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Proctor & Gamble （P&G）， which has been thriving in China for 25 years， now seems to be fragile and vulnerable in this country. The latest data showed that L’Oreal’s sales in China amounted to 13.28 billion yuan in 2013， which increased by 10.2%， increasing the number of years in a row with double-digit to 13. Unilever， 60% of whose revenue comes from China， saw the 3.1% increase in its revenue.
P&G’s performance in China pales in front of those two competitors as its sales volume in this country only had a 1% year-on-year increase in 2013.
The shrinking revenue increase stands beside the lost market share. P&G has lost its leading place in the sectors of cosmetics， skincare products， high-end makeups， medical cosmetics for skincare products， and professional hairdressing. And its advantages in the fields of soap and detergent are on the verge of collapse under the attack of Unilever and other companies.
The Chinese local consumer goods companies like Blue Moon， Cnnice， Chcedo and Herbalife are also posing a great threat that unnerved P&G greatly. The data from Euromonitor shows that P&G now takes 19.7% of the toothpaste market in China， lower than before. In the market of washing powder and soap， local brands Lyba and Cnnice take 27.6% together while P&G’s market share is only 7.6%.
The U.S. company is undergoing an unprecedented crisis in China.
The Staggering P&G
Many Chinese people could give out a long list of P&G’s products： Head& Shoulders， Rejoice， Crest， Olay…The 176-year P&G almost threw all its 300 or more brands into the Chinese market. In the initial period of its development in China， a bottle of Head& Shoulders shampoo cost 19 yuan. For an ordinary working-class person in China whose monthly salary was around 100 yuan， what he/she spent on a bottle of Head & Shoulders is definitely huge. Therefore， P&G was once considered to be a “luxury brand’ in China.
With Head & Shoulders as the frontrunner， Rejoice， Pantene， Olay and other products came into China one after another. With their high quality and price， they soon won over the rich men in China who could afford them. The prosperity did not last long， though， as more companies of chemical products for daily use got into this market through the low-end channels. P&G was forced to give up its affinity to the nobility and lowered the prices of some of its products to get consumers in the low- and medium-end market. Though P&G finished the transition from the pattern of high price and small amount to the one featuring low price and big volume， it has to submit to the fate that it is no longer the sole champion in the Chinese market of consumer goods. In spite of its recession， nobody can deny P&G’s role in introducing and improving the concepts of chemical products for daily use in China， as well as its ability to create and lead the fashion. For example， it took the lead in launching the shampoo with two functions combined together targeting both the hair cleaning and hair protection. However， it is still outpaced by the ever-improving market of fast consumer goods. Previously， consumers liked the products with a lot of functions， but now， they want the products each having one but the best effect. So， there are hair conditioners needed other than shampoo； cloth softener emerged as an additional product to the washing powder. Even the toothpaste is given different meanings and functions： whitening， antiallergy， acid proofing and removing tobacco stain.
According to the statistical data， 50% of the increase in the market of chemical products for daily use comes from the upgrade of consumption. P&G， which is a bit slow to the changes， seems lost in the ever-upgrading market.
Outpaced by the market upgrade， P&G also found that the consumers are changing as well. Previously， they liked cheap products. For this， P&G just downsized some of its products， consumers has now become willing to pay a high price for the famous brands. Presently， the Chinese consumers share one sense that the more expensive the thing is， the more useful it is. In order to be adapted to the new change， P&G once tried to add high-end sub-brands in the families of Head & Shoulders and Pantene， whose price is twice the ordinary ones. However， Chinese consumers have remembered Pantene and Head& Shoulders as they originally were， rendering the high-end products unable to jump out of the frame. Meanwhile， though P&G has high-end products like Olay and SK-II， they are not free from problems. Olay is losing its charm for young female consumers while SK- II is still struggling to get rid of the influence of the quality issues. Without reliable and progressive high-end products， P&G is just like a tower without its spire. Since this part has the highest profit margin， for P&G， it is necessary to rebuild one or more high-end brands to fight against the other companies’products.
Impotent Innovation
In recent five years， P&G only launched six new kinds of products in the Chinese market. This is considered a mark for P&G’s incompetence in the innovation. Its Tides and Ariel give priority to the laundry detergent in the U.S.， but in China， the fostering of this subdivided market and the education of consumers are done by Chinese local companies while P&G is four years later. Similarly， P&G did not launch skincare products for male consumers until several years passed after L’Oreal began to develop this market. The digital marketing also witnessed P&G’s slowness as it only invested in this field in recent years， two years later than Unilever. Since the Chinese market of chemical products for daily use was under the long-time rule of foreign brands， the Chinese local companies could only earn their survival and development on the sub-divided markets. Even though they have no advanced technologies like their international peers， their concentration of efforts on one sector could open up a certain market for them. For example， the herbal products featuring traditional Chinese medicine and natural water absorption were initiated and promoted by local companies. The rage created a group of wellestablished local brands. P&G chose to be a follower again this time， but the five years’ gap is hard to be filled in a short while.
How to make products whose price and effect could beat the alreadyexisting products is now a complicated problem for P&G in China since it has been the leader for a long while and has not got used to the new role. This precautious situation made P&G extremely cautious in launching new products. It could no longer bear the blow from the failure of new products in spite of the high investment into it. Its Runyan shampoo， which advocates the concept of blackening the hair， was once expected to be the fifth shampoo brand of P&G in China， but its high price， and the lack of advantages in recipe compared with similar products made it only last two years in the market. With these cases， P&G chose to incorporate the new product into a matured brand family in China.
Apart from the fear of failure that restrains P&G’s ability of innovation， P&G’s traditional innovation ability also hinders its way to create new things. Alan George Lafley， the current board chairman and CEO of P&G， launched the “CD pattern” for the company’s innovation ten years ago. This pattern， also known as Connect and Develop， requires 50% of the innovation projects to come from outside of the company. The “Connect and Develop” pattern re-defined the relations P&G had with suppliers and consumers， giving the company an unlimited access to the outside innovations. It is said that 35% of the innovations of P&G’s alreadylaunched new products came from the sources outside of the company and the foreign source constitute 45% of the products under development.
The “Connect and Develop” pattern used to be considered a classical mode and was enlisted into the textbooks of Harvard Business School. However， it is now under increasing criticism， because it has stopped P&G from launching heavyweight products and impaired P&G’s own innovation ability by 50%. The cutting out of the innovation is a soft spot that P&G has to pay attention to. Presently， the authority of P&G is globally shared by the heads of headquarters’ HR， marketing and financial departments， regional directors and leaders of each business unit. A team in a regional market has to report to various departments about anything con- cerning the introduction of new products， the R&D， the marketing and so on. The slow and inefficient process of communication definitely stands in the way of the innovation and stops P&G from keeping up with the changing market. Take Oceanea product for example， the team of P&G in China sensed the opportunity of moisturizing products in the market several years ago. However， the lengthy and inefficient communication with the headquarters of P&G made the product unable to come out until last year. By then the market had already been taken by other brands.
The Stress in Channels
The first- and second-tier cities of China are undoubtedly the main battlefield of the foreign and domestic enterprises of chemical products for daily use. The increasing number of players has overfilled the market. Therefore， many of the brands began to turn the third-tier or even lesser cities of China because they can have higher growth rate there. For example， there are 140 thousand cosmetics shops in China and 90 thousand of them are located in the third- to sixth tier cities， where the sales volume of cosmetics could maintain a 70%-80% growth rate. Therefore， both the Chinese and domestic companies do not want to let go of this market.
However， for P&G and other foreign companies， the lesser cities are a complicated market and they are far less adapted to this place compared with domestic companies. This is because， on one hand， the local brands have longtime cooperation with the retailers in these cities， leading to the strong bound by feelings， and on the other hand， the flexible sales pattern of local brands are more efficient and favored in lesser cities， which have scattered and disorder distribution channels. Local companies usually have a large number of salespersons to assist in the promotion and maintenance. In addition， they could even directly offer subsidies to retailers. Since most of these shops are small in size and has limited display place， many shop owners choose to display one sample for a kind of product. Local brands have various kinds of products based on the functions and concepts， which could make the best use of the display areas in small shops. Apparently， P&G is no longer able to take the market as wildly and freely as it did in the major cities of China 20 years ago. It has met numerous obstacles in infiltrating into the lesser cities. In order to avoid the all-around confrontation with Chinese local brands in the lesser cities， P&G chose to only introduce one or two kinds of products targeting a certain group of consumers. However， this strategy renders the upgrade of P&G’s products less satisfactory for consumers.
After being bound in the lesser cities， P&G found its normal development pattern disrupted by the rise of Internet retail. In China， P&G handles the offline sales through founding a titer one agency， which then delegate sthe distribution to the provincial tier-two agencies. The various marketing and advertising efforts are actually made for these agencies in addition to itself. If P&G begins to massively develop its online retail， the comparatively lower price of things sold online will definitely hurt these offline agencies’ benefits. Therefore， P&G cannot open up the Internet sale and change the distribution pattern quickly to avoid conflicts with the offline distributors. However， the slow change led to the underperformance of P&G in distribution， especially when it comes to the online distribution.
In addition， P&G still clings to the thought that things sold online are cheap and low-end products， which do not match the profile of P&G. This might be right five years ago， but in today’s society where even carmakers begin to sell their products online， the“damage of brand image” can no longer serve as the excuse for P&G to avoid the online retail.
Looming Rebound？
In 2013， the market of chemical products for daily use in China increased by 15% and the market volume now hits 100 billion yuan. In addition， the research co-sponsored by L’Oreal and McKinsey shows that China has become the most promising beauty products in the world. The sales in China ranked No. 4 in the world and is expected to surpass the one of U.S. market in 2015. What’s more important for P&G is that its sales volume in China ranked No. 2 in all of its regional markets， while the sales revenue is the fourth largest. That means China is among the most impor- tant markets for P&G. So it would give up this market in spite of the difficulties it is meeting now.
“Reducing the operating cost and improving the production efficiency” is what Lafley offered to P&G as its new global strategy after re-taking the CEO of this company. P&G plans to reduce the cost of US$10 billion and cut off 8000 jobs before the 2016 financial year. It is known that the company had already reduced 5700 non-manufacturing jobs by the end of 2013， saving the cost of US$1.2 billion. This allowed P&G to shift its focus to the improvement of production efficiency in the future. Highlighting the core business and enhancing the innovations are the two engines to improve the efficiency. Therefore， P&G divided the three departments of family care， beauty and cleaning to four department of， baby and family care， beauty， healthy cleaning， fabric and home care. The purpose is to intensify the competition among these departments， encouraging them to be more focused on the innovation.
Following Lafley’s strategy of “creating more new products to change the fate of high-profitability beauty brands”， P&G is likely to throw more products into the series of SK-II， Pantene， Olay and other brands to compete with L’Oreal and Shanghai Jahwa. It is expected to take back the market share through upgrading the products’ packages and ingredients， increasing the spending on advertising and improving the efficiency of sales terminals.
In addition， P&G is likely to develop new and independent brands in China. It has changed the structure of its sales team in China， incorporating the special stress and third-party retailers into a unified and professional channel. The change allows P&G to concentrate their power on the promotion of the new products.
The massive delivery of ads is still a powerful tool P&G is wielding. In 2013， the company took the champion of the spending on advertising in China with the investment of 34.1 billion yuan. In the future， P&G is going to intensify its efforts in digital marketing. It is known that P&G spends 25%-35% of their total marketing fees on digital marketing globally， but in China the proportion is less than 15%， showing the grand potential of digital marketing in this field.
P&G’s performance in China pales in front of those two competitors as its sales volume in this country only had a 1% year-on-year increase in 2013.
The shrinking revenue increase stands beside the lost market share. P&G has lost its leading place in the sectors of cosmetics， skincare products， high-end makeups， medical cosmetics for skincare products， and professional hairdressing. And its advantages in the fields of soap and detergent are on the verge of collapse under the attack of Unilever and other companies.
The Chinese local consumer goods companies like Blue Moon， Cnnice， Chcedo and Herbalife are also posing a great threat that unnerved P&G greatly. The data from Euromonitor shows that P&G now takes 19.7% of the toothpaste market in China， lower than before. In the market of washing powder and soap， local brands Lyba and Cnnice take 27.6% together while P&G’s market share is only 7.6%.
The U.S. company is undergoing an unprecedented crisis in China.
The Staggering P&G
Many Chinese people could give out a long list of P&G’s products： Head& Shoulders， Rejoice， Crest， Olay…The 176-year P&G almost threw all its 300 or more brands into the Chinese market. In the initial period of its development in China， a bottle of Head& Shoulders shampoo cost 19 yuan. For an ordinary working-class person in China whose monthly salary was around 100 yuan， what he/she spent on a bottle of Head & Shoulders is definitely huge. Therefore， P&G was once considered to be a “luxury brand’ in China.
With Head & Shoulders as the frontrunner， Rejoice， Pantene， Olay and other products came into China one after another. With their high quality and price， they soon won over the rich men in China who could afford them. The prosperity did not last long， though， as more companies of chemical products for daily use got into this market through the low-end channels. P&G was forced to give up its affinity to the nobility and lowered the prices of some of its products to get consumers in the low- and medium-end market. Though P&G finished the transition from the pattern of high price and small amount to the one featuring low price and big volume， it has to submit to the fate that it is no longer the sole champion in the Chinese market of consumer goods. In spite of its recession， nobody can deny P&G’s role in introducing and improving the concepts of chemical products for daily use in China， as well as its ability to create and lead the fashion. For example， it took the lead in launching the shampoo with two functions combined together targeting both the hair cleaning and hair protection. However， it is still outpaced by the ever-improving market of fast consumer goods. Previously， consumers liked the products with a lot of functions， but now， they want the products each having one but the best effect. So， there are hair conditioners needed other than shampoo； cloth softener emerged as an additional product to the washing powder. Even the toothpaste is given different meanings and functions： whitening， antiallergy， acid proofing and removing tobacco stain.
According to the statistical data， 50% of the increase in the market of chemical products for daily use comes from the upgrade of consumption. P&G， which is a bit slow to the changes， seems lost in the ever-upgrading market.
Outpaced by the market upgrade， P&G also found that the consumers are changing as well. Previously， they liked cheap products. For this， P&G just downsized some of its products， consumers has now become willing to pay a high price for the famous brands. Presently， the Chinese consumers share one sense that the more expensive the thing is， the more useful it is. In order to be adapted to the new change， P&G once tried to add high-end sub-brands in the families of Head & Shoulders and Pantene， whose price is twice the ordinary ones. However， Chinese consumers have remembered Pantene and Head& Shoulders as they originally were， rendering the high-end products unable to jump out of the frame. Meanwhile， though P&G has high-end products like Olay and SK-II， they are not free from problems. Olay is losing its charm for young female consumers while SK- II is still struggling to get rid of the influence of the quality issues. Without reliable and progressive high-end products， P&G is just like a tower without its spire. Since this part has the highest profit margin， for P&G， it is necessary to rebuild one or more high-end brands to fight against the other companies’products.
Impotent Innovation
In recent five years， P&G only launched six new kinds of products in the Chinese market. This is considered a mark for P&G’s incompetence in the innovation. Its Tides and Ariel give priority to the laundry detergent in the U.S.， but in China， the fostering of this subdivided market and the education of consumers are done by Chinese local companies while P&G is four years later. Similarly， P&G did not launch skincare products for male consumers until several years passed after L’Oreal began to develop this market. The digital marketing also witnessed P&G’s slowness as it only invested in this field in recent years， two years later than Unilever. Since the Chinese market of chemical products for daily use was under the long-time rule of foreign brands， the Chinese local companies could only earn their survival and development on the sub-divided markets. Even though they have no advanced technologies like their international peers， their concentration of efforts on one sector could open up a certain market for them. For example， the herbal products featuring traditional Chinese medicine and natural water absorption were initiated and promoted by local companies. The rage created a group of wellestablished local brands. P&G chose to be a follower again this time， but the five years’ gap is hard to be filled in a short while.
How to make products whose price and effect could beat the alreadyexisting products is now a complicated problem for P&G in China since it has been the leader for a long while and has not got used to the new role. This precautious situation made P&G extremely cautious in launching new products. It could no longer bear the blow from the failure of new products in spite of the high investment into it. Its Runyan shampoo， which advocates the concept of blackening the hair， was once expected to be the fifth shampoo brand of P&G in China， but its high price， and the lack of advantages in recipe compared with similar products made it only last two years in the market. With these cases， P&G chose to incorporate the new product into a matured brand family in China.
Apart from the fear of failure that restrains P&G’s ability of innovation， P&G’s traditional innovation ability also hinders its way to create new things. Alan George Lafley， the current board chairman and CEO of P&G， launched the “CD pattern” for the company’s innovation ten years ago. This pattern， also known as Connect and Develop， requires 50% of the innovation projects to come from outside of the company. The “Connect and Develop” pattern re-defined the relations P&G had with suppliers and consumers， giving the company an unlimited access to the outside innovations. It is said that 35% of the innovations of P&G’s alreadylaunched new products came from the sources outside of the company and the foreign source constitute 45% of the products under development.
The “Connect and Develop” pattern used to be considered a classical mode and was enlisted into the textbooks of Harvard Business School. However， it is now under increasing criticism， because it has stopped P&G from launching heavyweight products and impaired P&G’s own innovation ability by 50%. The cutting out of the innovation is a soft spot that P&G has to pay attention to. Presently， the authority of P&G is globally shared by the heads of headquarters’ HR， marketing and financial departments， regional directors and leaders of each business unit. A team in a regional market has to report to various departments about anything con- cerning the introduction of new products， the R&D， the marketing and so on. The slow and inefficient process of communication definitely stands in the way of the innovation and stops P&G from keeping up with the changing market. Take Oceanea product for example， the team of P&G in China sensed the opportunity of moisturizing products in the market several years ago. However， the lengthy and inefficient communication with the headquarters of P&G made the product unable to come out until last year. By then the market had already been taken by other brands.
The Stress in Channels
The first- and second-tier cities of China are undoubtedly the main battlefield of the foreign and domestic enterprises of chemical products for daily use. The increasing number of players has overfilled the market. Therefore， many of the brands began to turn the third-tier or even lesser cities of China because they can have higher growth rate there. For example， there are 140 thousand cosmetics shops in China and 90 thousand of them are located in the third- to sixth tier cities， where the sales volume of cosmetics could maintain a 70%-80% growth rate. Therefore， both the Chinese and domestic companies do not want to let go of this market.
However， for P&G and other foreign companies， the lesser cities are a complicated market and they are far less adapted to this place compared with domestic companies. This is because， on one hand， the local brands have longtime cooperation with the retailers in these cities， leading to the strong bound by feelings， and on the other hand， the flexible sales pattern of local brands are more efficient and favored in lesser cities， which have scattered and disorder distribution channels. Local companies usually have a large number of salespersons to assist in the promotion and maintenance. In addition， they could even directly offer subsidies to retailers. Since most of these shops are small in size and has limited display place， many shop owners choose to display one sample for a kind of product. Local brands have various kinds of products based on the functions and concepts， which could make the best use of the display areas in small shops. Apparently， P&G is no longer able to take the market as wildly and freely as it did in the major cities of China 20 years ago. It has met numerous obstacles in infiltrating into the lesser cities. In order to avoid the all-around confrontation with Chinese local brands in the lesser cities， P&G chose to only introduce one or two kinds of products targeting a certain group of consumers. However， this strategy renders the upgrade of P&G’s products less satisfactory for consumers.
After being bound in the lesser cities， P&G found its normal development pattern disrupted by the rise of Internet retail. In China， P&G handles the offline sales through founding a titer one agency， which then delegate sthe distribution to the provincial tier-two agencies. The various marketing and advertising efforts are actually made for these agencies in addition to itself. If P&G begins to massively develop its online retail， the comparatively lower price of things sold online will definitely hurt these offline agencies’ benefits. Therefore， P&G cannot open up the Internet sale and change the distribution pattern quickly to avoid conflicts with the offline distributors. However， the slow change led to the underperformance of P&G in distribution， especially when it comes to the online distribution.
In addition， P&G still clings to the thought that things sold online are cheap and low-end products， which do not match the profile of P&G. This might be right five years ago， but in today’s society where even carmakers begin to sell their products online， the“damage of brand image” can no longer serve as the excuse for P&G to avoid the online retail.
Looming Rebound？
In 2013， the market of chemical products for daily use in China increased by 15% and the market volume now hits 100 billion yuan. In addition， the research co-sponsored by L’Oreal and McKinsey shows that China has become the most promising beauty products in the world. The sales in China ranked No. 4 in the world and is expected to surpass the one of U.S. market in 2015. What’s more important for P&G is that its sales volume in China ranked No. 2 in all of its regional markets， while the sales revenue is the fourth largest. That means China is among the most impor- tant markets for P&G. So it would give up this market in spite of the difficulties it is meeting now.
“Reducing the operating cost and improving the production efficiency” is what Lafley offered to P&G as its new global strategy after re-taking the CEO of this company. P&G plans to reduce the cost of US$10 billion and cut off 8000 jobs before the 2016 financial year. It is known that the company had already reduced 5700 non-manufacturing jobs by the end of 2013， saving the cost of US$1.2 billion. This allowed P&G to shift its focus to the improvement of production efficiency in the future. Highlighting the core business and enhancing the innovations are the two engines to improve the efficiency. Therefore， P&G divided the three departments of family care， beauty and cleaning to four department of， baby and family care， beauty， healthy cleaning， fabric and home care. The purpose is to intensify the competition among these departments， encouraging them to be more focused on the innovation.
Following Lafley’s strategy of “creating more new products to change the fate of high-profitability beauty brands”， P&G is likely to throw more products into the series of SK-II， Pantene， Olay and other brands to compete with L’Oreal and Shanghai Jahwa. It is expected to take back the market share through upgrading the products’ packages and ingredients， increasing the spending on advertising and improving the efficiency of sales terminals.
In addition， P&G is likely to develop new and independent brands in China. It has changed the structure of its sales team in China， incorporating the special stress and third-party retailers into a unified and professional channel. The change allows P&G to concentrate their power on the promotion of the new products.
The massive delivery of ads is still a powerful tool P&G is wielding. In 2013， the company took the champion of the spending on advertising in China with the investment of 34.1 billion yuan. In the future， P&G is going to intensify its efforts in digital marketing. It is known that P&G spends 25%-35% of their total marketing fees on digital marketing globally， but in China the proportion is less than 15%， showing the grand potential of digital marketing in this field.