Proctor & Gamble- Milestone
Head & Shoulders remain one of the most celebrated and recognized names in the hair care market for over fifty years. This renowned global brand was launched by Proctor & Gamble (P&G). The company is the leading producer of hair care products across the world, with their Head & Shoulders product securing over 20% market share. Recently, P&G’s beauty unit made 30% in net sales and 30% of net earnings. Research estimates that at least 50% of the world population is suffering from dandruff at least once in their lifetime. This renders it the most common type of scalp issue. Head & Shoulders has become one of the most widely known across the globe; selling a gigantic 150 bottles of the anti-dandruff formula each minute. Head & Shoulders are excelling regarding their marketing strategy. For a new product to penetrate, brand endorsements with powerful and related names are useful. The world’s hair care market is growing rapidly thus; it is evident that the market has become fiercely competitive. Current players have been forced to adopt strategies like a price reduction, new product launch and promotional tactics for their brands to sustain a market share.
The Head & Shoulder brand is the number one anti-dandruff shampoo across the world. Manufactured by P&G, this power brand made its debut in the 90s in the United States. Head & Shoulder is currently competing in the highly aggressive U.S. shampoo industry. With its strong reputation, this product has secured a major position in the anti-dandruff niche. HHL had dominated the entire shampoo niche with an estimated market share of 45%. However, when Head & Shoulder was launched, the anti-dandruff niche was revolutionized as the dominant player was pushed aside. This high profile brand fueled the expansion of this specialty niche. Today, the anti-dandruff sector comprises roughly 20% of the entire shampoo market.
Marketing, Supply and Equilibrium: Head and Shoulders by Proctor and Gamble
The Head and Shoulders product of Proctor and Gamble is price inelastic for those who have brand loyalty and will buy the product no matter what the price is. For those who like the product but will go with a cheaper off-brand if the option is available, so long as the off-brand is as effective, will do so causing the product to be price elastic for this group of people.
Two non-price factors that affect the demand of Head and Shoulders are the quality of the product and marketing of the product. Quality (effectiveness of the shampoo to stop dandruff) is the number one reason it is purchased for its explicit purpose. If the quality is high, the demand increases. Marketing is the other factor: if it is marketed well, the quality does not have to be superior to its competitors; it merely has to achieve a place within the consumer consciousness. When the consumer sees the product on the shelves, it will be recognized as the one that should be purchased because of being subject to an extensive marketing campaign (Head and Shoulders: The World Leaders in Dandruff and Scalp Care, 2015).
Two non-price factors that influence supply are technology and competitors. As technology changes over time, the supply is impacted as the means of production make it easier to produce. Likewise, as competitors come into the market, the product can be supplanted by others in the industry that cultivate greater brand loyalty or offer better quality or better price.
The industry associated with Head and Shoulders is the health and grooming industry and specifically the dandruff shampoo sector of the market (though Head and Shoulders does offer a variety of shampoos and conditioners that have a broad range of appeal). The market equilibrium associated with this product can be found at the point where the supply and demand curves intersect.
The effect of changes in the supply and demand on the market equilibrium of this product depends on the direction of those changes. If supply increases without demand, the market equilibrium will fall to a lower point on the curve. If demand increases with supply, the point will remain at the same constant level. If demand increases and supply does not, the point will likely rise and the price of the product will increase. If both supply and demand decrease, the market equilibrium will likewise remain constant though there may be a relative decrease in price.
Based on the predicted changes, the decisions that should be made regarding the supply and demand of Head and Shoulders should focus on sustaining market equilibrium to (or “intending to”) competitors and any adaptations in technology (FAQ, 2015). The manufacturing of dandruff shampoo has been consistent over the years, and the winning formula of Head and Shoulders along with its marketing brand image and loyal consumer base suggests that the product is well placed and well established to meet the market demand. On the supply side, there is no imbalance regarding over- or under-supply. There is no market glut or over saturation with off-brands only taking a marginal slice of the market share. In short, the marketing of the product has continued to grow the consumer base over the years. However, with an economic recession, loyal consumers may prefer an off-brand if it can be purchased at a lower price. Thus, Head and Shoulders should remain competitive regarding price with off-brands as these can put in a dent in profits over time. The product should also stick with its quality formula while testing additional formulas for different scalps can appeal to consumers looking for a specialized product to meet their specific needs, something off-brands are less likely to do since their appeal is typically generic.
Head and Shoulders: Inputs, Factors, and Decisions
One fixed input for P&G’s Head and Shoulders would be the machines, and CAD used to create the packaging of the product and the computer-aided-design (CAD) used to generate the packaging features. Both are aspects of the same fixed cost because the machines and the designs used to steer them in production do not change with rises and fall in production (neither more nor fewer machines are needed — it is only their use that might change). Furthermore, as for CAD, for a global company like P&G, a generic label or design may need “minor modifications on a country-by-country basis” but for the most part, this does not alter, nor does it change with alterations in production levels (Czinkota, Ronkainen, 2006, p. 477).
Two variable inputs would be commodities and distribution. Commodities, such as palm oil and linear alkyl benzene, which are “key inputs for making soaps, shampoo and detergents” (Bhushan, Malviya, 2012), fluctuate as needed regarding supply and demand levels related to production. Distribution is also a variable input that depends upon production levels: if a product is not yet global but only domestic, obviously distribution costs will alter when it goes global, as has Head and Shoulders over the years. Breaking into new markets will add to distribution costs; thus, it is a variable input for the product.
The factors that affect the choice of inputs to produce Head and Shoulders are the price of commodities, culture, and inflation. The price of commodities is always fluctuating, so it would be naive to think that this should not be a factor in choosing which inputs to examine. Commodities prices change all around the world with futures contracts, etc., and so it is essential to take stock of this action.
Culture is another factor that is necessary when evaluating inputs. Different cultures approach the product in their way. For example, in America, it is common practice to buy bottles of shampoo, sometimes even big bottles (to both save on costs and to eliminate the need to go out and purchase again when the smaller bottle runs out). In a country like India, the reverse is true. Here the bottle costs more than the little packets or sachets of shampoo that are sold in stalls and grocery stores. Indians are accustomed to paying rupees for their shampoo packets and even buying dozens of them at a time instead of springing for the more expensive (but more accommodating) bottles. The reason is that this is just part of the culture, which may be defined as an emerging market.
A third factor would be inflation, which rises and falls around the world too. Sometimes the threat of the inverse is on the horizon (deflation), and it all depends on what the global economy is doing and how the banks are handling the nations’ economies. Inflation has to be something to consider when monitoring inputs as well because it must be accounted for regarding describing margins.
The production decisions that I would make, therefore, would be to apply production criteria to individual markets based on the price of commodities, the cultural traditions, and the rate of inflation, all of which affect variable inputs.
The price of commodities would have to be factored into the decision-making process because in reality “global companies may have an advantage in being able to utilize resources from around the world” (Czinkota, Ronkainen, 2006, p. 477). Thus, it would make sense to see what prices are doing in different parts of the world before making a production decision. For example, the price of commodities such as palm oil and linear alkyl benzene has dropped the former by nearly 30% at times in a single year in India, (Czinkota, Ronkainen, 2006, p. 477). This would play an important part in production costs if it can be determined that a considerable arbitrage action can be taken by purchasing these commodities in cheaper markets and incorporating them into cheaper productions in other markets where labor costs are also low.
Culture must also play a part in the production decisions. For example, “70% of shampoo sold today in India is sold in sachets,” so this is one number to keep in mind when considering what type of packaging to deliver the product in India should be used (Iker, 2013). Clearly, it would be more beneficial to the company to package the majority of the product in sachets, even though this is contrary to conventional wisdom according to Western culture. Every culture’s traditions and behaviors bring with it adjustments that have to be made.
Finally, accounting for inflation when making production decisions is a safe way to adjust one’s margins. In some ways, adjusting is a hindsight maneuver, but it is possible to forecast where inflation will be in 6 months to a year down the road judging from the guidance of central bankers. This is something that should be considered as these markets are considerably driven by banking initiatives and funding which is needed to prop up and keep these markets moving, especially in today’s global economic slowdown.
Market Structure – IV
The global shampoo industry is evolving extensively as it is regarded a lifestyle brand in urban areas. Until recently, the market had been dominated by flagship organizations, notably P&G. However, since 2010, the competition has been broadening to incorporate a domestic companies and multinational corporations, among them ITC limited and Garnier.
The market is expanding at a rate of 165 p.a. Also, the rivalry is intensifying on a daily basis. As at 2010, the sum global income of the shampoo market was estimated at $360 billion while the global market value was estimated at $420 billion by the close of 2013. Following such a huge market value, the market is experiencing an extremely fierce competition. P&G is fighting various comparable rivals as far as capital, company size, brands and research capability is concerned. These major competitors include Estee Lauder, Avon, and Unilever. All of these firms hold their leading products and brands, as well as significant market competence and research capability in international operations. Considering low costs of consumer switching, the rivalry in this sector will tend to remain at high degree even in the future.
FAQ. (2015). Head and Shoulders. Retrieved from http://www.headandshoulders.com/en-us/about/faq
Head and Shoulders: World Leaders in Dandruff and Scalp Care. (2015). Head and Shoulders. Retrieved from http://www.headandshoulders.com/en-us/about/about-head-and-shoulders
Bhushan, R., Malviya, S. (2012). Grocery prices rise by up to 15% despite weak
Consumer demand. IndiaTimes. Retrieved from http://articles.economictimes.indiatimes.com/2012-12-17/news/35869037_1_price-hikes-surf-excel-quickwash-minimum-support-price
Czinkota, M., Ronkainen, I. (2006). International Marketing. Mason, OH: Thomson.
Iker, A. (2013). Household Products. Quora. Retrieved from https://www.quora.com/Household-Products/Why-head-shoulders-90ml-bottle-costs-Rs-62-i-e-approx-69-paise-per-ml-while-sachets-7-5-ml-costs-only-Rs-3-only-40-paise-per-ml
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