Marketing Strategy of Procter and Gamble - Term Paper Example

 1 This marketing strategy is conducted on Scope--Procter and Gamble’s mouthwash product that is released into the Canadian Health Care market in 1967 (P & G 252). Since its entry into the market, Scope has faced some serious competition from other rival mouthwash products. It is the effect of this tough competition on Scope that warrants this marketing strategy analysis for Procter and Gamble. Step 1: Problem Definition Procter & Gamble Canada faces a mounting set of problems as far as the marketability of its health care product, Scope is concerned. The most important concern is the deliberation about utilizing the new opportunity of an emerging market for pre-brushing rinse, which other Scope’s rivals are touting to their customers (P & G 258). Other basic problems include but are not restricted to what appropriate marketing strategy to adopt—should Scope be positioned as a “better tasting pre-brushing dental rinse” against its previous recognitions as a “better tasting and breath freshener” (P& G 259); manufacturing issue concerning how to produce product that will match the standardizations required by 2 Canadian Health Protection Branch, The Canadian Dental Association and Saccharin/Cyclamate Sweeteners requirements (P& G 257-258); finding alternatives to funding the marketing of Scope since the product has so far received its highest finances in years, and that funding another line of product might be helpful to reduce cost competitively (P& G 260); recognizing the significance of spending more on advertising another line of product to shore up customers’ interest in Scope (P & G 260); and discovering the best approach as far as Procter and Gamble’s operations and purchasing are concerned ( & G 260). Step 2: Justification for Problem Definition & Analyzing the Case Data: The cause of this important analysis of Procter and Gamble’s operations in Canada is based on the fact that other rivals in the same niche of health care product like Plax, Colgate, Listerine, Listermint and Cepacol which brandish their comparative quality of pre-brushing rinse has captured the market from Scope. This is because these other products offer consumers the opportunity to fight their plaque—“which is the soft, sticky film that coats teeth hours after brushing them” (P& G 253; P& G 262). The Canadian Mouthwash Market Shares below justifies the fact that Plax has made significant gain against Scope, having started with a mere 1% of the market share in 1988 to commanding an appreciable 10% of the same market in 1990; while Scope’s grasp of the market slipped considerably from 33% to 32.3% within the same periods. 3 Figure 1: The Canadian Mouthwash Market Shares 1988 (Units) 1989 (Units) 1990 (Units) Scope 33.0% 33.0% 32.3% Listerine 15.2 16.1 16.6 Listermint 15.2 9.8 10.6 Cepacol 13.6 10.6 10.3 Colgate Oral Rinse 1.4 1.2 0.5 Plax 1.0 10.0 10.0 Store Brands 16.0 15.4 16.0 Miscellaneous Others 4.6 15.4 16.0 Total 100.0% 100.0% 100.0% The data demonstrates that other mouthwash products like Plax, Listerine and Store Brands make significant improvements against Scope, which sales began to dwindle towards its sales peak in 1990 (P & G 250). It is believable that strategic marketing may have helped other brands to outperform Scope in the amount of market size they command; their marketing proposition has largely 4 concentrated on the abilities of their brands to help users fight their plaque, a slogan that Procter and Gamble has not adopted because of its current product which lacks the plaque-fighting ingredients (P & G 253). What Procter and Gamble thinks appropriate is to re-position Scope in a way that it would keep the product’s loyal consumers and cut back the lead Plax is currently enjoying in the market (P & G 260). This plan is achievable within the three-year period the company hopes to revamp its operational activities. Comparing the expenditures (financials) on Scope and Plax, as indicated in the tables below, Plax requires less costs of production when compared with that of Scope. Figure 2: Scope 1990 Financials $(000) $/Unit Net Sales 18,150 41.25 Ingredients 3,590 8.16 Packaging 2,244 5.10 Manufacturing 3,080 7.00 Delivery 1,373 3.12 Miscellaneous 1,122 2.55 Cost of Goods Sold 11,409 25.93 Gross Margin 6,741 15.32 5 Using the information provided above, it is possible to carry out some helpful calculations on the financials of Scope. In 1990, Scope’s revenues was =Net Sales = $18,150,000 ($41.25); the cost of manufacturing is $3,080, 000, ($7.0/Unit) while the cost of goods sold is $11,409,000 ($25.93/Unit). The cost of goods is the amount of money it takes a company to sell its product (s). Figure 3: Plax Financial Estimates ($/Unit) ($/Unit) Net Sales 65.09 COGS Ingredients 6.50 Packaging 8.30 Manufacturing 6.50 Delivery 3.00 Miscellaneous 1.06 Total 25.36 The table above shows that Plax’s Cost of Goods per unit is $25.36, while cost of manufacturing per unit is $6.50 and the Net Sales or total Revenues per unit is $65.09. 6 Comparing the data above, Plax demonstrates a higher competitive advantage over Scope in the rinse category. Hence, there are severe challenges Scope would face if it should be re-positioned as a “better tasting pre-brushing dental rinse”. Since it has access to a little of the newly formed rinse market, Procter and Gamble will have to spend more to produce the same quantity as Plax that would satisfy the new set of consumers (P & G 261). This is because Plax has already been enjoying economy of scale by which it can maintain relatively unchanged cost of manufacturing. As a matter of fact, Scope advertising, marketing and operations pose a higher financial dilemma for Procter and Gamble. And this entails that trying a new line of product may help the company avoid the current expenses, as the new product would have to be developed afresh with comparable cost of manufacturing with that of Plax over a certain period of time. Hence, strategic marketing is required to give the new product its own life before it could be welcomed and accepted into the market (P & G 260). STEP 3: Alternative Courses of Action Considering the reputation and mission statements of Procter and Gamble, for which it aspires to “achieve optimum cost efficiencies through continuing innovation, strategic planning, and the continuous pursuit of excellence in everything” it does, it important that proactive courses of action must be taken as alternatives to those highlighted in the foregoing. Hence, the following alternative actions might be appropriate: 7 Starting a new line of product that would incorporate the right ingredients needed to fight plaque is a great option; this alternative is necessary because it appears that the Canadian mouthwash market is trending toward the rinse category (P & G 260). And when the new product can be manufactured at a cheaper cost, this indicates that Procter and Gamble can rein in bloated finances it currently spends on Scope and achieve its aim of cost efficiency. To stem the competitive advantage of Plax, Procter and Gamble can choose to engage in a partnership with Plax, whereby the two qualities of the former products can be merged together to produce a new sterling product consumers would be crazy about. Undertaking the process of hostile acquisition (takeover) of Plax may be possible as Procter and Gamble has the financial capacity to initiate a hostile takeover of Plax. Hence, Procter and Gamble can begin a new line of product. STEP 4: Selecting Decision Criteria: There are two major selection criteria when it comes to making final decision in the corporate world: qualitative and quantitative criteria. The qualitative criteria include the following factors: Brand Image Customer satisfaction Potential of profitability 8 The quantitative criteria comprise of the following factors: Market share Cost Profit/Breakeven possibility However, considering the fact that Procter and Gamble is mainly interested in protecting its brand image, it is essential to look at qualitative criteria when deciding what to do about the poor performance of Scope in Canadian mouthwash market. Hence, the following qualitative issues are necessary: The consumers should feel satisfied with the product in terms of quality and price or money value? The cost of manufacturing the product should not be more than the cost of producing Scope. The product should demonstrate the possibility of profitability within an appreciable period of time. The product should retain Procter and Gamble’s quality brand image STEP 5: Evaluating the Alternatives (i) Starting a new product line (Alternative 1):- Apart from the concern that starting a new product line would cost Procter and Gamble an extra $20,000 for product introduction, there is every reason to argue against the 9 continuation of Scope with a product extension line. The main advantage of starting a new product is because Scope has garnered unfavorable image among the consumers. When rated against Plax, many consumers agreed that Plax has the power to remove plaque, and makes their teeth and gums healthier, and that most doctors recommend Plax (P & G 255). This fact alone is enough to discontinue Scope and initiate a new product line that consumers may be warm and receptive too. Another advantage of starting a new product line is that, since the market for mouthwash in Canada increases years, for example, it was $43.3 million in 1986 and shot up to $68.6 million in 1990 (P & G 253). This shows that any investment on producing a new product would be recovered even within the three-year plan instituted by the management of Procter and Gamble. The only disadvantage of this option is that there is no guarantee that consumers who were previously buying Scope will be happy to switch over to the new product line, or will it be able to lure consumers who had been dedicated to using Plax. (ii) Merger or Partnership (Alternative 2):- The two main disadvantages of a partnership with Plax to create a new product is that the previous consumers loyal to each of the constituent company may not feel interested in the new product formed by their union, and it will be more expensive to harness all resources together to market the new product to all the consumers loyal to the two companies. However, the major advantage of this partnership or merger is 10 that a new product would be produced which shares the great qualities from each of the products. (iii) Hostile Acquisition (Alternative 3):- This is likely going to be the most expensive method, and the action may infuriate loyal consumers to both former companies, if successfully carried. The anger on the part of consumers may lead to unexpected boycott of the new product; hence, there will be problem of financial incapability on the part of the newly formed company. The only advantage of this option is that it would create a new product line different from either Plax or scope. STEP 6: Conclusions: The table below shows the possible results of the three alternatives: Quantitative Results Qualitative Results Alternative 1 Profitability; cost efficiency; increased market share Good brand image; better customer satisfaction; quality product Alternative 2 Constant market share; average profitability Poor brand image; poor customers’ satisfaction Alternative 3 Decreasing market share; reduced profitability Bad brand image; poor customers’ satisfaction 11 The right alternative for Procter and Gamble Canada is the production of a new product line that would be newly positioned to the consumers as the “better tasting and breath freshener.” This will help Procter and Gamble to make a great entry into the rinse category, and doing so with an eye on cost efficiency. Scope has lost the respect of some consumers because of its inability to eradicate plaque and give users healthier and better teeth. Since the market for mouthwash in Canada is huge and increasing, Procter and Gamble will be able to recoup its investment in the development and production of the new product line. Comparatively, the cost of marketing the new product will still be cheaper than the one to be spent on marketing Scope, which has begun to lose some appreciable patronage in Canadian mouthwash market. This process can be implemented by requiring that the product development department works on the formula for the new product; the manufacturing section would work on mass-producing the new product; the packaging department would package the product and hand them over to the marketing and distribution department. Before all these procedures can come out successfully, the management of Procter and Gamble Canada should setup a taskforce that would work towards actualizing this production process through coordination of all sections of the company. 12 STEP 7: Evaluation The table below shows how the evaluation of the entire procedure for the production of a new product line that would cater for the needs of the consumers and the brand image of Procter and Gamble. Expected Outcomes within three years Consumers’ satisfaction The consumers should have been able to understand the usefulness of the new product and demonstrate strong loyalty to the product Cost effectiveness Within 3 years, Procter and Gamble should have saved enough money from the production of the new product rather than spending unsuccessfully to promote Scope, which consumers have developed some level of disinterestedness to it. Brand Image The new product will help Procter and Gamble to maintain its enviable brand image; and this will create more consumer loyalty for the new product. Profitability Since the mouthwash market in Canada is huge, it is possible for the new product to turn profitability within the three years Procter and Gamble hopes to reform its mouthwash business. This profitability will be one of the key points of evaluation for the success of the new product line. Longevity The longer the product shell life is, the better for Procter and Gamble to profit from it. This is another interesting yardstick to test that the new product is successful. Read More