Case that, Paolo de Cesare is stationed to Japan

Case
Summary

This case explains the
changes that P&G international is going to make in terms of its strategy
and structure, reaching in introducing a new blue print called Organization-2005,
a re-structuring which puts emphasis on product innovation ahead of geographical
expansion and shifts power from local subsidiary to global business management.
Durk Jager, P&G’s new CEO introduced this blueprint and as a result of that,
Paolo de Cesare is stationed to Japan to take over the beauty care business.
Within the familiar Max Factor portfolio, P inherited SK-II, a
fast-growing, high margin skin care product originated from Japan. SK-II is
priced at about $120 per bottle making it being not a typical P product,
but its success in Taiwan and Hong Kong made Paulo de Cesare thinking the brand
has global potential. He is asking himself whether he should take a proposal to
the beauty care global business unit to expand into other major markets or not.

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Analysis

Paulo de Cesare has the vision to make SK-II
as the brand which will solve individual skin care problems. In November 1999,
he is about to attend a meeting with Global Leadership Team (GLT) of P’s
global business unit to give his expert judgments which will explain whether SK-II,
a highly respected skin care line from Japan, has the potential to become a
global P&G brand. To help Cesare comes into conclusion, I am going to look
into how the product has fared in Japan and other markets to get the insights
which Cesare will use. SK-II had succeeded in small markets outside Japan such
as Taiwan and Hong Kong which gave a lot confidence to the management of
P&G to think about expanding to bigger markets. The following is the
diagnosis of SK-II skin care product by looking at its corresponding pros and
cons.

Advantages

·       A very high margin product.
Customers are willing to pay up to $120 per bottle

·       A high quality (unperfumed
and distinctive odor) product

·       Big brand image

·       Succeeded in Taiwan and
Hong Kong

Disadvantages

·       Not inline with the P&G
portfolio

·       Have a little awareness
outside Japan

·       Unsure if the product will
be able to translate product value (multi-step series of actions) in major
markets such as France, Germany

SK-II has the potential to be the global
brand due to above mentioned SK-II’s pros and cons as well as a strong
technology base and success in other markets outside Japan,

Next, I am going to explore and examine the
three available options for P by looking at the pros and cons of each
option.

1.     Expansion in Japan

SK-II showed tremendous
sales volume of about $150 million in 1999 but, Paulo de Cesare was aware that the
growth of Japanese market has gone down (5% per annum) in recent years and he
discovered that both marketing and technology teams for SK-II have come
together to create a scientific equipment for lab technicians which will
measure some improvements in skin conditions. Japanese beauty market is very
huge with about $10 billion in it, even considered bigger than the U.S laundry
market.

Advantages

·      
Japanese
women are discriminative (have the ability to pick the best products) and
demanding (always wants the best).

·      
The
beauty market has a great deal of money ($10 billion)

·      
Strong
team (lab technicians, beauty consultants) and technological resources such as
research labs and an innovative beauty imaging system.

Disadvantages

·      
Growth
have not been so impressive in the last three years (slowed to 5%).

·      
P
is well known for cheaper products but the SK-II is a high-end product

2.     Moving to China

P has been doing
business in China since 1988 but struggled in early years but slowly gathered
the pace and became successful by deploying non-traditional strategy. Since the
Chinese market is well known for cheaper prices, P had to justify its
premium price by selling through counters located in stores staffed by beauty
counselors which made a big impact in getting more market share.

Advantages

·      
Have
learnt from previous mistakes and recovered

·      
Predicted
to be second largest market

·      
Skin
care practices in China are more developed compared to other developed markets

·      
Expert
judgments show that SK-II could still be profitable expanding in China

·      
There
are potential market opportunities still uncovered such as Guangzhou

Disadvantages

·      
SK-II
is a new product in a ‘too good to be true’ Chinese market

·      
Almost
all major competitors (Unilever, Kao) are doing business in China since the
market is very much open to international retailers

·      
Customers
in China are not used to the four-to-six steps of SK-II’s regimen. Skeptics
think the market is not ready for SK-II

·      
A
supply of SK-II’s four-steps regimen monthly, could cost an average customer more
than their monthly pay

·      
China
has a great deal of prestige counterfeit products

·      
The
bureaucracy existing in China lead to up to one year import registration
process

 

3.     Moving to Europe

Paulo de Cesare, knows very
well the European market but he is unsure whether there will be a market
segment willing to adopt the six to eight-step act used by Japanese SK-II users.
Paulo de Cesare decided to seek for advice from his former boss, Mike Thompson
who believed SK-II won’t have a good access to the European market.

Advantages

·      
Paulo
de Cesare is knowledgeable about the market dynamics 

·      
The
Europe target market is large and consists of sophisticated beauty-conscious
customers such as Mike’s wife who used to be a loyal customer to SK-II

·      
Customers
had already practiced the multi-steps regimen unlike China

·      
The
fragrance market is very promising

Disadvantages

·      
Market
is crowded with high profile competitors such as Estee Lauder, Clinique, Dior

·      
Unlike
Japan, Hong Kong and Taiwan, the TV advertising costs in Europe are expensive.
This will hinder the act creating brand awareness

·      
Typical
SK-II Japanese distribution strategies not fit the European ways

 

Recommendation

Having pointed
out the pros and cons of each option, I recommend P to select the ‘Expansion in Japan’ option because of
the following main reasons.

·       To date, the Japanese beauty market is the largest in the world (Paulo de Cesare, 2017). If properly exploited there will be a great deal of return on
investment

·       Since the Japanese female are very discriminative and demanding in terms
of quality, expanding the high-end SK-II to more Japanese markets will promise
huge profits with less investments unlike going to China or Europe

·        China and Europe have bigger
risks as explained above by their respective disadvantages compared to Japan

·       P has to fully exploit the home market and become stronger before
expanding to other major markets

 

 For the above selected option, ‘Expansion in Japan’ to be well succeeded
in its implementation the P should do the following

·       Increase brand awareness by sponsoring models and movie actresses to be
brand ambassadors. This will create a big influence on SK-II reaching more
targeted customers. A campaign exclusive for Japanese girls when celebrating
their 20-years age mark will create a brand loyalty and prepare them to become future
customers

·       Investing more on doing researches because, competitors will also try to
penetrate the Japanese market by giving what the customers want. It is strongly
believed that the Japanese customers are discriminative and demanding so more
research aiming at offering them unique products will give P a
competitive edge over any potential competition posed

Resistance

·       Jager, who is the chief
operating officer soon to assume the CEO role and Paulo de Cesare’s boss is
less committed to the idea of SK-II and other beauty care products and wondered
how they would fit into the P&G portfolio. It is expected for Cesare to
receive a big resistance on his pushing of SK-II product from Jager, so Cesare
has to gather relevant information and facts in order to convince Jager. An
analysis of all available options with assigned weighted criteria (align with
P&G goals and vision) showing the score results will be enough to convince
his boss

·       Resistant to change from different group of people is something Cesare
has to address. Expanding to more Japanese markets is the next big step for
P&G which need deep understanding of the future, which may result in people
resisting change as it takes them out of their comfort zones. Cesare has to
properly communicate the direction he wants the organization to go so that they
buy the idea and commit themselves to accomplish it

Support

·       Cesare will receive support from the P&G Beauty Care Global Business
Unit (GBU) head, Lafley (an early champion and continuing supporter of SK-II) to
implement the idea of SK-II product.