1. As Paolo DeCesare, what factors do you need to consider before deciding what to recommend in your SK-II presentation to the global leadership team (GLT)? What kind of analysis will you need to do in preparing for that meeting? There are many factors that need to be considered when deciding recommendations to the GLT of SK-II. Being that this is P&G’s first proposal to build a Japanese brand worldwide, it is important to take into consideration different cultures than of the consumers in Japan.
Since 2005, P&G’s global organization has been in the middle of a restructuring program, which can sometimes cause a disruption to the normal functions of the company. Local managers resisted the surfacing of new products based on the possible negative impact on local profit. Lafley’s idea that most of the budget allocated for advertising should be adjusted to focus on two main products: MaxFactor Color and SK-II, since SK-II had such a high margin. However, DeCesare’s point of view surrounded the idea that SK-II could break into the $9 billion skin care market.
From Jager’s eyes, his concern surrounded that a major product development technology center was needed for Japan’s demanding consumers. Ideally, this would also support product development throughout Asia and other parts of the world. For Ram, it was considered that SK-II would work best as introduced into Chinese department stores as Oil of Olay. Ram also predicted China to be the second largest market in the world for upscale beauty products 2. Does SK-II have the potential to become a global brand within Procter & Gamble’s worldwide operations? Why or why not?
SK-II’s potential surrounding breaking into the global market and becoming a competitive brand would allow P&G to obtain a high margin product while still making a high-quality product. The characteristics of the SK-II’s clear, un-perfumed liquid makes it distinctly different from other products. With this P&G would also sell its product with superior in-store service. There is already the foundation of Japanese innovation with Lipfinity and a good brand image in Japan. By moving into a worldwide market P&G would have a change to tackle the prestigious $9 billion skin care market.
With SK-II’s success in Taiwan and Hong Kong, it shows a trend for being well received in other Asian countries. However, there are a few things to think about before making the leap into global branding. SK-II is not totally in line with the P&G portfolios and SK-II will need to build its brand awareness outside of Japan. Also, the hurdle of translating the product’s value in Western society needs to be analyzed and researched. The pros outweigh the cons and SK-II definitely has the potential to become a recognizable brand in the worldwide market. 3.
Which of the three market options should Paolo DeCesare recommend to the GLT? What benefits do you expect to gain? What risks do you see? Paolo DeCesare, after arriving in Japan, found that SK-II is already a successful product in Taiwan and Hong Kong. Because of this success, the management was encouraged to begin expanding into three market options including Singapore, Malaysia and South Korea. Even though these are relatively small markets, Paolo DeCesare thought that and SK-II would make a bold entry. Paolo DeCesare had three options to recommend.
The first, he would introduce the brand to mainland China where the beauty care management team was interested in the success following SK-II’s introduction into Taiwan and Korea. Secondly, he wanted to break into the western market, and third DeCaesare sought to restructure the strategy for brand positioning in Japan’s market. In regards to introducing the brand to Mainland China, P&G had previously had a problem with Olay after launching it in the country, but recovered by adding a service component. They built showrooms and staffed them with beauty consultants.
One of the major benefits of the China market comes from the brand’s popularity. It is predicted to become one of the largest markets in the world. On the other hand, being that P&G is a somewhat new company in China, their knowledge may be limited in the Chinese culture. And, all of SK-II’s other competitors are already offered in that market. So, the question arises – what is SK-II’s market readiness? To the customer, they are not familiar with this product’s application. They usually only apply a one-step program and have only recently started to switch to a three-step process.
So, the seven-step application of a product might appear tedious to a customer. China also has the reputation for selling counterfeit products. The market is flooded with copies of upscale products, which causes increased costs for import taxes. DeCaesare’s second option highlights that the target market for the product consists of a more affluent clientele of beauty conscious people; and Europe has a large number of customers that fit in this category. In the Western market, SK-II’s target audience is already using a six to eight-step skin care process.
Unfortunately for SK-II, this market is overcrowded and P&G would need to find a way to create market visibility. Brand awareness in Europe historically shows to be costly due to television and print ad prices. Option three, for restructuring the brand in Japan, P&G knows Japanese women are the most familiar, knowledgeable and are the leading consumers for the SK-II skin care solutions. It shows that Japan has the highest number of beauty-conscious consumers, which proves that the Japanese technologists have great insight in design that meets the product’s demand in that market.
Keep in mind that the cost of a market expansion might be more than diversifying, or creating, a product. The basics of the product can be revised by adding different options: anti-aging, anti-whitening, etc… The technologists and marketers in Japan work jointly to increase the accuracy of a skin’s diagnosis. Japan has a rich market where SK-II shows success. To innovate and add greater service, SK-II has potential to grow even more in Japan. However, trends from the past few years show the growth rate has atured. Therefore, a brand restructure may not garner attention from its customers. I would strongly suggest that P&G move forward with DeCaesare’s option to introduce SK-II into China. The Chinese market promises a significant potential for profit, being that the brand is already well received in similar regions of Hong Kong and Taiwan. The affluent Chinese consumers could likely share a similar outlook regarding skin care. It would be advisable to test SK-II practicability as suggested by Ram.
P&G could even try experimenting with a few counters in Shanghai, and if successful, move the brand to other urban areas. The introduction of SK-II in China would be an opportunity to tap into a large market that has the potential to increase the company’s profits, also allowing P&G the opportunity to learn how its products operate in a large developing country. By using China’s developing economy, P&G would garner marketing skills along with other valuable knowledge from the Chinese market that could be used in the future to enter in other developing nations.
However, a failure in the Chinese market would discourage future managers from suggesting brands or product lines for globalization. It could also mean that R&D personnel, who had been involved in new global product development activities, might now limit themselves to only a Japanese market. They might ignore other opportunities that could be utilized somewhere else, and now only focus on products that match Japanese consumers. This could deny the company of highly skilled personnel that could have been utilized in bringing new and innovative products.
4. How should he implement your recommended option? What are the implications for P&G’s new post-O2005 organization? What support and/or resistance do you expect? How will you manage it? Because there are many low-priced and counterfeited products in China, SK-II will need to build strong brand recognition. The brand positioning should be clear to the targeted consumer market. P&G will also need to educate their customer base on the application of the six to eight-step skin care process. Also, import duties will run around 35% to 40% which could hinder profitability.
But, by taking advantage of inexpensive personnel costs it will help to cut down on administrative expenses. The implementation of O2005, according to Jager, could enhance annual growth up to 15%, translating to a $900 million annual savings. But, he will need to implicate a change in work culture by decreasing an employee’s non-value added work. A change in processes from the traditional will also be necessary. By adding a performance based pay component would allow an incentive for staff. Also, Jager attached a stock option to all employees for extra motivation.
Maybe the most important, and dramatic, change would come from a shift in responsibility of profits from seven individual global business units to only four regional organizations. As stated, the O2005 implementation caused a great deal of disruption in organization and management detail, but the focus has now been shifted from the local area to the global playing field. Therefore, P&G will need to restructure their policies to from the headquarter office to fit with the new expansion. To manage the change P&G will need to focus on speed, communication within the markets, and stay on track with their global strategy.
The change will require aggressive measures from staff and management. The structure needs to work across all worldwide operations. Employee communication is essential. Employee buy-in could help in the success of the transformation. The top managers need to meet with employees from all levels to seek feedback on O2005. The global strategy should not be forgotten. As an important element, it should be structured to standardization across the board to align with all the areas. This will also help local managers to feel independent while the global standard is still being met.
