2. Porter's Five Forces model, named after Michael E. Porter, identifies and analyzes five competitive forces
that shape every industry, and helps determine an industry's weaknesses and strengths.
These forces are:
Industry Rivalry
The importance of this force is the number of competitors and their ability to threaten a company. The larger the
number of competitors, along with the number of equivalent products and services they offer, dictates the power
of a company. Suppliers and buyers seek out a company's competition if they are unable to receive a suitable
deal.
Threat of New Entrants
A company's power is also affected by the force of new entrants into its market. The less money and time
it costs for a competitor to enter a company's market and be an effective competitor, the more a
company's position may be significantly weakened.
3. Bargaining Power of Suppliers
This force addresses how easily suppliers can drive up the price of goods and services. It is affected by the
number of suppliers of key aspects of a good or service, how unique these aspects are and how much it
would cost a company to switch from one supplier to another. The fewer number of suppliers, and the more
a company depends upon a supplier, the more power a supplier holds.
Bargaining Power of Customers
This specifically deals with the ability customers have to drive prices down. It is affected by how many
buyers, or customers, a company has, how significant each customer is and how much it would cost a
customer to switch from one company to another. The smaller and more powerful a client base, the more
power it holds.
Threat of Substitutes
Competitor substitutions that can be used in place of a company's products or services pose a threat. For
example, if customers rely on a company to provide a tool or service that can be substituted with another
tool or service or by performing the task manually, and this substitution is fairly easy and of low cost, a
company's power can be weakened.
4. Porter Five Force Analysis of Procter &
Gamble (P&G)
Open to rivalry-
P&G operates in the consumer goods industry. It is an
industry with intense competition. There are a large
number of players in this industry that are making very
similar products. All the products made P&G are being
made by other brands such as unilever. The switching
cost of the consumers is almost zero. One day they
may be using the products of P&G such a tide washing
detergent an next day they can move on to ariel
washing detergent of unilever. Most companies in the
industry tackle this issue by continuously giving
promotions with their customer base and attract new
customers.Their is little brand loyalty amonst
customers in this industry.
5. Threat of new entrants(moderate)
In the consumer industry, there are certain entry barriers. A large amount of capital
and investment is required to start and develop economies o scale takes time and
strong distribution channels are not easy to get access to. However , in many
, smaller firms have entered the market and are serving the local industry and have
captured market shares away from P&G and others. They start as small scale and
gradually increase.
6. Bargaining Power of suppliers- Low
The supplies of P&G include raw materials, technological products, and packing for
products. There are a large number of suppliers in the market for all of these
The supplier switching cost is low for P&G. Also, P&G purchases in very large
quantities making it ideal for any supplier. Therfore they are in no position to bargain
with or attempt to influence the prices of P&G products. This threat is low for P&G.
7. Bargaining Power of Buyers- Moderate
There is very little product differentiation for the products
made by the different companies in the consumer goods
industry. Thus, the consumers have a lot of variety to
from. The switching cost is also low for them. However,
there is certain level of brand loyalty for some of the
products made by P&G,especiallhy in the personal hygine
and cosmetics category, by the customers. They will
continue to purchase those products as they find them
suitable to their body and skin requirements. They are less
price sensitive for them. Thus, the bargaining power of the
buyers in against P&G is of a moderate level
8. Threat of substitutes – Low
There are no substitutes for most of the products of P&G. Eg. There are no suitable
substitutes for soaps and shampoos that P&G makes. Especially, in the personal
hygiene category, customers are reluctant to try substitute due to health risks. They
will continue to use products of P&G or of some other brand but will not go for any
substitute
9. P&G’S RISKY BRAND STRATEGY
P&G announced this week that it was dramatically shrinking its brand portfolio.
According to an article in the Wall Street Journal, the company will drop almost 100
brands, focusing on just its top 70 to 80. This is a huge strategic move for the
company and a significant change. It is also very risky.
On the surface, the strategy makes perfect sense. P&G is keeping brands that
make up over 90% of its profit. After the pruning, it will still have dozens of
brands. A P&G needs to try something different. In 2009 it had net income of
$10.7 billion. Last year it net income of $11.3 billion. This is disappointing growth,
so a change is in order.
The problem is that this strategy is more risky than it seems.
The first issue is that focusing on fewer brands assumes that you can hold
onto customers as you trim the portfolio. In theory, when you drop a brand of
detergent, customers will purchase one of your other brands. In reality, this just
isn’t the case. A brand can’t be all things to all people. Some people like Old
Spice. I don’t care for its fragrance positioning. If you drop Gillette, I won’t start
buying Old Spice. I will buy something else
Another issue is that getting rid of brands isn’t as simple as it sounds. If you stop
using a trademark another company can start using it. P&G can’t get just rid of
Era or Cheer. If they stopped using one of the brands a competitor could pick up
the trademark at no cost and bring it back to life.
10.
11. P&G Practices: Market Segmentation & Product
Differentiation Roots
The structure created through this brand-centered approach resulted in
decentralized decision-making, almost to the degree that the brand was
managed as a discrete business.
This segregated marketing enabled a brand’s personality to be definitively
different from the other brands in a company’s brand portfolio. This process (now
commonly referred to as market segmentation) enabled targeting distinguishable
consumer groups. From Procter & Gamble’s perspective, this meant that Ivory
soap and Camay soap would not compete so much in the market because
the different markets were targeted for each brand. Consumers viewed Ivory
soap and Camay soap differently, preferring one over the other based on the
products attributes or assumed a connection to their desired lifestyles. Product
differentiation became a key approach to successful marketing and advertising.
Naturally, it took market research to discover just what attributes appealed to
which markets.
