Procter and Gamble (P&G) Porter Five Forces Analysis
Five Forces analysis of Procter and Gamble (P&G) covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Procter and Gamble was founded in 1837 and is a multinational company specializing in a wide range of segments, including beauty, grooming, healthcare, personal care, food, snacks, beverages, etc. They have around 65 individual brands, which are organized into 10 product categories. Entry into a particular segment or brand is relatively easier, but creating a massive company with multiple brands requires huge capital investment. Each and every brand under P&G has excellent brand equity and has developed a reputation over the years. The new entrants could have new innovative methods, which could be a competitive advantage for them. The products under P&G are all scalable and can be mass-produced; therefore, creating a vast supply chain and distribution systems would be difficult for a new entrant. Therefore, for a new entrant, it is possible to compete with a particular segment, but becoming such a giant in multiple sectors is going to be an arduous task.
Image: company website
This concludes the threat of new entrants in the Procter and Gamble (P&G) Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Procter and Gamble (P&G):
The various segments under the company can be easily replaced and therefore, the switching costs are low. Each segment has its own set of competitors and market leaders too.
There are some segments like soaps, shampoos, and personal care where there is significantly less threat of substitute. The cost of switching in such segments is higher. P&G also has some segments where they have more than one brand. Therefore there is a threat of one of the internal brands cannibalizing the other. P&G could have two products placed at two different price ranges. People could switch between them depending on their requirements and affordability, thereby cannibalizing their company products. Sometimes product placement on the shelf space also plays a huge role in creating visibility among customers. Various taglines and advertisements create brand image and perception in the customers' minds, which gets reflected while purchasing. Therefore, there could be simple knock-offs of various brands that could increase their sales if placed on the shelf with the market leader.
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Bargaining Power of Customers:
In the Procter and Gamble (P&G) Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The customers of Procter and Gamble belong to every walk of life. They could be mass merchandisers, grocery stores, drug stores, E-commerce retailers, and distributors. P&G is present in more than 180 countries and has more than 5 billion customers. Since the company is a fast-moving consumer goods company, they have very low switching costs. There is very little product differentiation in this case. The products are also less price-sensitive due to this. Since there are many products in each segment, the customers have a wide variety to select from. P&G has successfully created brands that are etched in the minds of the consumers by even being the market leader in some categories. The company also comes with many sales and discounts to attract more customers. Companies like P&G depend more on retail stores to place their product in the visible range of the customer.
Therefore, the bargaining power of customers is very low.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Procter and Gamble (P&G):
Procter and Gamble has more than 80000 suppliers worldwide, and the company also awards the top-performing business partners too. The distribution system in FMCG products is usually large and plays a crucial role in the company's sales. Forward integration is possible because the Research and Development required in this sector is very low. The suppliers mainly provide the raw materials, technologies required for manufacturing, and packaging materials. The cost of switching suppliers is also low. Hence, they cannot influence the prices. In case the company faces some issue with the suppliers, where they have increased the prices, thereby increasing the company costs, P&G can easily replace the suppliers as and when required. An efficient supply chain in FMCG companies is vital for the smooth manufacturing and distribution of products. The company has to be careful the raw materials received are standardized and up to the quality. Therefore, the suppliers should be compliant with the regulations set by the company.
Competitive Rivalry:
The impact of key competitors in the Procter and Gamble (P&G) Porter Five Forces Analysis is as follows:
The main competitors of Procter and Gamble are Unilever, Johnson and Johnson, Colgate-Palmolive, Dabur, and many more. There are many companies against P&G, and each firm has a large variety of segments under them. Since the products have very little differentiation, the cost of switching is also very low, almost zero. There are many companies mainly in this Fast Moving Consumer Goods industry. The presence of many companies prevents a monopolistic kind of environment and supports healthy competition. To remain relevant in this industry, P&G can launch new products from time to time. If there is no product launch, then at least the packaging has to be renewed to make it more attractive. Advertisements also play a crucial role in placing the product in the customer's mind. Discounts, sales, and various offers also increase sales.
Another way to make the company more visible is to hop onto the trends and post witty tweets or Instagram posts.
To conclude, the above Procter and Gamble (P&G) Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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