Executive Summary
To determine whether Procter & Gamble is a viable company to invest in, this report will evaluate it from following two aspects:
Development strategies
Financial standings
The analysis of Procter & Gamble’s development strategies is based on its official website and some creditable journals. Meanwhile, the company’s monetary data related to company’s financial statement is from the website, Mergent Online, which contains latest financial reports of Procter & Gamble.
A strong investment will bring the investor profits, and its strength connects closely with that company’s development potentials and prospects. The company’s development strategies sufficiently forecast those two things. At the same time, analysis of company previous monetary condition is indispensible to ensure that our investment has a long life.
After evaluating Procter & Gamble from these two criteria, I recommend our company to make an investment on it because this company’s good reputation among customers and prospective development potential will guarantee our company a substantial profit.
Introduction
William Procter and James Gamble founded Procter & Gamble in 1837, and its headquarters locates in Cincinnati, Ohio. Now, it develops one of largest consumer goods business and ranks 31st among Fortune 500 companies in 2014 according to Fortune magazine. Most products of Procter &Gamble concern with personal care, fabric and home care, medical aid, food and beverage. Its well-known brands consist of Olay, Ciairol, Rejoice, Tide, Crest, Charmin, Whisper, etc. In addition, it has taken over a number of national and foreign companies successively, including Thomas Hedley, Charmin Paper Mills, Tambrands, Max Factor, and Richardson Vicks (“Procter& Gamble”). Now, there are more than one hundred thousand employees in Procter & Gamble Company and its brands nearly spread over the world.
Development strategies
This part of report will demonstrate three major methods that Procter & Gamble Company uses to establish and develop its business: product innovation, quality management and marketing strategies. These three methods all show that the company has a strong development potential.
Product Innovation
Considering innovation as the motive force of its development, Procter & Gamble Company continuously introduces new products in different areas every year. Its innovative commodities help the company to expand the consumption market and earn a large profit. It has designed non-woven fabrics which contain fabric softener and can be used in dryer; it has contrived a Rejoice two-in-one shampoo which washes and cares hair simultaneously; it has ever proposed a fat-free oil Olean which is used in making snacks. Those creative products all became popular around the world rapidly. According to records on its own official website, it introduced Olay Regenerist Luminous Collection, Pamper Premium Care Pants and Crest Sensi-stop strips in 2014. Now, Procter & Gamble has more than twenty brands whose annual sales are above ten billion dollars, such as Tide, Olay and SK-II. The research team under each of these brands keeps inventing functional products. Presently, the company has more than 55,000 active patents. The number of innovations is still increasing and the company is engaged in creating better-performing products and building more customer preferences.
Quality Improvement
However, not all products that Procter & Gamble innovate have a good market repercussion and sometimes its customers are not satisfied with its commodities and will turn to other substitutes. Then, the company adopts another strategy and devotes itself to improving quality of their deficient products and meeting customers’ needs. The repeated quality improvement leads to customer preferences and regular usage. For instance, many consumers began to use cheaper Suava and Tresemmé and the sales of Pantene (a brand of Procter & Gamble) in U.S decreased by 9% during economic recession in 2009 (Byron). Procter & Gamble’s research group rapidly recognized the problem was that Pantene did not help those customers with their hair problem and too many type make them hard to choose. They aimed at different types of hair and spend years in “reformulate[ing] Pantene products, redesign[ing] the packages and par[ing] the line down from 12 ‘collections’ to eight” (Byron). In other divisions, Procter & Gamble also does not slack off. “P&G is famous for the lengths it will go to get insights into its customers’ needs—measuring toothbrush strokes or counting mascara coats and then devising products that make users feel good” (Byron). It also raises the cleaning power of Tide and other laundry brands, and it also increase the comfort of personal sanitary products. Those behaviors all indicate that this company always looks insight of customer’s needs and wants to provide best shopping experience. While it is impossible for a company to make every customer satisfied with its products, Procter & Gamble tries its best to improve the degree of satisfaction.
Marketing Strategies
More than that, Procter & Gamble’s effective marketing strategies also enable it to survive and develop in fierce rivalries of consumer goods industries. It has thousands of products and it tries to make its products outstanding to attract potential customers. Procter & Gamble has three major marketing strategies: multiple social media broadcast, different advertisements methods and diligent sample delivery.
In1880s, the company first invested on television advertisement to promote its new products. Later, they came up with a new market strategy and decided to sponsor soap operas. Nowadays, they also spend billions of dollars on social dissemination, such as social advertising. The company finds that social media sites such as Twitter, Facebook and YouTube could reach more customers with faster speed. “A company spokesperson [says], ‘As consumers spend more time online and via social media networks, our brands are naturally adding these options to their marketing plans as it helps them engage and serve consumers’” (Grove). The company always endeavors to find efficient way to capture more customers. On the other hand, their advertisements methods, including comparison, statistics, and celebrities’ testimony highlight the products’ practicality and reliability which solicit customers to the most degree. The company also uses a cheaper marketing strategy—free sample distribution. Contrasting with advertisement, dispatching samples enables customers to try out products themselves and leave them a first impression. Procter & Gamble distribute numerous samples every year, and this approach improves its brand publicity effectively. Generally, these three marketing methods all promise the company an attainable growth.
Procter & Gamble has a stable consumption market and a strong ambition to expand it. Its three development strategies are powerful weapons on the battle ground of expanding market.
Financial Standing
Before making an investment decision, we will also consider Procter & Gamble’s financial condition. Its solid financial standing already realized a durative gain and this trend will continue in the future. This category will focus on two major parts of the company’s financial standing: profitability and debt management which both indicate that the company will have a long-term future business life.
Profitability
The Net Sales of the company are continuously rising between 2010 and 2014. The number reaches 83,062 million in 2014 and the growth rate is 0.583%. Although Operating Income fluctuates in recent five years, it is gradually increasing from 2013. Dividends per Common Share, as a form of cash flow to shareholders, are very important for investor. In these five years, dividends steadily grow from 1.8 to 2.45 dollars per share. Those data demonstrate that Procter & Gamble is growing steadily and the financial condition in this company is favorable.
Debt Management
On the other hand, this subcategory will consider its debt management ratios to determine whether Procter & Gamble balances its debt and equity and whether it can avoid financial distress in the long run. Its Total Debt to Equity (Total Debt/ Equity) is slightly fluctuating around 0.5. It means that the company does not have overfull financial leverage and it always keep the ratio in a certain range to make sure shareholders will not lose much in bad sale year. Its interest coverage ratio (earnings before interest and taxes/ interest expense) is increasing from 16.94 to 25.1 in recent five years. A high interest coverage ratio means Procter & Gamble Company has far more revenue to cover its interest expense.
Overall, Procter & Gamble makes a good tradeoff between benefits of debt and risk of financial distress. Based on the analysis of these ratios, we can expect that this company will have a long-term business life and it will develop better and faster in the future.
Weakness: Environmental impact
However, some of Procter & Gamble’ products have negative effects on environment, such as laundry detergent and skin care products. Managers and executives in Procter & Gamble maintain that they are trying to reducing environmental impact through conserving resources which means use less and produce more, and they also assert that their long-term goal is to use 100% recycled material. However, these pronouncements are not completely reliable and the company is accused of damaging environment by some scientists. Scientists find out that the microbeads in some skin care products will damage marine life. “Marine species are unable to distinguish between food and mircobeads…To make things worse, mircobeads can act like tiny sponges, absorbing several other dangerous chemicals” (DuFault). Unfortunately, Procter & Gamble is one of companies which use pollutive microbeads in their beauty products. The amount it uses is unknown, but the impact on environment will certainly influence its reputation.
Recommendation
Although Procter & Gamble is charged of using pollutive microbeads, they pledge to replace them by other natural pollution-free alternatives. In this way, this company is trying to do better. On the other hand, based on analysis it also has a prospective development potential and good financial condition. Therefore, I recommend our company to invest Procter & Gamble Company and there is a strong possibility that this investment will consolidate our company’s future position.
Works Cited
Byron, Ellen. “ Wash Away Bad Hair Days.” The Wall Street Journal. n.a. ( 2010): n. pag. Web. 23 April 2015.
“Procter& Gamble.” Wikipedia. Wikimedia Foundation, 20 April 2015. Web. 23 April 2015.
Grove, Jennifer Van. “P & G shifts Marketing Strategy From Soap Operas to Social Media.” Mashable. Mashable, 10 Dec. 2010. Web. 23 April 2015.
DuFault, Amy. “Ditching mircrobeads: the search for sustainable skincare.” theguardian. Grundfos, 5 May 2014. Web. 23 April 2015.
