Strategic Management - Colgate Australia - Case Study Example

COLGATE AUSTRALIA Table of Contents Organization and its operations 3 PESTLE 6 Political factors 6 Economic factors 6 Social factors 6 Technological factors 6 Laws 7 Porter’s five forces 7 Supplier power 7 Power of buyer 7 Threat of new entrants 8 Threat of substitutes 8 Degree of rivalry 8 Value chain analysis 9 Inbound and outbound logistics 9 Operations 9 Marketing and sales 10 Services 10 Technology development 10 Human resource management 10 Product Portfolio and potential options for growth: BCG Model 10 SWOT Analysis 12 Strengths 12 Weaknesses 13 Opportunities 14 Threats 15 Resources and capabilities of the organization 16 Conclusion 16 Reference List 17 Introduction Colgate Company is one of the leading organizations in the provision of household products. The company has been in the market for decades and acquired a competitive advantage through its brand names and frequent innovations. Similarly, the company still has opportunities such entering the new and emerging markets and differentiating its products. Colgate also has potential of growth through its large workforce and decentralized operation system. The goal of any organization is to make a profit and acquire competitive advantage in the market. Many organizations can observe the market and acquire a competitive advantage enabling to prosper in their business. One of the ways of acquiring a competitive advantage is through decentralization of operations (Srivastava 2013). This entails a company opening its operations in other parts of the market where its consumer targets are based. Many organizations have decentralized their operations by investing in foreign countries with the aim of reducing searching for favorable business environment or reaching customers with ease (Kozami 2013). One of such companies is Colgate. Colgate operates in different locations with the aim of reaching its customers and reducing operational cost (Evans & Collier 2012). This paper will outline the organizations operations, conduct PESTLE analysis, Porters Five forces, value chain and SWOT analysis, as well as resources and capability the organization has to make it prosper in the market. Organization and its operations Colgate is one of the leading consumer product companies and deals with the selling and distribution of oral, personal and home care as well as pet nutrient products (Household Products Industry Profile: Australia 2014). The company operates in more than 200 nations all over the world, and headquarter is based in New York with over 38,000 employees (Colgate-Palmolive Company 2012). Since the inception of the company, it has increasingly positioned itself and acquired a market share to enable its growth. Because of this, its revenues have been increasing steadily as it recorded $15,327 million in its financial year ending December 2009. It also increased growth in 2013 (see figure 1) (Household Products Industry Profile: Australia 2014). This was a positive revenue growth compared to previous years, which recorded marginal additional revenue. Similarly, the company recorded increased net income during the second quarter of 2012 to $ 17,085 million (Colgate.com 2014). Figure 1: Financial performance of Colgate Source: Colgate.com 2014 Colgate Company has branded itself as the household choice for some products making it operate two business segments to meet the demands of its customers (DATAMONITOR: Colgate-Palmolive Company 2012). The two market segments include oral, personal and home care; and pet nutrition (Household Products Industry Profile: Australia 2014). The company has further divided its oral, personal and homecare segment along four geographical divisions in South and North America, Asia/Africa as well as south Pacific/Europe (Colgate-Palmolive Company 2012). The company’s oral care products include toothbrushes and paste, mouth rinses and pharmaceutical product (DATAMONITOR: Colgate-Palmolive Company 2012). Personal care includes deodorants, liquid and hand soaps, and toiletries (Household Products Industry Profile: Australia 2014). On pet products, the company distributes dogs, and cat nutrition marketed in over 100 nations worldwide (Colgate-Palmolive Company 2012). Figure 2: Companies products Source:Colgate.com 2014 PESTLE Political factors Colgate Company enjoys stable political environment in most of its operating nations. Specifically, it has enjoyed stable political climate in Australia, which has improved its operations and growth (Kasi 2014). However, some operating locations have harsh political environment, which disrupt ongoing business activities. Economic factors The economic factors in Australia and other parts of the word have remained favorable for Colgate (Kasi 2014). The company has realized overall economic growth and remained stable over the years. However, the global inflation and different interest rates have continuously affected the company (DATAMONITOR: Colgate-Palmolive Company 2012). Social factors The increased social interactions through communication channels have contributed largely to Colgate productivity to not only in Australia but to other parts of the world too. Consumers have interacted with the company and aware of market trend and about the products (Kasi 2014). Similarly, the company caters for different market segments bearing in mind the different social and cultural issues and trends (DATAMONITOR: Colgate-Palmolive Company 2012). Technological factors Colgate has a Research and Development Department with commitments of improving oral health through emerging technologies (Kasi 2014). The company adopts updated technologies aimed at providing better care and development of products based on the market demand. Laws The company experiences challenges with nearly every government where it operates (DATAMONITOR: Colgate-Palmolive Company 2012). Most of the governments are willing to increase or impose taxes in order to gain profit and increase their revenue growth for fiscal spending (Household Products Industry Profile: Australia 2014). This poses a challenge to the company operations. Similarly, labor and health laws differ from each state posing a challenge to companies operations (Kasi 2014). Porter’s five forces Supplier power Investors are willing to invest in oral and homecare companies since they are very lucrative to the consumers and other stakeholders in the market (Household Products Industry Profile: Australia 2014). Despite Colgate being one of them, some investors believe the company lacks differentiation making them hold their investments. Additionally, it weakens the process of decision on making between the company and investors as Colgate cannot propose any differentiation strategy they can use against their competitors in the marker. This has resulted to Colgate low bargaining supplier power making it be treated as a major competitor because of its high dependency. Power of buyer Over 350 million customers globally have maintained their loyalty and used Colgate products (Household Products Industry Profile: Australia 2014). This has been attributed to innovation, and solidarity projects they launch in different parts of the world. The company’s corporate social responsibility in different parts of the world in eradicating poverty and satisfaction by the company’s management as well as diversified range of products makes it a customer choice company. Similarly, its cheap products and quality makes it a customer choice company (Personal Hygiene Industry Profile: Australia 2014). Threat of new entrants Colgate has been using technology to overcome threats of new entrants (Household Products Industry Profile: Australia 2014). One of such innovation was the introduction of semi-solid toothpaste, which brought new brushing sensations. The company has managed to overcome threats of new entrants through their strong foundation, which has been yielding success. Colgate managers also strengthen tangible and intangible factors such as values, technology, which the aim of overcoming threats or any form of unfavorable environment. Threat of substitutes The company realized that increase in prices makes customers shift their brands to alternatives. Therefore, Colgate adopted a strategy to minimize consumers changing brands by raising switching cost and conducting frequent surveys to know from customers about their products (see figure 3) (Household Products Industry Profile: Australia 2014). The company works on recommendation from customers to reduce the impact of substitute products. Degree of rivalry The company has realized that prices are critical in the retaining process of customers hence tries to avoid price competition by maintaining good communication with competitors for favorable business atmosphere. They also use different strategies aimed at making them stay on top in oral care industry since they see the competition as vital in improving productivity and quality (Household Products Industry Profile: Australia 2014). Figure 3: Colgate market position Source: Household Products Industry Profile: Australia 2014 Value chain analysis Inbound and outbound logistics Colgate has strategized its value chain by receiving and storing raw materials from suppliers as well as distributing final products to customers with ease and timely. This is important because it reduces inconveniences caused by lack of raw materials and finished products (Evans & Collier 2012). Operations Colgate has diversified its value chain into different departments to ease the operations. For instance, the company has customer help desk or department, which deals with customer’s feedbacks and inquiries (Evans & Collier 2012). It is important because it facilitates fast solution to customer’s problems (Evans & Collier 2012). Marketing and sales Sales and marketing department avails company’s products to the consumers and create awareness about the products existence (Evans & Collier 2012). Colgate is using marketing communication tools such as sales promotion, advertisements and forms in luring clients and making their new and old products reach the market (Evans & Collier 2012). Services Colgate offers after sales services to consumers who are not frequent users of their products (Evans & Collier 2012). The company also offers outreach services aimed at educating the public about the importance of their products (Evans & Collier 2012). Technology development Colgate realized value chain through technological developments to meet the needs of the market and customers (Evans & Collier 2012). Technology has enabled the company to survive through regular innovation, training, and developments of products and workforce to equip them as well as to mold them all way round (Evans & Collier 2012). Human resource management Colgate has developed innovative human resource department in charge of recruiting, motivating and training staffs to make them competitive and increase customers value through delivery of vibrant services (Evans & Collier 2012). The company also realized that human resource is important in achieving a competitive advantage hence mad it as part of integral value chain. Product Portfolio and potential options for growth: BCG Model The star in the BCG model represents oral products of Colgate Company. The companies oral products enjoy large market share in the growing markets as well as the business leader although still require support. Most of the company’s growth is based on oral products such as toothpaste and toothbrushes (Kozami 2013). Cash cow is companies products and services with high market share and enjoys a competitive advantage as well as high-profit margins. However, they have low growth and promotion as well as investments, which call for additional resources for the organizational to realize the goal. Such products in Colgate include personal care such as liquid hand soaps, shower gels, shampoos among others (Kozami 2013). Question marks are represented by home care products in Colgate company because it has high growing market with low market share (Kozami 2013). Buyers are yet to discover them since they are new in the market. The company needs to develop a marketing strategy to enable their discovery. Although they have higher demand, market penetration is very low because of unawareness among consumers (Kozami 2013). Therefore, company needs to invest heavily to gain market share and increase revenues. Colgate dog products form part of this segment (Kozami 2013). They have low market growth and low market share. The company needs to minimize and avoid them in order to save money and resources since expensive turn-around plans have little chance of improving the outcome. Figure 4: Typical BCG Mantix Source: (Kozami 2013) SWOT Analysis Strengths The company has a long history of sharing its dividends among its shareholders even at times of economic crisis (Monk 2013). This has helped the company in improving and increasing investor confidence to their advantage. Similarly, the company is continuously adjusting dividend payment every year because of its leading position in oral, personal and homecare segment in other countries in the world (see figure 5). Secondly, the company operates in different regions with diversified products, which gives it advantage (Colgate-Palmolive Company 2012). It markets its products in more than 200 nations and it strong markets are the emerging economies or nations (DATAMONITOR: Colgate-Palmolive Company 2012). For instance, company’s report of 2011 indicates that personal and homecare products sales from South America and Africa contributed to more than half of sales (Household Products Industry Profile: Australia 2014). Thirdly, the company maintains a strong focus of product innovation as spends significant resources for frequent improvements (DATAMONITOR: Colgate-Palmolive Company 2012). It has been able to build alliances to support its brands with sophisticated technologies for its advantage (Household Products Industry Profile: Australia 2014). Similarly, their strong brand development and regular renewal of products helps it boost customers loyalty leading to growth of revenues (DATAMONITOR: Colgate-Palmolive Company 2012). Weaknesses Colgate registers revenue growth with an increasing inventory, which is an indication that sales do not reach expected level (DATAMONITOR: Colgate-Palmolive Company 2012). Similarly, the company sales products, which have been on the shelves at discounted prices, which hurt its profitability (Household Products Industry Profile: Australia 2014). The continuation in the rise of inventory level than revenues puts the company at risk. Secondly, the company has unfunded employee post-retirement benefits as at 2011. Similarly, the volatility of financial markets has led to declining in pension fund asset making the company experiences a wider financial gap in settling the retirement benefits (Household Products Industry Profile: Australia 2014). Figure 5: Dividends paid Source: Monk 2013 Opportunities The company stands to benefit from the growing opportunities for children oral markets in emerging nations such as Brazil, India, China, and Russia (DATAMONITOR: Colgate-Palmolive Company 2012). The birth rate in these markets is increasing making the offer potential market for companies children oral care products since the market is untapped (Household Products Industry Profile: Australia 2014). Secondly, the company has opportunities through strategic acquisition to enter new markets. The recent agreement to buy Sanex, which is a premium-priced personal care brand, will help in increasing the company’s sales and increasing its market penetration. The acquisition will also position the company in shower gel categories in many nations all over Europe (DATAMONITOR: Colgate-Palmolive Company 2012). Additionally, Colgate has opportunities through leveraging products localization to penetrate local markets since it is an emerging trend in most consumer industries (Household Products Industry Profile: Australia 2014). Many manufacturers are targeting consumers with local flavors and preferences, which takes into account different cultures and preferences across the world. Threats The hyperinflationary operating environment of some nations is a threat to companies operations because it lowers the US dollar revenues (Household Products Industry Profile: Australia 2014). Other nation the company also operates imposes import authorization, payment control among other barriers that limits company’s access to US dollars and other advantages (Household Products Industry Profile: Australia 2014). Low brand loyalty in personal care products categories as reported by Datamonitor Consumer survey is a threat to the company’s brands (DATAMONITOR: Colgate-Palmolive Company 2012). The report found that 67% of respondent consumers do not have a specific brand or have several, which they choose when making a purchase (DATAMONITOR: Colgate-Palmolive Company 2012). Only 25% of respondents admitted that they had their choices (DATAMONITOR: Colgate-Palmolive Company 2012). This is an indication that customer loyalty is not guaranteed on bath products; a product division Colgate has interest (Monk 2013). Further, the numbers of fake Colgate products are on the rise in the market and circulating posing threat to the company. Towards the end of 2008 and 2009, many tubes of Colgate toothpaste were recalled for quality check (DATAMONITOR: Colgate-Palmolive Company 2012). Other third parties have also been found selling counterfeit products branded Colgate, which is dangerous for companies operations (DATAMONITOR: Colgate-Palmolive Company 2012). Resources and capabilities of the organization Colgate has many opportunities to explore in order to increase its market share and revenues further. The company has very little operations in other parts of the world like Europe, which is yet to be explored (Srivastava 2013). Expanding its operations to other parts of the world such as Europe will give it room for growth (Monk 2013). There are emerging markets such as Africa where consumers are getting to know Colgate products. Similarly, these new markets do not have stiff competition that the company has the opportunity (Monk 2013). Secondly, the company has trained workforce who are essential in steering its growth (Monk 2013). They can be utilized to facilitate rampant growth of the organization through innovation to make the organization realize its mission as well as short-term goals. Additionally, the company had established a strong brand, which is essential for its growth (Monk 2013). Colgate has become a household name, which also acts as its selling point in major markets it operates. Therefore, using the name can aid its entry in the new and old markets when introducing new products. Conclusion Since the inception of Colgate, the company has been on the steady path of growth and realized a good market share for its products. It has also become the world leader and household choice for oral care products such as toothbrushes and paste. Colgate has also increased its operations to over 200 nations with over 300,000 employees. The growth of the company has been facilitated by the regular innovation of products and meeting customers demand. Currently, the organization is managing its operations through technology in all its international business. Colgate has established a strong international market, which gives them higher chances of remaining and enjoying a competitive advantage for many years to come. Reference List "DATAMONITOR: Colgate-Palmolive Company." Colgate-Palmolive Company SWOT Analysis (April 2012): 1-9 Colgate.com 2014, Colgate sustainability report performance 2014, Available from http://www.colgate.com/Colgate/US/Corp_v2/LivingOurValues/Sustainability_v2/8_Col gate_Sustainability_Report_Performance_2014.pdf [October 29, 2014] Colgate-Palmolive Company 2012, Marketwatch: Personal Care, 11, 11, pp. 19-25, Evans, D. & Collier, J 2012, Operations management, Cengage, Mason. Household Products Industry Profile: Australia 2014, Household Products Industry Profile: Australia, pp. 1-36, Kozami, A 2013, Business policy and strategic management, Routledge, New York. Monk, D 2013, Colgate-Palmove dividend stock analysis.Available from http://www.gurufocus.com/news/218256/colgatepalmolive-cl-dividend-stock-analysis [October 29, 2014] Personal Hygiene Industry Profile: Australia 2014, Personal Hygiene Industry Profile: Australia, pp. 1-36 Srivastava, R 2013, Product development and new product development, Routledge, New York. Read More