan, at this point a total of 45% of sales come from Hong Kong and Taiwan. Those two territories account for 19% of the combined population of the three countries. This means that SK-II outperforms in those countries, and likely has a higher market share in those countries than it does in Japan. The move to sell this product in Malaysia, Singapore and South Korea is a smart one, but as noted this is not a game-changer, as those countries have a combined population of 84 million (and the product might not appeal much to the Malays and Indians in Malaysia and Singapore). The European Union has a population of 507 million and is the world’s largest economic bloc. The People’s Republic of China has a population of 1.35 billion and has the world’s third-largest economy (CIA World Factbook, 2013). This is a premium product so while Europeans can afford it, not all Chinese can. The size of the middle class and higher in China is estimated to be in the hundreds of millions. Barton, Chen & Jin (2013) estimates that the G2 class of middle class and wealthy Chinese born from the mid-1980s onwards is around 200 million. This is critical because this cohort did not grow up with shortages (their parents did) and they have more exposure to the international sphere. In general, these consumers are more likely to purchase SK-II than other cohorts within China’s middle class. This class is There is no question where the real opportunity lies for this product. China’s economy is growing at 10% per annum; Europe’s economy is slower-growing

Alternatives

The first alternative is to pursue the Chinese market. This makes the most sense. It is a large market and the product has already proven popular among Chinese consumers elsewhere The market is huge, with demand for this type of product The second alternative is to try the European market. This market is big and wealthy, but is saturated and slow growing. P&G could also try both markets, which is a bold move that takes the product nearly global, but it also runs the risk of stretching the company thin at a time when re-organization may constrain its abilities.

Recommendation and Implementation

It is recommended that P&G market the SK-II in China. There are several reasons for this, not the least are the size of the market, the acceptance of Chinese consumers elsewhere of this product, the proximity to Japan, and the growth rate of the market. There is also less competition, and the domestic competitors are not as strong as the ones in Japan and Europe are. A battle-hardened P&G can win substantial market share here. Europe is a tougher market, and the product has less proven ability with Western consumers. Even the name pops less to Europeans than it would to Asian for whom Western letters are exotic. It is better to establish the brand in China before worrying about taking it global.

To implement this strategy, P&G will piggyback its existing logistics system in the PRC. It can start with a relatively slow rollout in, say, Guangzhou Province, with oversight from Hong Kong. This would allow the company to analyze the product within the framework of the unique PRC market before attempting national rollout in the more high-profile media centers of Beijing and Shanghai. Special attention will need to be paid to production capacity, and endorsements by popular Hong Kong celebrities will help with its appeal, given the popularity of Hong Kong personalities in that part of China. Clear targets should be used to evaluate the success of the rollout, using metrics acquired during the rollouts in Taiwan and Hong Kong.

The medium term objective will be full rollout in the rest of the PRC, plus the other countries with substantial Chinese consumers, and South Korea as well. At this point in time, I would also recommend the company start thinking about the long-term global prospects for this brand. There are two markets worth considering for a test market. Australia (especially Sydney and Melbourne) has a large Asian population to help build momentum and distribution channels, as well as to gauge the response of Westerners to the product. In Europe, there are fewer markets with similar demographics, but Dusseldorf is a city with a prominent Japanese population, and could be a good starting point to see how the product fares in a strong European market.

References

Barlett, C. (2004). P&G Japan: The SK-II globalization project Harvard Business School In possession of the author.

CIA World Factbook. (2013). China. Central Intelligence Agency. Retrieved November 14, 2013 from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

Barton, D., Chen, Y. & Jin, A. (2013). Mapping China’s middle class. McKinsey & Company. Retrieved November 14, 2013 from http://www.mckinsey.com/insights/consumer_and_retail/mapping_chinas_middle_class

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