San Diego State University Fall 07

San Diego State University Fall 07

MKTG 769:

International Marketing

Dr. Lois Olson

Market Analysis and Plan for

Procter and Gamble

Marine Galland

Desimira Ivanova

Rainer Jersch

Shellby Cullisson

November 19th, 2007

Introduction

As a first step of the marketing plan, we examined which one of the four countries, namely Egypt, Spain, Sweden and Vietnam, to focus on for an introduction of Procter & Gamble’s disposable paper products – either disposable diapers or incontinence products. This comparative analysis led to the following recommendation: Taking P&G’s disposable diapers to Vietnam appeared to be the best fit among all of the eight options.

A. Goals and Objectives, Strengths and Weaknesses of the Firm

Procter and Gamble has one of the strongest and largest portfolios of trusted brands in the world, including Pampers, Folgers, Pringles, Charmin, Downy ,Tide, Ariel, Always, Pantene, Bounty, Iams, Crest, Actonel and Olay. Procter and Gamble counts almost 138,000 people working in nearly 80 countries worldwide. According to Wikipedia, in 2007, P&G is the 25th largest US company by revenue, 18th largest by profit, and 10th in Fortune's Most Admired Companies list (as of 2007). The company started in 1837 as a small family operated soap and candle producer. One of the most revolutionary products to come out on the market was P&G’s disposable diaper brand "Pampers", first test-marketed in 1961. Despite of the existence of Johnson & Johnson product, called "Chux", disposable diapers were not popular until the introduction of “ Pampers”. Before the entrance of revolutionary “Pampers” babies used to wear cloth diapers, which were leaky and hard to wash.

P&G now dominates in many categories of consumer products in 140 countries. In 2005, with the acquisition of Gillette, P&G became the largest consumer goods company, placing the Anglo-Dutch Unilever into second place.

Strengths and Weaknesses of P&G

P&G’s slogan “Touching Lives, Improving Life” is a synonym of constantly providing products and services of superior quality and value to the world’s consumers. P&G is a global company strongly motivated by core values, such as: Integrity, Leadership, Ownership, and Passion for Winning and Trust. Some of the core assets of the company are:

- Brand Identity

- Product quality

- Reasonable pricing on an international scale

- Global Brand

- Distribution network

As P&G is already operating on the international arena, they have the advantage of having strong relationships with logistics companies and various distribution channels for transferring goods overseas. Adding another country to their inventory is just another way to increase marginal benefits of existing distribution channels and world knowledge.

However, in the past few years P&G has suffered from weak trend marketing. This can be partly explained by a lack of innovative staff. In reality, P&G is a traditional company with strong emphasis on working environment and generous benefits provided to their employees. Although, P&G’s lack of young people, who could bring fresh ideas, new trends to the company, and innovative marketing style is one of the major weaknesses of the company. The nowadays market is changing rapidly, and in order to stay “at the top” P&G needs to follow the heartbeat of the market, with its new “openings” and “fashions”. In summary, although interested in innovation, P&G is still positioned as a traditional lumbering company.

Choices among countries

The first step of our marketing analysis is to evaluate the four markets for incontinence products:

After reviewing the size and growth of the market of incontinence products in Egypt we did not find it suitable for our purposes. Moreover, the markets has little demand for incontinence products in the retail disposable paper products market in Egypt[1]. The low purchasing power of most Egyptian consumers is another argument against the entry of this market.

On the other hand, the Swedish market of incontinence products, growing by more than 20% annually, looks like a great fit at first. The main drawback is that the Swedish brand SCA’s Tena is almost synonymous with incontinence products in Sweden, accounting for 89% of value sales in 2006[2]. Another disadvantage is the drugstore monopoly of the top two private label that belongs to the state. However, the most apparent argument not to choose Sweden for our product is that retail sales in Sweden account for less than 1% of total consumption. According to Euromonitor– Swedish people, who have problems with incontinence, can easily get a prescription enabling them to receive incontinence products for free[3].

In the second place in our ranking is Spain. Spanish market shows many similarities to the Swedish market. Stable political and economic factors attract many foreign investments. However, similarly to the Sweden, the monopoly of incontinence products in Spain is the major obstacle to entering that market. According to Euromonitor- the three main manufacturers in Spain account for over 86% of total value sales in 2006[4].

Vietnam suffers from the social stigma, that people should feel embarrassed when seen using these products[5]. Also, some consumers maintain their preference to use cloth products over disposable ones as a cheaper alternative. On the other hand, the life expectancy at birth is still very low, at 71.07 years (male: 68.27 years; female: 74.08 years), and only 5.8% of the population is older than 65 years of age[6], due to the fact that high numbers of Vietnamese died in and were born after the Vietnam War.[7]

The choice among the four countries for the diaper products:

Spain

One option for Procter & Gamble’s expansion is Spain. This rectangular country with its population of 40,448,191 people and a population growth rate of 0.77% is a much smaller market than Vietnam. On the other hand, according to CIA fact book, the number of people under 15 years old is higher in Vietnam (26.3%)[8] than that in Spain (14.4%). This indicates that Vietnam is by far better country choice for introducing disposable diapers.

Even though Spain has a long coastline and many ports, a big portion of the country is far away from the coast, whereas Vietnam is only 50 km across at its narrowest point[9]. Moreover, the diaper market in Spain is highly competitive. There are two leading companies Arbora & Ausonia SL and Kimberly-Clark SA – together accounting for nearly 73% of total value sales in 2006. In comparison to Spain, the penetration of diaper products remains relatively low in Vietnam due to the limited distribution networks[10]. Vietnam’s developing distribution channels account for another market opportunity for P&G’s penetration in the global market.

According to Hofstede’s dimensions, collectivism in Spain is lower than that in Vietnam. Diaper sales could be greatly influenced by interaction among parents. As a result, Vietnamese collectivist society demonstrates better fit for diaper products and multi-level marketing.

Sweden

The major drawback for entering the Swedish diaper market is its population-size. Sweden has only 9 million population[11], which is a fairly small target market and makes it by far the smallest among the four countries we can choose from. Even if sales exceed the average price point of diaper products, there is not a chance for P&G to achieve economy of scale in Sweden. Sweden could be utilized as an entry market to the Scandinavian countries or even the European Union. Although, high labor and distribution costs in Europe combined with established markets require huge amount of capital for production, distribution and marketing. Therefore, this entry mode is not very attractive as well. Furthermore, Sweden ranks high on individuality. Therefore acquiring a bigger share of faithful buyers would require substantially bigger marketing efforts than the self-dynamics market in Vietnam, where family ties are major drive of the society[12].

Egypt

At first glance, Egypt has the same advantages as Vietnam when entering the market of disposable diapers. Both countries have similar economic and demographic measures (GDP ranks: Egypt 34, vs. Vietnam 37[13]; population: Egypt 80 million vs. Vietnam 85 million[14], etc.). However, Vietnam’s geography (distribution) in particular and some very important cultural pre-dispositions of the Vietnamese market will evidence for our choice to enter Vietnam.

Entry Mode

Although Vietnam is the 13th most populous nation in the world[15], it must be recognized that “more than 70 percent of the 83 million Vietnamese live in the countryside and work in agriculture, in some places still struggling to make the equivalent of $1 a day.”[16] This accounts for a significant weakness of the country. Given the wide disparity in wealth between urban and rural Vietnam, and that the rural population primarily consists of the poorest among Vietnamese people[17], the products would only be introduced in the five biggest cities (especially Cho Chi Minh City and Hanoi) in the first stage of entry, aiming at the urban upper class and the middle class (which now represents some 55 per cent of the urban population of Vietnam[18]). Furthermore, high growth rates of GDP per capita, middle class, and population determine Vietnam as the most attractive market for future expansion.

Among other factors that will be elaborated furthermore, the fact that the Vietnamese are a rather collectivistic culture (according to Hofstede), combined with strong in-store marketing efforts should support the goal of a quick market penetration.

Low labor costs in Vietnam[19] (compared to Spain and Sweden) is another incentive to enter the market and set up production on site. P&G could benefit enormously by factors like the increasing harbor capacities in Vietnam, the geographical closeness to the global cargo hubs of Hong Kong and Singapore and the competitive workforce with a literacy rate of 94 per cent[20] (and of which around 70 percent can talk English adequately[21]). Those factors could facilitate establishing production factories for disposable diaper products not only for the domestic, but for other large markets in the Pacific-Asian area, as well as the rest of the western countries that P&G already operates in. Foreign trade[22]: USA (21.1%), Japan (12.2%) and Australia (9.3%) being the top three export partners of Vietnam, could offer further opportunities, too.

P&G already has intense exposure to international logistics and a sophisticated distribution network. Future production facilities in Vietnam would further assist P&G in achieving their goal of reasonable pricing on an international scale, whereas the quality of the workforce will ensure high product quality. Vietnam’s recent membership in the WTO could serve as “quality assurance” factor since WTO’s goal is to “improve the welfare of the peoples of its member countries, specifically by lowering trade barriers and providing a platform for negotiation of trade.”[23]

Geographic and historic contributions to culture

The years of dominance and invasion by various foreign powers and the long struggle for independence and the search for cultural and national identity has affected the Vietnamese character and made the people resilient, independent and above all, optimistic. The roots of Buddhism, Confucianism, Taoism and feudalism stem from the time when the Chinese first occupied Vietnam in the first century. After the occupation, feudal dynasties ruled, but Vietnam was busy repelling attacks by the Mongolians and Chinese, and suffered through civil wars. In the seventeenth century French missionaries set out to convert the Vietnamese to Catholicism. In 1862, the French colony was established by force over the Vietnamese and the colonists taxed the peasantry into poverty, leading to the breakdown of the land ownership system that was central to Vietnamese social tradition. The poverty forced many Vietnamese to live a nomadic lifestyle or settle in the infertile highlands, thousands died from malnutrition and disease. In World War 2, the Japanese occupied Vietnam for six months, followed by civil war. Once the war ended, Ho Chi Minh, in the August Revolution, took control of North and Central Vietnam, declaring the new Republic of Vietnam, followed by an eight year independence struggle against the French. Many anti-communists, Catholics and intellectuals fled to the South to escape repression in the North. Soon the Vietnam War against the United States supporting anti-communist South Vietnam began. Statistics say that 10% of the Vietnamese population lost their lives. After the war, the south fell to the communist north, and Vietnam was reunified shortly afterwards as the Socialist Republic of Vietnam. A socialist system was set up, based on the Soviet model, resulting in widespread economic mismanagement. Vietnam’s slow economic comeback and journey back into the outside world began in May, 1977, when U.S. opposition to Vietnamese membership in the United Nations was dropped and Vietnam became the 149th member of the UN. In 1978, after two years of Cambodian attacks on the Vietnamese border villages, Vietnam invaded Cambodia. As a result, the U.S. severed all ties with Vietnam and convinced its western allies to impose an aid embargo, which lasted till 1994. The termination of foreign relations, the drain of resources from the occupation of Cambodia, and the mismanagement by the socialist government over the years contributed to Vietnam’s severe economic trouble. With the collapse of the Soviet Union’s economy in the 1980s, Vietnam found itself without its largest benefactor and the Vietnamese government decided to embrace a policy of market economics instead of a communist doctrine.

The Vietnamese have a strong sense of community, partly attributed to their 4000-year dependence on rice cultivation, which requires cooperation on a large scale. They are also nationalists, having withstood Chinese emperors, French colonials, Japanese and American forces. There’s also a strong, traditional attachment to ancestors and the physical land in which they are buried. Most of the population lives in extended family units in which each member contributes something to the well-being of the group. Even well-to-do families live in close proximity to each other by choice. Like many newly independent nations, the Vietnamese are curious to learn what life is like in other countries; foreigners are often struck by their friendliness. At the same time, foreigners must be careful not to be seen as “money” by the Vietnamese. Vietnamese do not generalize Westerners – they can easily spot the difference between an American, a German, a Frenchman or a British. Westerners are seen as being particularly skilled in business, and the U.S. is pre-eminent. U.S. products are revered and the U.S. is seen as an economic and military power buffer between the Vietnamese and their Asian-Pacific neighbours – physical occupation by the Chinese is still recognized as a real possibility; the Vietnamese word for “America” is the same as the word for “beautiful”. There is still a tight connection to France, and this influence is intertwined with a high literacy rate, world class culinary skills and aging colonial buildings giving charm to many Vietnamese cities.