Question

Procter & Gamble Five Forces Analysis (Porter’s) in Marketing Plan

Answer 1

Procter & Gamble (P&G) is a leading consumer goods company headquartered in Ohio, USA. It was founded in 1937 by James Gamble and William Procter. Its product range includes personal care, cleaning agents, and hygiene products. In 2014, the company decided to shrink its product portfolio by dropping or selling off around 100 brands so that it can focus more on the remaining 65 brands which earn 95% of its revenue. The company's products are sold all over the world. Over the many years, the company has redefined the ways of doing business in Consumer Goods. During its growth, P&G has acquired a many companies such as Pantene and Gillette in order to diversify its product portfolio and hence increase profits.

Below is a detailed Porter Five Forces Model Analysis of Procter & Gamble-

Competitive Rivalry

P&G operates in the consumer goods market. It is an industry with intense competition. There are a large number of players that are making similar products. All the products made by P&G are also being made by other companies such as Unilever. The switching cost of the customers is almost zero. One day they may be using P&G products such a Tide washing detergent and the next day they can shift to Ariel washing detergent of Unilever. Most companies in the industry tackle this issue by continuously offering promotions with their products such as extra percent of product, discounts, gifts etc in order retain their customer base and attract new customers. Customers thus have a lot of variety to select from. There is little brand loyalty amongst customers in this industry. Hence, the competitive rivalry is high for P&G.

Threat of New Entrants-

In the consumer goods industry, there are a few entry barriers. A large capital is needed to be invested at the beginning, development of economies of scale takes time and strong channels of distribution are not easy to get access to. The existing players in the market have grown to become corporate giants now and can easily acquire any new entrant that poses a significant threat to them. These brands have also developed considerable reputations in the market. However, in many countries, smaller firms have entered in this market and are serving the local industry and have captured sizeable market shares away from P&G and others. They started off on a small scale and gradually increased their distributions. This makes the threat of new entrants a moderate threat for P&G.

Bargaining Power of Suppliers-

The supplies of P&G mainly include raw materials, technology products and packaging material for the products. There are a large number of suppliers in the market for all of these. Hence, the supplier switching cost is low for P&G. Also, the company purchases in very large quantities making it ideal for any supplier. Therefore, the suppliers are in no position to bargain with or attempt to influence the prices of P&G products. Hence, this threat is low for P&G.

Bargaining Power of Buyers -

There is very little product differentiation for the many products made by different companies in the consumer goods industry. Thus, the customers have a lot of variety to select from. The switching cost is also low for the customers. However, there is a considerable level of brand loyalty for some of the products made by P&G, especially in the personal hygiene and cosmetics segment, amongst the customers. They will continue to purchase these products as they find them suitable to their requirements. They are less price sensitive for these products. Hence, the bargaining power of the buyers in against P&G is of a moderate level.

Threat of Substitutes -

There are no suitable substitutes in the market for most of the products of P&G. E.g. there are no suitable substitutes for the soaps and shampoos that the company makes. Especially, in the personal hygiene category, customers are very reluctant to try other substitutes due to health risks. They will continue to use products of P&G or of some other brand but will not go for any lesser known substitute. Hence, there is a very low threat level of substitutes for P&G.