Proctor & Gamble: Crisis Response in China

ASIA CASE RESEARCH CENTRE

Proctor & Gamble

1940s:Expands to Asia & S. America

1950s +:Acquires brands such as Folger’s, Charmin,

Max Factor,

Iams and more

1961: Introduces

First Disposable

Diaper

1911:Begins

Producing Crisco

Global Brand Powerhouse

1837: CompanyFounded

1859: Sales

Reach $1M

1880:Launches Ivory Soap

1940: Introduces

Tide Detergent

1930s:Expands to

Europe

Billion Dollar Brands

Billion Dollar Brands

IT’S A P&G WORLDFOUR INTERNATIONAL DIVISIONS: NORTH AMERICA, EUROPE, LATIN AMERICA AND ASIA

Cultural Nuances Create ChallengesEstablishing market presence in Japan was slow:

Lack of regard for distinct needs and habits of Japanese.

Inability to keep pace with major competitors in Japan: more creative and more agressive

Inadequate adaptation to Japanese distribution system.

P&G and the Japanese Cosmetics Market

Entry into beauty market strained growth

1991: P&G purchased Max Factor

Max Factor is a distant 5th place in market with only 3% market share (Shiseido has 20%)

New high end product: Max Factor Blue is a flop

Asian VP cleans up: down to 500 SKUs and 150 staff

SK-II in Japan

• Discriminating Japanese customers were already using SK-II• P&G purchased the company and within three years boosts awareness

from 20% - 70% • Ad campaign is launched in Hong Kong & Taiwan (30% of brands’s sales)• Loyal SK-II customers spend about $1,000 each year

So why not China?

Olay model: Sales at counters in state-owned department stores

30% - 40% growth rate of prestige beauty segment anticipated

Potential Challenges with Chinese Market

A strategic distraction from becoming mainstream Chinese company

Is Chinese customer ready?

Historical conflict between Japan & China

Widespread counterfeit prestige products

Import registration process & duties

A PROCTOR & GAMBLE NIGHTMARE OF COSMETIC PROPORTIONS SK-II: DAMAGE CONTROL IN CHINA

By September 2006

97 sales counters

400 sales personnel

Every tier one city

Most tier two cities

China: 7% of brand’s global sales

Chromium & Neodymium

National Quality Inspection Department of the State Administration of Quality Supervision, Inspection & Quarantine (AQSIQ)

9 products contained two ingredients banned under Chinese law.

Initial Statement from P&G

We are actively communicating with the relevant government departments with their investigations and problem solving. Corporation executives today are in consultation with the relevant agencies, and next Monday will have talks with the parties concerned.

Accordingly, SK-II can be returned by consumers to SK-II counters following the authorisation of related products return procedures; we will provide the best possible service to meet consumer demand.

On the relevant SK-II products under the frame of investigation, we are working to communicate with the relevant government departments to make a final decision.

Why the storm?

Customers had to sign a document saying SK-II was not faulty (the “King Clause”)

Product had to be more than 2/3rds full

One month waiting period for refunds

Arrogance!

P&G is seen as arrogant in the mind of media and Chinese consumer.

THE TWO WEEKS FROM HELLSEPTEMBER 14 - SEPTEMBER 27

Your AssignmentIt’s September 30...

How does P&G respond? • Create a plan outlining the

recommended response to quell crisis and rebuild the prestige of SK-II in China

Considerations

• Pull all product from shelves? • New spokesperson? • Government advocacy? • Media relations?• New return policies?• Consumer relationships?