P&G in Japan
Why was SK-II so successful in Japan? Statement: By based on research of Japanese market, P&G made clear targeting and positioning, and developed new products which fulfilled customers’ needs, built the effective distribution. As a result, P&G could establish differentiation advantages for the following. • Product: “Foaming massage cloth” , Elegant dispensing box “Foaming massage cloth” increase skin circulation through a massage while boosting skin clarity due to the microfibers’ ability to clean pores and trap dirt. Price: Premium price • Place: Luxury and nice counter at department store • Promotion: Counseling by Beauty counselor, TV advertising, Beauty magazines Description Targeting Positioning Affluent women aged over 30s Prestige skin care Premium price R&D team: Market research > catches up demanding Japanese women, Develop Technology > excels Japanese competitors Sales: Training > beauty counselors, Promotion > Counter design Capability Q1. contd. What was the business model behind the success? Statement: SK-II ’s success is not only prestige skin care product or advanced technology but also its marketing approach to build the New brand.
P&G succeeded to connect between the core technology or product concept and local market.
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Through Japanese market among the world’s toughest competitors, P&G developed potential source of innovations. In addition, SKII ’s marketing strategy built a new approach, Market research, Concept, Packaging, Positioning, Communications strategy. It was a big challenge that P&G shifted from Mass marketing, such as Olay brand, to Class marketing. SK-II ’s marketing strategy Description Market Research Concept Packaging Positioning Communication strategy Find the customer needs, habits Japanese women’s needs: sensitive with skin condition abits: five or six step cleaning Classify customers, Specify attractive market Affluent women aged over 30s Define the customer value Prestige skin care Product design Build the differentiation Premium price Advertising feature the targeting customers Design counter and installation Resource R&D Marketing R&D Marketing Technology Marketing Brand Sales force Channel Advertising Q2. How transferable is the model? • The SK-II’s business model based on through production, advanced technology, marketing research and customer behavior.
From this point if P&G Japan want to enter foreign market using this model they should exploit by exporting or by direct investment. Either case business model is transferable. But main concern is the model could be successful as in Japan? SK-II’s success had been achieved in a culture where the customers, distribution channels, and competitors were different from in China and Europe. For example: Japanese customers more educated, average Japanese women spent 4. 5 minutes on her face cleansing regime, and most sophisticated users of beauty products in the world.
Other hand in China customers due to Olay’s education recently moved from a one-step skin care process to a three-step cleansing and moisturizing process. But unlike China, Europe had a large and sophisticated group of beauty-conscious customers who is already practiced a multistep regimen. As we see it is model is transferable but they have to modify some of models characteristic depending on customers behavior, competitors and market factor. P&G Japans competitive advantage is firm-specific but SK-II’s advantage is country-specific. How to transfer SK-II:
China Advantage The company had led with beauty products when entered this huge market Many woman took their fashion cues from Tokyo Wealthy China concentrated in Shanghai, Beijing, and Guangzhou Prestige beauty-counselor, TV advertisement Europe European customers are educated and already using multistep regimen. Also fine-fragrance business was beginning to do well Mass- market Cost of television or print ads in Europe prohibitive. But sales force staff selling directly to department stores. • • Target Promotion Q3. What should P&G ‘s expansion strategy be in rolling out SK-II? We recommand P&G to directly invest in this market by focusing only on Marketing and Distribution to roll out SK-II (a special product) in a foreign market. It should not be an advantage for P&G to acquire subsidiaries, or to license or to franchise because resources and capabilities of SK-II are located in Japan. It would be difficult to find same raw materiels to produce SK-II in another country. Exporting SK-II in a foreign market will be better, for that they should emphasize on: • Differentiation advantage, • Changing customer behavior, • Product positionning, • Pricing policy, • Advertisement, • Counseler team…
Q3. Contd. Which country should be the priority? Porter national diamond analysis Supporting Industries Superior in-store infrastructure Counseling counters Cosmetic R&D centre MDO, Max factor Strategy, Structure and Rivalry High number of domestic competitors with high innovation. Tough competition Presence of prestigious foreign brand Intense, established, well respected , high experience and famous competitors Limited competitors in high-cosmetic market which can lead to low innovation and learning improvement as well as an opportunity to easily reach a huge market for P&G Country Factor Condition
Demand Conditions Japan High R&D technology and innovative. Skin care Educated labor force Home-grown resources comparative advantage Sophisticated and wealth customers Slow market growth trend High potential in other skin care solution Sensitive to the quality of the product Sophisticated customers New kind of advertisement Educate costumers: to help them know what is SK-II, and how to use it 30-40% cosmetic industry growth China’s P&G skin care sale showed 28% growth rate High return on investment Good positioning and targeting to reach wealth costumers Differentiation advantage Home grown skin care technicians.
High labor cost Europe High retailer network MDO China Beauty assistance for premiumcounter cosmetic New product that will involve changes in costumers behavior (innovative product) High growth in retailing such as increasing number of department stores. More counters and and beauty counselors MDO CHINA should be P&G’s priority. A biggest market near to P&G Japan and opportunity to expand P&G extensive technological ressources Beijing and shanghai are best location to reach an elite consumer but counterfeit is a huge problem Rigidity of the system is a characteristic of Chinese governement, high import duties 35 to 40 %
China China MDO covered by GBU A Target to acces to prestigious customers and a new research field concerning SK-II (unmet need) , a second security base in Asia regarding the instability of Japanese market Differentiation advantage , SK-II is considered as a premium product Sales may be $ 10 to $15 million over first 3 years against $1 to $1. 5 million of losses over 3 years Q4. What is your assessment of Jager’s strategic initiative? Why did he emphasize worldwide innovation? How does the initiative address barriers to worldwide innovation and learning?
The strategic initiative denominated Organization 2005 aimed to expand P&G worldwide presence. By separating the organization in business units, service functions and market segments (MDOs) the company achieved ability to focus on exploring market potentials. Innovation was a major point of the initiative and helped P&G to obtain a rapid development of new products globally. With this initiative, P&G could develop competitive advantage by identifying emerging needs in different places while responding to them through internal capabilities and diffusing the outcome to the rest of the business.
Several management changes in the company supported the initiative: • Culture Changes: (cultural revolution within P&G): Company culture was slow, conformist and risk adverse, making P&G vulnerable to competition. By changing norms and practices, Jager created a culture which encourages risk taking, faster decisions and innovation. This change was fundamental to achieve a fast worldwide innovation mechanism within P&G. Processes Changes: Employees compensation became focused on performance, reinforcing risk taking culture.
Also, by extending the reach of the stock option plan to all employees, a positive sense of ownership was created among P&G workers. Organization Structure Changes: Global Business Units (GBUs) assumed responsibility for profit, product development and marketing of their respective categories worldwide. Through this modification, P&G was able to delegate responsibilities for developing and rolling out new products. Standardization in manufacturing was achieved, bureaucracy was eliminated and accountability increased. Nevertheless, the change created a complex organization structure were relationships were not clear.
Managers had to adjust to this change. • • In general, the initiative allowed P&G to adapt core technologies or product concept to local markets, facilitating easier market penetration. Q4. Contd. What is your assessment of Jager’s strategic initiative? Why did he emphasize worldwide innovation? How does the initiative address barriers to worldwide innovation and learning? The emphasis in worldwide innovation was held because Jager identified that without a major- in country product development capability, P&G could not respond to the Japanese customers demands and competitors.
Product development was needed, not only in Asia’s markets but even worldwide, to avoid the Japanese experience in new markets. He wanted to address: • newer consumer trends • new technologies that may be developed in various parts of the world. Worldwide innovation and learning barriers were addressed with integrated business planning process, organization structural change to improve communication, and learning sharing through GBUs and MDOs.
Identifying and recognizing different customer’s needs and addressing them through new product development processes has become an objective of P&G after restructuration, addressing innovation through learning. Q5. As Paolo DeCesare, what would you recommend to the Global Leadership Team in your SK-II presentation? What is the set of factors you would consider in developing your recommendation? We would like to recommend P&G GLT to expand in China for SKII product line.
Factors influencing the recommendation: Potential Market Size: Determine the market size, growth potential in future Product Fit: How the product fits into the market, define our unique selling point Product Competitiveness: know the competitors, Bargaining power of customers, suppliers, threat of any product substitute Entry Strategy: find barriers to entry, know Country rules and regulations, Access to distribution channels Timing of entry: product climate for beauty related products Cultural differences: Different consumer behaviors / workplace practices Administrative constraints: Local content, preferences for domestic competitors in the form of subsidies and favoritism in regulation and government procurement Economic differences: Consumer incomes, cost and quality of natural resources, cost and quality of human resources Q5. contd. What would be your supporting reasoning for the recommendation?
Potential Market Size: Japan Market Growth is becoming saturated, so globalizing SK-II in a growing market is advantageous China: 1. 2 billion population, the largest available market, Annual growth rate: high 30 – 40% Product Fit: SK-II is able to supersede Olay as the premium skin care choice in China, and counter the entry of non-mainland retailers carrying Olay as a discount product Product competitiveness: SK-II will be in a less competitive market in China than it faces in Japan, or might encounter in Europe Entry strategy: The China entry strategy of test counters in Shanghai is promising Timing: Good timing as China economy is growing and more awareness among affluent society for beauty related products