Procter & Gamble (P&G) is a consumer goods company with headquarters in Ohio, USA. It was found in 1937 by James Gamble and William Procter. Its products are of personal care, cleaning agents, and hygiene products. In 2014, P&G decided to shrink its product portfolio by dropping or selling off around 100 brands so to focus more on the remaining 65 brands which earn 95% of its revenue. Its products are sold all over the world. In 2016, the revenue of P&G was more than $65 billion. It has 105,000 employees all over the world. During its growth, P&G has acquired a number of companies such as Pantene and Gillette in order to diversify its product portfolio and hence also increase profits.
Following is a detailed Porter Five Forces Model Analysis of Procter & Gamble:
Competitive Rivalry – High
P&G operates in the consumer goods industry. It is an industry with intense competition. There are a large number of players in this industry that are making very similar products. All the products made P&G are also being made by other brands such as Unilever. The switching cost of the consumers in almost zero. One day they may be using the products of P&G such a Tide washing detergent and next day they can move on to Ariel washing detergent of Unilever. Most companies in the industry tackle this issue by continuously giving promotions with their products such as extra products, discounts, gifts, and so on in order retain their customer base and attract new customers. Consumers have a lot of variety to select from. There is little brand loyalty amongst customers in this industry. Thus, the competitive rivalry is high for P&G.
Threat of New Entrants – Moderate
In the consumer goods industry, there are certain entry barriers. A large capital is required to be invested at the start, development of economies of scale takes time, and strong distribution channels are not easy to get access to. The existing players have grown to become corporate giants now and can easily acquire any new entrant that poses a threat to them. These brands have also developed reputations in the market. However, in many countries, smaller firms have entered the market and are serving the local industry and have captured market shares away from P&G and others (Das, 2014). They start off on a small scale and gradually increase their distributions. This makes the threat of new entrants a moderate threat for P&G.
Bargaining Power of Suppliers – Low
The supplies of P&G include raw materials, technology products, and packing for the products. There are a large number of suppliers in the market for all of these supplies. The supplier switching cost is low for P&G. Also, P&G purchases in very large quantities making it ideal for any supplier. Therefore, they are in no position to bargain with or attempt to influence the prices of P&G products. This threat is low for P&G.
Bargaining Power of Buyers – Moderate
There is very little product differentiation for the products made by the different companies in the consumer goods industry. Thus, the consumers have a lot of variety to select from. The switching cost is also low for them. However, there is a certain level of brand loyalty for some of the products made by P&G, especially in the personal hygiene and cosmetics category, by the customers. They will continue to purchase those products as they find them suitable to their body and skin requirements. They are less price sensitive for them. Thus, the bargaining power of the buyers in against P&G is of a moderate level.
Threat of Substitutes – Low
There are no substitutes for most of the products of P&G. E.g. there are no suitable substitutes for soaps and shampoos that P&G makes. Especially, in the personal hygiene category, customers are reluctant to try substitutes due to health risks (Thompson, 2017). They will continue to use products of P&G or of some other brand but will not go for any substitute. Thus, there is a very low threat of substitutes for P&G.
References
Das, R., 2014. Final Presentation on Procter and Gamble. [Online] Available at: https://www.slideshare.net/rishirajdas1993/final-presentation-42714632 [Accessed 17 July 2017].
Thompson, A., 2017. Procter & Gamble Five Forces Analysis (Porter’s) & Recommendations. [Online] Available at: http://panmore.com/procter-gamble-five-forces-analysis-porters-recommendations [Accessed 17 July 2017].