Proctor & Gamble Case Study

Proctor & Gamble develops, manufactures, and sells consumer goods. Primary sales

channels are mass merchandisers, grocery stores, membership club stores, and drug

stores, Proctor & Gambles products are sold in over 180 countries.

Procter & Gamble competes through differentiation, and spends heavily on research and

development to create products that are differentiated from that of competitors, and

spends heavily on advertising to signal the value of the company's brands. Due to their

relationship with many retailers and investment in learning about consumer behavior,

P&G has a good sense of what consumers want in a product, and can effectively focus

research and development to create new products, and improve existing products to better

meet consumer needs. P&G is decentralized, with global business units focused on

individual countries. This cuts overhead, and more importantly, lets the business unit

optimize operations for a particular country. The combination of global scale and local

focus enhances the company's competitive advantage

A high absolute value of research and development spending allows the development of

products that actually do add value over the products of rivals, and high spending on

advertising facilitates the signaling of this value. Some examples:

* Detergent optimized for cold water washing (saves energy costs)

* Detergent optimized for single rinse (where clothes are washed by hand)

* Compact detergents to reduce packaging waste

P&G's three tiered product line helps with pricing power, as the lowest tier acts as a price

benchmark for customers deciding whether the higher tiers are appropriately priced.

There is some retailer concentration, with Wal-Mart accounting almost 20% of sales. But

Wal-Mart needs P&G about as much as P&G needs Wal-Mart, so their bargaining power

is not enough to hurt P&G's profitability. If the company's on-line sales channel grows

sufficiently (see under "Threat of Substitutes") then this will give P&G