P&G Case Analysis_Waleed Kalhoro

NED University of Engineering and Technology, Karachi

Civil Engineering Department

MEM_Construction Management_Weekend Program

EM-503Strategic Planning and Decision Making

Report – Case Analysis

“Proctor and Gamble Company - 2011”By Alen Badal – The Union Institute

Prepared by: Course Instructor:

Mr. Waleed Mazhar Kalhoro/CE-107 Mr. Syed Iqbal Hashmi

Table of Content

1. Vision Statement 12. Mission Statement 1

3. External Audit 1-2

3.1. Opportunities 1-2

3.2. Threats 2

4. Competitive Profile Matrix 3

5. EFE Matrix 3-4

6. Internal Audit 5

6.1. Strengths 5

6.2. Weaknesses 5

7. Financial Ratio Analysis 6

8. Net Worth Analysis 7

9. IFE Matrix 7-8

10. SWOT 8

10.1. SO Strategies 8

10.2. WO Strategies 8

10.3. ST Strategies 8

10.4. WT Strategies 8

11. Space Matrix 9-10

12. Recommendations 10

13. EPS/EBIT Analysis

10-11

14. Conclusion 11-12

Strategic Planning and Decision Making P&G Case Study

1. Vision Statement

“To maintain our status as the number one household nondurables company

in the world”

2. Mission Statement

We will create and promote household nondurable (2) products that are not

only known for quality and innovation (4) but for value (7) and

environmentally (8) conscious. Our consumers (1) around the world (3) use

our products on a daily basis (5) and trust the Procter & Gamble name and

our brands. At Procter and Gamble we believe good ethics is good business

(6) and strive to conduct business in accordance to the laws of the nations in

which we operate and treat our employees (9) with the respect they deserve.

1. Customers

2. Products or services

3. Markets

4. Technology

5. Concern for survival, growth, and profitability

6. Philosophy

7. Self-concept

8. Concern for public image

9. Concern for employees

3. External Audit

3.1. Opportunities

1. Younger customers are being fascinated by social media

advertising.

2. The beauty and cosmetics industry is expected to increase globally

by 8.5% in 2014 in accordance with recent research from Euro

Monitor International.

3. Men are increasingly concerned with their appearance, this provides

an opening to grab a new division of consumers.

Waleed Mazhar Kalhoro Page 1


4. Consumers are interested in natural products.

5. Higher demand for higher-priced products such as prestige

cosmetics and fragrances.

6. Social media advertising is more cost effective than traditional

advertising.

7. There is an endless possibility to `celebrities’ endorsing fragrances,

these products are successful because many are persuaded by

celebrity’s fame.

8. Increase in online purchasing, average monthly visits in the U.S. to

beauty-related websites topped 60 million and grew 94% over past

3 years.

9. Research shows that by 2015, global women’s purchasing power is

expected to increase by $5 trillion and beauty is the category these

consumers are most likely to purchase.

3.2. Threats

1. Volatile foreign exchange rates.

2. Substantial investment is necessary to bring new products to the

market and to preserve their high profile.

3. Upsurge in competitor expansion globally from Colgate-Palmolive,

Unilever, and Clorox.

4. Discounting premium cosmetics can damage its prestige image for

the consumers who purchase these products.

5. Diamond foods struggling financially, may not be able to purchase

Pringles.

6. The Estée Lauder companies ranks number one in prestige skin care

and number two in makeup in the channel.

7. Subject to anti-trust investigation in Europe.

8. Premium cosmetics are a prime target for counterfeiters. 9%,

according to the Global Congress on combating counterfeiting, of all

the world trade comprises counterfeit goods.



9. Regulations are increasing due to the voicing of different groups

about harmful chemical ingredients in cosmetic products.



4. Competitive Profile Matrix

P&GEstee

LauderRevlon

Critical Success

Factor

Weig

ht

Rati

ng

Sor

e

Rati

ng

Sco

re

Rati

ng

Sco

re

Advertising 0.12 4 0.48 2 0.24 1 0.24

Market Penetration 0.08 4 0.32 3 0.24 1 0.08

Customer Service 0.06 1 0.06 3 0.18 2 0.06

Store Locations 0.07 4 0.28 2 0.14 3 0.14

R&D 0.05 3 0.15 3 0.15 2 0.15

Employee Dedication 0.06 4 0.24 2 0.12 3 0.12

Financial Profit 0.13 4 0.52 3 0.39 2 0.39

Customer Loyalty 0.07 4 0.28 3 0.21 2 0.14

Market Share 0.09 3 0.27 3 0.27 2 0.18

Product Quality 0.11 2 0.22 3 0.33 2 0.22

Top Management 0.05 4 0.2 3 0.15 3 0.1

Price Competitiveness 0.11 4 0.44 2 0.22 2 0.33

Total 3.46 2.64 2.15

5. EFE Matrix

Opportunities Weig

ht

Rati

ng

Weighte

d Score

1

.

Younger customers are attracted by social media advertising. 0.06 2 0.12

2

.

The beauty and cosmetics industry is expected to increase globally by 8.5 per cent in 2014 according to recent research from Euro Monitor International.

0.06 3 0.18

3

.

Men are increasingly concerned with their appearance, this provides an opening to grab a new branch of consumers. 0.08 3 0.24



4

.

Consumers are interested in products that are made with all natural products. 0.03 2 0.06

5

.

Higher demand for higher-priced products such as prestige cosmetics and fragrances. 0.08 3 0.24

6

.

Social media advertising is more cost effective than traditional advertising. 0.06 2 0.12

7

.

There is an endless possibility to `celebrities’ endorsing fragrances, these products are successful because many are persuaded by fame of the celebrity.

0.04 2 0.08

8

.

Increase in online purchasing, average monthly visits in the U.S. to beauty-related websites topped 60 million and grew 94 percent over past three years.

0.06 3 0.18

9

.

Research shows that by 2015, global women’s purchasing power is expected to increase by $5 trillion and beauty is the category these consumers are most likely to purchase.

0.05 3 0.12

Threats

Weig

ht

Rati

ng

Weighte

d Score

1

.

Volatile foreign exchange rates.0.02 4 0.08

2

.

Considerable investment is necessary to bring new products to the market and to maintain their high profile.

0.05 4 0.2

3

.

Increase in competitor expansion globally from Colgate-Palmolive, Unilever, and Clorox. 0.08 4 0.32

4

.

Discounting premium cosmetics can damage its prestige image for the consumers who purchase these products.

0.04 3 0.12

5

.

Diamond foods struggling financially, may not be able to purchase Pringles. 0.08 2 0.16

6

.

The Estée Lauder companies ranks number one in prestige skin care and number two in makeup in the channel.

0.07 3 0.21

7 Subject to anti-trust investigation in Europe. 0.03 3 0.09



.

8

.

Premium cosmetics are a prime target for counterfeiters. 9%, according to the Global Congress on combating counterfeiting, of all the world trade comprises counterfeit goods.

0.04 2 0.08

9

.

Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products.

0.07 3 0.21

Total 1.0 2.84

6. Internal Audit

6.1. Strengths

1. New CEO, Mr. McDonald focuses on lower end products aimed at

price sensitive customers.

2. Market share grew in 14 of top 17 countries in 2010.

3. Invested over $2 billion in R&D in 2010.

4. In 2011, Fortune ranked P&G the number one soap and cosmetic in

the world.

5. Braun, bounty, Charmin, Crest, Downy, Gillette, Pampers are all top

brands owned by P&G.

6. 23 P&G brands routinely earn over $1 billion in revenue per year.

7. Proposed sale of Pringles line of snacks in 2011 for $1.5 billion.

8. EPS is 3.94

9. P&G operates under a SBU structure.

10. P&G is focused solely on the beauty and personal-care products

business

6.2. Weaknesses

1. $57 billion in goodwill on balance sheet.

2. Profits declined 5% in 2011 yet revenues increased 2.9%.

3. Spent $772 million in advertising to Johnson & Johnson’s $366

million.

4. No published vision statement.



5. Consumers may not associate all of our brands with P&G rather

view them as their own distinct companies.

6. Not operating as efficiently as Johnson & Johnson

7. Weak profitability ratios



7. Financial Ratio Analysis

Growth Rate PercentP&

G

Indus

try

S&P

500

Sales (Qtr vs year ago qtr)8.9

010.40 14.50

Net Income (YTD vs YTD) NA NA NA

Net Income (Qtr vs year

ago qtr)

-

1.9

0

4.00 47.20

Sales (5-Year Annual Avg.)5.0

95.47 8.31

Net Income (5-Year Annual

Avg.)

7.5

47.90 8.76

Dividends (5-Year Annual

Avg.)

11.

3710.67 5.70

Profit Margin Percent

Gross Margin50.

053.3 39.8

Pre-Tax Margin17.

816.3 18.2

Net Profit Margin13.

912.4 13.2

5Yr Gross Margin (5-Year

Avg.)

50.

853.7 39.8

Liquidity Ratios

Debt/Equity Ratio0.5

2

0.80 1.00

Current Ratio 0.8 1.0 1.3



Quick Ratio 0.5 0.7 0.9

Profitability Ratios

Return On Equity18.

332.6 26.0

Return On Assets 8.7 11.1 8.9

Return On Capital11.

015.4 11.8

Return On Equity (5-Year

Avg.)

16.

732.2 23.8

Return On Assets (5-Year

Avg.)8.0 10.0 8.0

Return On Capital (5-Year

Avg.)

10.

113.9 10.8

8. Net Worth Analysis (‘000,000)

Net Income ×5 $

58,985

Stockholders Equity $

67,640

( Share PriceEPS )×Net Income $189,4

71

Number of shares outstanding X

Share Price

$

174,02

0

Average $

122,52

9

9. IFE Matrix



StrengthsWeig

ht

Rati

ng

Weighted

Score

1. New CEO, Mr. McDonald focuses on lower end products aimed at price sensitive customers.

0.06 4 0.24

2. Market share grew in 14 of top 17 countries in 2010.

0.08 4 0.32

3. Invested over $2 billion in R&D in 2010. 0.06 4 0.24

4. In 2011, Fortune ranked P&G the number one soap and cosmetic in the world.

0.03 4 0.12

5. Braun, bounty, Charmin, Crest, Downy, Gillette, Pampers are all top brands owned by P&G.

0.09 4 0.36

6. 23 P&G brands routinely earn over $1 billion in revenue per year.

0.11 4 0.44

7. Proposed sale of Pringles line of snacks in 2011 for $1.5 billion.

0.13 4 0.52

8. EPS is 3.94 0.04 4 0.16

9. P&G operates under a SBU structure. 0.06 4 0.24

1

0. P&G is focused solely on the beauty and personal-care products business.

0.07 4 0.28



WeaknessesWeig

ht

Rati

ng

Weighted

Score

1

.$57 billion in goodwill on balance sheet. 0.05 1 0.05

2

.Profits declined 5% in 2011 yet revenues increased 2.9%.

0.02 2 0.04

3

.Spent $772 million in advertising to Johnson & Johnson’s $366 million.

0.06 1 0.06

4

.No published vision statement. 0.03 1 0.03

5

.Consumers may not associate all of our brands with P&G rather view them as their own distinct companies.

0.04 1 0.04

6

.Not operating as efficiently as Johnson & Johnson. 0.04 1 0.04

7

.Weak profitability ratios. 0.03 2 0.06

Total 1.00 3.24

10. SWOT

10.1.SO Strategies

a. Allocate $100 million for advertising and promoting male skin care

products using celebrities as spokesmen.

b. Spend $400 million in R&D to produce 3 new lines of higher end

fragrances.

10.2.WO Strategies

a. Increase social medial advertising targeting teenagers by $100M.

10.3.ST Strategies



a. Engage in talks with Pepsi to purchase Pringles if the deal with

Diamond Foods is not completed.

b. Continue to market low end cosmetics and fragrances.

10.4.WT Strategies

a. Reduced advertising by $300M on well-established products letting

their brand name sell for itself.

11. SPACE Matrix

Internal Analysis:

External

Analysis:

Financial Position

(FP)

Stability Position

(SP)

Return on Investment (ROI) 3 Rate of Inflation -3



Leverage 5 Technological Changes -2

Liquidity 5 Price Elasticity of Demand -3

Working Capital 5 Competitive Pressure -5

Cash Flow 6 Barriers to Entry into Market -2

Financial Position (FP)

Average

4.

8

Stability Position (SP)

Average

-

3.

0



Internal Analysis:

External

Analysis:

Competitive Position

(CP)

Industry Position

(IP)

Market Share -2 Growth Potential 5

Product Quality -1 Financial Stability 6

Customer Loyalty -3 Ease of Entry into Market 4

Technological know-how -2 Resource Utilization 7

Control over Suppliers and

Distributors -2 Profit Potential 7

Competitive Position (CP)

Average

-

2.

0

Industry Position (IP)

Average

5.

8

12. Recommendations

1. Allocate $100 million for advertising and promoting male skin care

products using celebrities as spokesmen.

2. Increase social medial advertising targeting teenagers by $100M.

3. Spend $400 million in R&D to produce 3 new lines of higher end

fragrances.

4. Engage in talks with Pepsi to purchase Pringles if the deal with

Diamond Foods is not completed

13. EPS/EBIT Analysis (‘000,000)

Amount Needed: $600M

Stock Price: $64

Shares Outstanding: 2,750

Interest Rate: 5%

Tax Rate: 22%



Common Stock Financing Debt Financing

Recessio

nNormal Boom

Recessi

onNormal Boom

EBIT $15,000 $17,000

$20,0

00 $15,000 $17,000

$20,0

00

Intere

st 0 0 0 30 30 30

EBT 15,000 17,000

20,00

0 14,970 16,970

19,97

0

Taxes 3,300 3,740 4,400 3,293 3,733 4,393

EAT 11,700 13,260

15,60

0 11,677 13,237

15,57

7

#

Share

s 2,759 2,759 2,759 2,750 2,750 2,750

EPS 4.24 4.81 5.65 4.25 4.81 5.66

20% Percent Stock 80% Percent Stock

Recessio

nNormal Boom

Recessi

onNormal Boom

EBIT $15,000 $17,000

$20,0

00 $15,000 $17,000

$20,0

00

Intere

st 24 24 24 6 6 6

EBT 14,976 16,976

19,97

6 14,994 16,994

19,99

4

Taxes 3,295 3,735 4,395 3,299 3,739 4,399

EAT 11,681 13,241

15,58

1 11,695 13,255

15,59

5

#

Share

2,752 2,752 2,752 2,758 2,758 2,758



s

EPS 4.24 4.81 5.66 4.24 4.81 5.65

14. Conclusion

For year 2010, the company’s overall earnings fell to $12.736 billion from

$13,436 billion a year earlier. During that year, P&G raised prices across all

divisions and regions to help make up for higher costs for commodities.

P&G’s overall 2010 net income fell 5.20 percent, but sales increased 2.92

percent to $78.938 billion, from $76.694 billion earlier.

For that year of 2010, P&G’s Beauty division sales increased 2.99 percent

to $ 19.491 billion. However, this division reported that net earnings also

increased 1.80% to $2,712 million. Also for year 2010, P&G’s grooming

division reported a 3.01 percent sales increase to $7.631 billion, also that

division’s earnings increased 8.62 percent to $1477 million. For year 2010,

P&G’s Health Care sales increased 1.81 percent to $11.493 billion. Sales of

Snacks and Pet care increased about 0.67 percent to $3.135 billion and net

income increased by 39.3% to $ 326 million. For year 2010 P&G’s Fabric

Care/Home Care sales increased by 2.66% to $23.805 billion and net

earnings increased by 10.1% to $ 3.339 billion. For year 2010 P&G’s Baby

Care/Family Care sales increased by 4.48% to $ 14.736 billion and net

earnings increased by 15.76% to $2.049 billion.


P&G Case Analysis_Waleed Kalhoro

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