P&G case study
1- What is P&G’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?
P&G has 4 core companies and steel to be competitive thanks to his strategy which is based on different successful points. Indeed,P&G’s strategy for success in the marketplace can be exposed into 5 points. They build existing core businesses into stronger global leader. It means that each of the 4 core companies is important and P&G grew market share in all four core categories P&G is the global leader in all four core categories. Baby Care and Feminine Care both have global shares above 35%. Fabric Care has morethan a 30% share globally. Hair Care is over 20% in a large and fragmented category. P&G is growing share in categories that represent more than two-thirds of Company sales. Since 2000, they have grown P&G’s billion-dollar brand lineup from 10 to 17 brands. Moreover, P&G has improved on cost productivity structure in order to be able to make investments and to generate strong free cashflow. As a result of innovation at affordable price, investment, increase in productivity during 4 years (even if we have to understand a long term performance), sales have increased of 7 %, and about the volume growth they have increased of 8% in household care and family health, and 12% for P&G beauty. This strategy is necessary to provide the best consumer value. P&G aspires to be theleading consumer products company in sales, profitability, market capitalization, shareholder return, and in each of our core strengths. They are creating sustainable leadership advantages in branding, innovation, go-to-market capability, and scale. Everything is in line with the strategy, indeed, P&G has the largest lineup of leading brands in the industry, the industry’s largest pools ofconsumer data and translate the consumer understanding into innovation, they provide stronger retailers partnerships.
2- What business risks do P&G face that may threaten its ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks?
Even if G&P has significant growth opportunities, they have to stayrealistic about the challenge of the future. Indeed, P&G could meet difficulties to satisfy stockholder expectations, especially in 2005. We know that operating cash flow provides the primary source of funds to finance operating needs and capital expenditures. Stockholder expectations are to have dividends from the excess operating cash. So we can say that free cash flow is an important measurebecause it’s a factor which impacts the amount of cash available for dividends. It’s defined as operating cash flow less capital expenditures and is one of the measures used to evaluate senior management and determine their at-risk compensation. In 2005, free cash flow was $6.54 billion compared to $7.34 billion in 2004. In addition to lower operating cash flow, free cash flow declined over-year due tohigher capital expenditures. Capital expenditures in 2005 were higher than in 2004, but still below the target of capital spending at or below 4% of net sales. To reduce these risks, the company could control better the capital expenditures.
There are others risks in the market which also have to take in consideration to satisfy shareholders’ expectations. Changes in interest are linked to debts,so if both of them grow, it lead to decrease in shareholders’ equity. In order to manage interest rate risk, P&G Company uses a mixture of fixed-rate and variable-rate debt combines with interest rate swaps which is used to exchange with the counterparty. Moreover, currency exchange could be a risk for the company because they sell their product in many different countries throughout the...
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