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-Jager concluded that P&Gs sluggish 2% annual volume growth and its loss of global market share was due to a culture he saw as slow, conformist, and risk averse. -Although SK-II had good sales in Japan, its home market growth had slowed in recent year. - With the companys having such a small share of such a rich market, de Cesare felt that a strategy of product innovation and superior in store sevice had the potential to accelerate a growth rate that had slowed to 5% per annum over the past three years. -The widespread existence of counterfeit prestige products to the bureaucracy attached to a one year import-registration process in China market. SK-II would have to be priced significantly above the retail level in other markets -The bigger challenge, would be introducing a totally new brand into an already crowded field of high-profile, well-respected competitors including Estee Lauder, Clinique,
Lancome, Chanel, and Dior. TV advertising is not necessarily an effective marketing strategy for Europe market. -Face significant budget pressure.
Urgency/Importance:
Because the local markets in Japan and China are full of technology driven compeittors with high level of customer satisfaction and help, it will be difficult to formulate a strategy to compete with companies in these markets. It makes this issue urgent because it will take time to formulate a suitable innovation plan and in this time, competitors will continue to grab more of the global market share and make it tougher for the SK-II to succeed in the global market.
Decision Criteria:
- Risk in expanding. Even SK-II is growthing very fast in Japan, it did not gaurantee success expanding in other countries worldwide.
- P&G Japan has good experiense and budget in expanding to global skin brand. - The customer preference in Japan and other is ot the same. P&G need more research study and development in order to support P&G in global brand. - After the expanding success, SK-II need to consider the distribution channels, competitors and customer in worldwide country. -SK-II should guarantee skincare product quality, effort to increase their reputation and brand image. - For the price-setting of SK-II, P&G should consider the market position of product, consumption capacity, and taxation in different countries and area. - P&G need have enough financial support to develop the SK-II globalization project. The budget need maintain in the reasonable scope to control risk. - Look for a right time to carry out new strategies.
Alternatives: 1, Enter the China Market, identify the target consumer group in the first-tier cities
2, Bring SK-II into that large Europe market. To drive sales of own label products by providing high-level consulting & advisory service, organizing different promotion events, build up the image of company. Improve the understanding of consumer for SK-II skincare through presenting with sample. 3, Build on the brands success in SK-IIs rich and proven home Japanese m arket. Move into new segments by adding anti-aging and skin-whitening products to the SK-II range.
Missing Information:
- Key potential of competitors in SK-II products toward global market.
- The consumption ratio of high-end cosmetics in China market Assessment of Alternatives: 1, Enter the China Market, identify the target consumer group in the first-tier cities. Pros -entering a market that is proven for beauty products
Cons -proven local competitors could make it difficult to get any market share -
2, Bring SK-II into that large Europe market. To drive sales of own label products by providing high-level consulting & advisory service, organizing different promotion events, build up the image of company. Improve the understanding of consumer for SK-II skincare through presenting with sample. Pros -open up a larger potential market -Familiar market for the products Cons -again, many competitors 3, Build on the brands success in SK-IIs rich and proven home Japanese market. Move into new segments by adding anti-aging and skin-whitening products to the SK-II range. Pros -Japanese consumer with significant loyalty Cons - The distinctive needs and habits of the very demanding Japanese consumer -
Assumptions:
European customer willing to adopt the disciplined six-to eight-step ritual that the most devoted Japanese SK-II users followed
Action/Implementation Plan:
At first, set up a professional team to responsible for European market. Before exploiting into new market, the team of SK-II needs a lot of market research and budget estimates. Advertising is indispensable, Sk-II need effective use of the media to improve brand influence. And look for a celebrity who has perfect complexion as product spokesmen.
Positive marketing strategies. SK-II should provide a sample to our customer that will make them understanding our product. And in the product are sold to further understand customer feedback and requirements of the product, which improve products and services.
Introduction SK-II is a high-end skin care product, which has proven to be a success in the highly selective and competitive Japanese cosmetics market. It fits in the Japanese environment nicely. For starters, the wealthy Japanese society gives P&G a large market to target. Also, the uniquely sophisticated habits of Japanese women means they are more likely to accept the more complicated procedure required by SK-
II. SK II involves six to eight steps, which is more than the number of steps of any other skin care products used in the rest of the world (1, p.8). Overall strategy of the of the organization Given this products success in Japan for 1999 ($150 million in sales), P&G is considering expanding its SK-II into a global brand. When doing this, management has to consider how the Japanese market compares to the other markets being proposed (China and Europe) as part of their international expansion. They should also do a thorough analysis of each of the markets being considered for this product, and an analysis of their competitors firm wide international strategy. Because the Japanese market is very different from these other markets, the same level of success cannot be guaranteed. This includes the distribution channel and the supporting industries, e.g., TV advertising is relatively cheaper in Japan than in Europe. Models and Theories
Firm strategy, structure, and rivalry: SK-II is the result of the combined
ingenuity of P&Gs most talented technologists from its worldwide labs, as well as the specific expertise from a Japanese group. This combination worked well because it reflected the best of P&G's consolidated R&D while catering specifically to the needs of the Japanese market (2, p. 8). Being a global company headquartered in the U.S. makes it easier for P&G to bring its global talent to its homecountry so that it can improve its R&D capabilities and thus have a competitive advantage. Having a pre-existing global structure may also make it easier to adapt this product to the needs of those other countries where P&G does business. When considering expanding the SK-II market, this competitive advantage should be considered.
trying to go. A tell tale sign of a multidomestic corporate level strategy was for P&G to have profit responsibility held by their country-based organizations. A multidomestic strategy has strategic and operating decisions decentralized to each country to allow products to be tailored to each local market (1, p. 277). The opposite is true for a global corporate strategy. Under an international global corporate strategy, products are standardized across all markets and economies of scale are emphasized (1, p. 280). This was the direction P&G was headed in when GBUs took over profit responsibility. In fact, this structure is very similar to a worldwide product divisional structure which supports the use of a global strategy (1, p. 280). However, during the SK-II development through the expansion proposal, P&Gs international corporate strategy appears to be a transnational strategy, which combines aspects of the two aforementioned strategies. This is done in order to emphasize both local responsiveness and global integration and coordination. This is true with the SK II project. When the SK-II product was first created it was done so on a global level to meet a global demand. The product was then localized for the Japanese market. For instance, separate marketing teams were used in the U.S. and in Japan to develop this product for each market (2, p. 8). By first creating one product to meet global demand rather than regional demand, P&G was able to achieve economies of scale and efficiencies by having one R&D team working on a product that would meet many regions needs. However, P&G then allowed each region some flexibility in how they marketed, priced, and distributed this product. This was a big reason for SK-IIs success in Japan. It is apparent that P&G has adopted a transnational strategy. In line with the characteristics of that strategy, P&G is considering expanding a product proven to be successful in a demanding (Japanese) market in to other markets. By doing so, P&G will need to rely on aspects of a global strategy that uses a standardized product for the global market such that the competitive advantages in the home-country (Japan) can be leveraged out globally, thus achieving economies of scale. P&G will also need to rely on aspects of a multidomestic strategy that pays great attention to various unique features of different markets. For the Greater China market and the European market, P&G will need
to make an effort to fit into the local environment in order to achieve success in a different culture from Japan. In order for this transnational strategy to work for the SK-II expansion, the P&G corporate structure must have good communication and flexibility. Without that, a transnational strategy will not be as effective, and the SK-II expansion may not succeed.
Japan: In this special market, where the worlds leading per capita
consumers and highly sophisticated users of beauty products are, the threat of a new entrance seems to be very low. There exist entry barriers that make it difficult for new firms to enter this particular market. Among these barriers is the difficult access to the complex Japanese distribution system and the product differentiation of the very competitive companies that already share the market (3, p. 1). Companies as Shiseido, Lion, Kao, and Kanebo compete for market share, suggesting that with few big players in a slow growing market there is strong rivalry (4, p. 1). Furthermore, the low switching costs of the skin care products makes easy for competitors to attract buyers from the rivals, thus enhancing the competition. The threat of substitute products for SK-II in Japan is high because of the high innovative capacity of P&Gs competitors, Kao and Lion (5, p. 1). These Japanese companies spend huge amounts in research and development to be on top of the technological challenge. The bargaining power of the buyers is not the main factor to set the price, but competence for market share among competitors is. This lets customers have many options to choose from. Additionally, the
bargaining power of suppliers doesnt seem significant for this industry as well.
China: Just the opposite of the Japanese market, the Chinese market
has a high threat of new entrances. The Chinese prestige-beauty segment is growing fast, at 30% to 40% a year and is very attractive for new firms to enter. Almost all-major competitors are already there: Lancme, Shiseido, and Kao are examples of companies selling products in China (6, p. 1). The intensity of rivalry among the competitors is still low, because this growing market reduces the pressure for firms to take customers from competitors. However, the threat of substitute products is high, because the big players in the Chinese market are mostly global firms, with high innovative capacity. The bargaining power of suppliers and buyers is low.
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to leverage its own competitive advantages to enter this market with full force. While SK-II has little visibility outside of Japan (2, p. 6), P&G could use their Japanese market experience to develop an effective strategy for entering other markets such as China, Europe, and eventually the United States. They had established market share in Japan, but the other geographical markets consist of different environments and different competitors who possess different resources and capabilities. As of 2004, P&Gs most recent challenge is entering the very competitive U.S. cosmetics market with SK-II. It is planned for release in America for February 2004, sold exclusively at Saks Fifth Avenue. Comparison to other organizations
Loreal Comparison.
L'oreal has been one of P&G's major global competitors in the cosmetics industry. Loreal's transnational strategy has led them to be the number one in (#1 what?) the world. In 1994 P&G was number two but they have since dropped to number four. Part of the reason for this has been Loreals ability to capitalize in the international markets. Loreal has steadily become the leader in cosmetics by their ability to adapt their products to the global market and achieve a high level of efficiency. L'oreal's transnational strategy has allowed it to build a strong global structure while still leaving room for different adjustments that might be needed at a local level. For example, Loreal's Free Hold line (a mousse) was originally priced on the high end of the market, targeted for a higher class of consumer. Once it was realized that the market for their mousse products could be aimed at a younger or less affluent target, Loreal released a studio line that was less expensive than the Free Hold line (7, p. 1). This example shows that Loreal is willing to use different price levels in different regions or demographics. L'oreal has also adjusted its management structure by specific job function. For example, both U.S. and Europe have a VP of operations. This type of management allows for the businesses to implement necessary changes at the local level that might not be needed throughout the entire corporation. These factors allow for the
continued success that Loreal has when using a transnational business strategy on an international level. Proctor and Gamble is trying to go in a different direction than Loreal when trying to expand their international business. P&G mostly uses a global strategy where seven global business units that would take control and implement changes into the local businesses (2, p. 5). This approach uses the SBUs to makes changes at the local level while still maintaining the best interest of the corporation. With SK-II, P&G seems to be completing their transition from a transnational strategy to this global strategy. In a global strategy a company offers standardized products with strategies dictated from the main headquarters. This type of strategy produces less risk for P&G, but it also lowers the chance for potential growth by letting local markets dictate their own strategy. With a global strategy, a business does not take into consideration the local demand by adapting their products to the needs of the people in that area. The global strategy essentially says that whatever the main company decides is best for the company no matter where it is located. (this is already mentioned above, and may be repetitivealso, no reference is made to the text where this was taken from) P&G has a different corporate structure than that of Loreal based on their different business strategies. P&G has fewer managers that are in charge of the phases of business. For instance, P&G does not have multiple people holding the same positions in different countries where they do business. This structure does not allow for as much adaptation to the regional needs of the consumers.
Estee Lauder.
The Estee Lauder Company prides itself on being one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products (9, p. 1). Under the Estee Lauder name there are many brands and line divisions including the self-titled Estee Lauder division. Similar to SK-II, Estee Lauder has a large international presence (SKII is still only in Japan..at least at the time of the caseshould this be changed to say P&G?) and sells principally through limited distribution channels to compliment the images associated with its brands (10, p. 1).
By using a combination of global and multidomestic strategy, Estee Lauders strategy is much like the previously mentioned "transnational strategy" (1, p. 282). There are several top level executives that have a large responsibility to global operations. For example, Patrick Bousquet-Chavanne is a Group President and is responsible for marketing, sales and financial direction of all brands within The Estee Lauder Companies in Europe, the Middle East, Africa, Latin America, and the Asia/Pacific region. However, he has also established consolidated regional Product Development Centers in Paris and Tokyo (10, p.1). The Estee Lauder Companies believe in a strong central philosophy typically found in organizations that use a global strategy but also show the willingness for ideas to come from all areas of the business. Their multiple research and development sites in New York, Belgium, Japan, Ontario, and Minnesota prove this (this just proves that headquarters has opened multiple centers for R&Dit doesnt really prove that decisions are made in regional areas of their business). In order to keep their product responsiveness quick, Estee Lauders company website speaks of manufacturing sites in the U.S., Belgium, Switzerland, the UK, and Canada. Estee Lauder has found a successful mix of upper-end cosmetic products with Estee Lauder and Clinique. While both products are priced with high-end cosmetics, they are differentiated enough to each bring in significant market share. From these results, The Estee Lauder Companies do well at mixing both a multidomestic and global strategy into a successful transnational strategy. Current State of P&G Currently the CEO of P&G is A.G. Lafley, a 1969 graduate of Hamilton College (not Harvard), who was previously in charge of the Beauty Care GBU. Under Lafleys leadership, P&G has drastically changed its corporate structure and focus. Within the last year or two, P&G has outsourced all of its back-office operations, including $3 billion worth of IT business outsourced to IBM (13, p.1). This recent outsourcing trend also includes many of the Global Business Services (GBS) that were a major part of the corporate structure in 1999. Now GBSs like Finance and HR have been outsourced so that P&G can focus on
concentrating on its core products and competencies (14, p.1). According to its most recent annual report, P&Gs core competencies are branding, innovation, and scale, and this focus can be seen in the business decisions made by Lafley (11, p.6). P&Gs corporate structure has gone through a restructuring that consists of more than just the reduction of unnecessary GBSs. The international corporate strategy of P&G has clearly become transnational. There are currently 5 GBUs which work to provide speed to market, as well as centralized product control for P&G. The GBUs work closely with seven Market Development Organizations (MDOs) who work with the local customers and country business teams to develop the right product mix for over 160 countries that P&G does business. (11, pp. 5 7) The coordination between these two groups shows P&Gs focus on using a transnational strategy to become a profitable global business in the 21st century. Recommendations
do some more subjective research in this area before deciding to expand the SK-II line here.