The Procter & Gamble Company’s Corporate Outlook

The Procter & Gamble Company’s Corporate Outlook

Ziyan Xiong, Aiyi Zhang, Chuying Wang, Jingqi Li

The Procter & Gamble Company (P&G) is one of largest consumer goods companies in the world. It was firstly established in 1837 and then incorporated in 1905, headquartered in downtown Cincinnati, Ohio. It produces and sells branded products in 10 categories, including fabric care, home care, grooming, oral care, baby care, feminine care, family care, personal health care, hair care, skin and personal care. The company is running a successful global business in more than 180 countries in the North Americas [1], Europe, Asia Pacific, Greater China, IMEA [2] and Latin America.

According to P&G’s 2016 annual report (Years ended June 30), its net sales in 2016 was 65.3 billion. Compared with past four years, which were all higher than 70 billion, the net sales of this year was a little lower. About 32% of its revenue came from fabric care and home care segment with major brands of Ariel, Tide, Luvs, Always and so on. Other four reportable revenue business segments were baby, feminine and family care, beauty, grooming and health, taking 28%, 18%, 11% and 11% proportion of revenue respectively (See Figure 1.1). About 44% of the revenue came from North America and 23% came from Europe, which took the majority of its revenue (See Figure 1.2). Classified by market maturity, 65% of its revenue was from developed areas while 35% was from developing areas.

Figure 1.1

[pic 2]

Source: Annual Report of P&G, 2016.

Figure 1.2

[pic 3]

Source: Annual Report of P&G, 2016.

In a highly competitive market, the price of P&G products is the main factor that would affect its demand. The entry barrier of household products market is quite low, so there are large numbers of competitors, including local brands and global brands, offering products with a little differentiation. Hence, price changes are sensitive to customers. Once P&G raises the price of the products a little bit, customers might choose the substitutes from competitors and P&G would lose its market shares. So, the price elasticity is quite large for P&G.

Besides, the income would affect the demand in two aspects. On the one hand, for P&G’s high-end brands such as SK-II, as the income declines during economy downturn, the demand for expensive products may decrease dramatically. In this case, the income elasticity for P&G’s high-end products would be large. On the other hand, the demand is always related with regional or global economic condition. The recession could hurt the market growth, tighten credit markets for both suppliers and customers and even cause financial difficulties for other partners, eventually leading to negative impacts on P&G’s business and demand. However, most of the products sold by P&G are necessities such as shampoo, laundry detergent and facial lotion. Therefore, the income elasticity for basic consumer goods would be small compared with other industries since people would buy necessities no matter their economic conditions.