Consumer Goods Analysis:

Procter & Gamble

and
Unilever
Liam Conboy
Dr. HeuerMGMT400
December 9, 2016
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Table of Contents
2- Executive summary 12- Strategic Comparison of Two Firms:

3- Industry Characteristics Procter & Gamble and Unilever

4- Industry size 12- Mission Statement & Culture

4- Competitive dynamics of the industry 15- Current Strategies

6- Key success factors 19- Organizational Structure

7- Porters Five Forces 20- Financial Analysis: Procter &

8- Potential Entrants Gamble and Unilever

8- Supplier Power 24- Drivers of Cost Advantage

8- Substitute Competition 25- Competitive Advantage / Strategic

9- Buyer Power Fit

9- Industry Rivalry 25- Resources & Capabilities

10- Strategic Group Analysis 28- Value Chain

10- Store Brand Items 30- Strategies for the Next Five Years

11- Semi Popular Items 33- Appendix

11- Popular Items 34- References

12- Economies of Scale

12- Economies of Scope

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Executive Summary

The Consumer Industry is one of the biggest markets in the world consisting of

packaged home goods, toiletries, items for proper health and hygiene, as well as other

home care products. In order to achieve an edge to competitors in the market

companies must have product differentiation, customer satisfaction, and technological

innovation amongst other important factors that will be discussed. The growth of the

consumer industry has been exceptional over the past years valued at over a $570.1

billion market cap (Fidelity, 2016) and the industry growing and evolving just as its

companies are. Innovation and product development has been crucial to companies

such as Nestl, Procter & Gamble, and Unilever. Consumers that purchase these

consumer goods expect not only a quality product but a different product that fulfills their

consumer needs.
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Industry Characteristics

Industry Size

All of the different companies that compete in the consumer goods industry have

a large product line of brands that they offer in order to not just reach many of the

consumers but all of the consumers. Some of these products include Axe, Dove, and

Lux which is owned by Unilever to food companies such as Stouffers, Kit Kat, and Lean

Cuisine all of whom are owned by Nestl. The consumer goods industry is made up of a

variety of products ranging from food products which are the fast moving consumer

goods to house cleaning items and personal health products of which have a longer

shelf life. Due to the massive size of the overall consumer goods industry, I will be

focusing specifically on Procter & Gamble and Unilever.

While focusing on these consumer good industry giants, their main segments

include but not limited to beauty care, baby and family care, health care, grooming,

household care, and food items. The value from the household product industry is

$172.23 billion and measured in enterprise value which is the value of the overall

market adding in debt, interest, and the preferred shares (The Telegraph, 2015).

Comprising this with the enterprise value of personal products which is $70.44 billion

the industry total value is $242.67 billion (Fidelity, 2016). The average company size in

billions in the United States is around $48.8 while in Europe it is $43.4 billion

(Djindexes, 2016). Over the past three years, the percentage change in value of

personal products has decreased -3.87% from 2014 up until 2016 (Market Watch,

2016). However, household goods have dramatically increased its value from 2014 to
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2016 over 20.42%. The reason to explain such dramatic increases and decreases of the

values for these segments can be identified through the adaptation of the companies in

the industry to the market at the time. For example, Procter & Gamble who is in both the

household good and personal good industry recently exited the dog food business to

focus more on its profitable brands (Happi, 2014). Although small, this example

accurately depicts what can happen across the board in an industry. Later in the paper

it will be discussed how the cutting of products has helped solidify their segments and

their business structure.

A good way to measure how quickly a company can meet the obligation of their

short term liabilities is the quick ratio. The quick ratio for the household and personal

care goods fell in the second quarter of 2016 to .37 where it had originally been at .38.

Working capital ratio is what is left over after a company pays back its creditors and

investors. If the industry is not seeing success, meaning assets outweigh liabilities,

there is a possibility of a company facing bankruptcy. The household and personal good

industry is currently paying liabilities; its ratio has fallen from 1.47 to 1.44 (CSI Market,

2016).

Competitive Dynamics of the Industry

The two most important requirements a product must meet for the consumer is

excellent quality and low cost from purchasing. Companies spend tons of money on

advertising as well as marketing to make people aware of their product but the

importance of quality control is to build a commitment to a product and consumers will

purchase again (Value line, 2016). Unilever has experienced issues in the past with the
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quality of their products. However, since 2009 there has been a 60% reduction up until

2011 and then again in 2012 to 2013 there was an even greater reduction in poor

quality by 48% (Unilever Report, 2016). In a news article through Bloomberg, Procter &

Gamble has recently had poor reports of the quality of their products. According to their

CEO, David Taylor, the company has a much higher standard than their competitors

and their goal is to make a standing impression with a new consumer so that what they

stick with their brands and not another companies such as Unilever. As he states, The

real standard that were going to try and stretch to is to have a wow first use difference

(Bloomberg, 2016). Separating your products from those of the competitor is critical

especially when facing competitors that offer lower prices in order to win over more

market share and consumers (Bloomberg, 2016).

Price is another driver of competition in the consumer good market. If two

products have similar functionality and quality, then price often the deciding factor. Also,

companies competing with each other are also competing against store brand products

who have low prices. An article written by Shelly Banjo on Quartz identifies that

customers are paying 60% more on average for top brands owned by Procter & Gamble

compared the competing brands (Quartz, 2015).

Figure 1
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In figure 1, one category sticks out more than the others which is laundry

detergent around 140%. According to their CEO, rather than just creating low prices and

the same version of a product they can create a slightly lower priced type of product

with similar qualities for the consumer that likes the product but does not want to spend

more. Lowering prices can help P&G compete in the industry and beat the competition

on many different levels. To be successful a company also has to be able to bend with

the economy; if the economy crashes Procter & Gamble has to be able to counter in

order to maintain market share. Although companies like Procter & Gamble and

Unilever are used as examples the main content and theme of these ideas can stem to

the consumer goods industry as a whole (Quartz, 2015).

Key Success Factors

To not only be competitive in the consumer good industry but ultimately be

successful will require a variety of methods and strategies companies should focus on.

Low expenses are crucial in order to turn a profit and to insure positive growth. It is

important to have factories that are owned by Procter & Gamble as well as Unilever

operate as efficiently as possible by using solar power and more green technology to

cut on the amount of energy they potential waste. Lowering expenses can also come at

the cost of lower the wages of employees. This strategy is exactly what Procter &

Gamble is putting to use currently. According to Cincinati.com, P&G has greatly

expanded the scope of cuts, slashing more than 20,00 jobs so far. The pending Duracell

sale and spinoff brands to Coty will remove 2,700 and 10,000 jobs respectively from

P&Gs payroll (Cincinatti, 2016). Efficiency can also be run through shipping of
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productsteam up with competitors in the industry to reduce shipping costs on product

loads. Although the bigger businesses might have the capital to ship separately, this is

certainly an option for smaller businesses (Kaneisable, 2015).

Product differentiation as well as innovation is critical. Differentiation stems from

the actual type of product to the price of the product. If companies can build a cheaper

product with similar qualities and attributes but sell it for less, not only will this

differentiate their products from competitors but they will also potentially make more

sales and gain more market share.

The quality and quantity for products is also very important to consumers

because the more product they can per dollar the more they will buy. Stemming off of

the previous suggestion of differentiating based off price, quantity of items being sold

together can be increased if a cheaper product is created. This will provide a sense of

value for the customer while making them feel appreciated.

Finally, in the consumer goods industry increasing brand awareness will increase

success. According to Unilevers head of advertising, David McNeil, the issue of overall

Unilever brand recognition, the company needs to take a more direct approach to

marketing itself as a group (Marketing Mag, 2011). This concept of advertising is very

critical and stems from billboards, T.V, newspaper, magazine, and audio ads.

Porters Five Forces

Figure 2
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Threat of Entry

The threat of entry is low. The big companies that compete in the industry have

been around for decades creating capital to compete at this level; companies such as

Unilever and P&G. Therefore, a small company that looks to jump into the industry will

not have success to do the large capital needed. The same can be said for the

government regulations that a company would need to pass for its products will also

cost a lot of money.

Supplier Power

The supplier power is low when considering how many different products a

supplier produces at its factory. The companies in the industry will face medium price

sensitivity. There is risk that a supplier will have you sign a larger contract than you

anticipate. Unilever for example has solidified this possibility by making an agreement

with the companies that supply them with raw goods that would extend for a certain

amount of time followed by a fixed rate for a certain amount of product.

Substitute Competition

Substitutes in this industry is one of the biggest dangers companies face. There

are many different products to replace each other and they are virtually

interchangeable; consumers prefer a certain product over another but its the premise of

the concept. For example, there are tons of different types of laundry detergent and but

not many differences between them, Wisk, Gain, and Tide which are owned by Procter

& Gamble and Unilever. Yes, they are different products but if one was to be
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discontinued the competitors would soak up the market share that was lost and

consumers would begin to buy the other products.

Buyer Power

The buyer power is low in this industry except for one exception. Consumers will

not have any input on the companies as far as prices go; the only stand they could take

is to stop buying their products. This idea will never occur though unless there was a

major recession and Unilever and other top competitors prices were too high. The only

buyer that can have any sort of influence on a company is if that consumer is a retailer

such as Walmart or Target. These kind of businesses have this power because they

purchase such a vast quantity of product, they can negotiate the price. Later on in the

analysis, it will be discussed how Procter & Gamble is currently issues with its main

retailer Walmart.

Industry Rivalry

The industry rivalry as stated above is very competitive; Nestl, Procter &

Gamble, Unilever, and PepsiCo all compete over the same consumer market. Also,

there is competition between store brands such as Weis or Shoprite. If the store brand

produces a low cost item with similar qualities of an item that costs two dollars more, the

consumer will buy the cheaper of the two. This makes it very difficult for the top brands

in the market to win over all consumers because some consumers either have little

preference to a specific product or cannot financially afford the top brand product.

Additionally, not only does Procter & Gamble have to compete against Unilever and vice
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versa but they also have to compete against each other in their different product

segments.

Strategic Group Analysis

Strategic Map

Figure 3

Store Brand Items

Store brand items have their own place in the household and personal goods

industry. They serve the purpose of providing a lower expense option to consumers that

do not want to spend the extra capital on the same item whose only difference is a loyal

brand name. For example, a Shoprite brand shampoo versus a Head and Shoulders

shampoo. The store brand items market share is the smallest of the other two

strategic groups due to their unpopularity. Therefore, as far as future growth is

concerned they will not raise the cost to purchase their product because they do not

want consumers to stop purchasing their product. The only movement they can use in
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the future is to gain more consumer brand recognition which can be obtained through

advertising.

Semi Popular Items

The semi popular items are the goods that are less popular than items. They

have a medium market share and are items such as Woolite and Persil laundry

detergent. These are brands consumers are familiar with but do not have great

popularity but more popularity than store brand goods. Similar to store brand items, the

semi popular items will not want to increase the price of their products because since

they are already known less. This increase in prices will drive consumers away from

their products. On Targets website, the same size bottle of detergent (50oz) sold by

Woolite costs $8.89 while the top brand Tide costs $10.99 (Target.com, 2016).

Therefore, Woolite increasing its prices would not make very much sense because they

cannot compete with Tide; the only option is to keep prices lower and improve product

quality to attract more consumers.

Popular Items

These items such as Tide, Gain, and Arm & Hammer own the majority of the

market of laundry detergent. They are the most popular due to their uncompromising

quality and loyalty to give the consumer the best products on the market. Due to their

high prices, in an economic downfall, they will experience the biggest decline because

consumers will not want to pay top dollar and thus loose customer brand recognition.

The only growth they can potentially see is through more customer brand recognition.

Similar to the other strategic groups, if prices are raised too much consumers will lose
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interest. Therefore, by focusing on the quality of their products, they have the potential

of gaining more market share.

Economies of Scale
The premise of the scale of an industry is to produce more units and the per unit

cost will decrease. In order to have economies of scale in the consumer goods market,

we have to analyze a smaller group of goods. For example, you have a company such

as Axe, who in order to drop the cost of individual items the owners could produce a

larger line of products which would allow for greater sales and margins.

Economies of Scope
The average of a companys costs that it takes to produce goods will overall

decrease if that company begins to produce more goods. This idea is more long term as

it will take a longer period of time for the output to reduce production costs. By selling

products to a wider audience, there can be more room for diversification and production.

For example, Unilever who owns Vaseline, could expand their sales not only to other

countries but also other consumers such as hospitals and doctors offices. Not only that

but if these companies (Vaseline) owned the rights to produce their own raw goods to

cut out the supplier they would be able to vertically integrate more efficiently.

Strategic Comparison of Two Firms: Procter & Gamble and Unilever

Mission Statements and Culture

The mission statement of a company speaks volumes for what a firms goals and

values are. This describes the company's function as well as their goals for the future.

With this statement, the primary consumers, the products produced, along with the
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geographical location these products and services are sold in are usually provided in a

mission statement. Procter & Gamble and Unilever both have very concise mission

statements in which their focuses and values of the company are clear and they reflect

a goal for growth potential in the future years to come.

Procter & Gamble has based their company off of this mission statement; We

will provide branded products and services of superior quality and value that improve

the lives of the worlds consumers, now and for generations to come. As a result,

consumers will reward us with leadership sales, profit and value creation, allowing our

people, our shareholders and the communities in which we live and work to prosper

(P&G Purpose, Values, and Principles, 2016). The purpose of this statement is to inform

consumers that its main goal and objective is to create a superior product to that of the

competition while adversely giving the consumer a superior value as well. Procter &

Gamble does not only focus on giving value to the consumer but finding a growth

strategy of improving more consumers lives in small but meaningful ways each day. It

inspires P&G people to make a positive contribution every day (P&G Purpose, Values,

and Principles, 2016).

Procter & Gamble has created a culture off the foundation of their core values

and principles which is the basis of how they operate. They have five main values which

include integrity, leadership, ownership, a passion for winning, and trust. Leadership is a

crucial part of how Procter & Gamble runs their business because they aim to hire the

best employees in the industry to help their business thrive and grow. In February 2014,

Procter & Gamble was named the best company overall on the list of 2014 best
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company for leaders; this was also the third year in a row Procter & Gamble has one

this award (News.PG.com, 2014). This type of award speaks volumes to the importance

that this firm places upon its values.

Equally important however is Procter & Gambles principles which include

respect for all individuals, the interests of the company and the individual are

inseparable, strategically focusing on their work, value of mastery, externally focused,

seeking the best, and mutual interdependence is a way of life (P&G Purpose, Values,

and Principles, 2016). These values reflect goals and morals that Procter & Gamble has

with helping the environment and the community that we live in. These goals include

preserving resources, finding renewable resources, worth from waste, and social

programs (P&G Sustainability Report, 2016) (Revenuesandprofits.com, 2016).

Like Procter & Gamble, Unilever has created a mission statement that

encompasses their consumers as well as their sustainability for those customers;

Unilever is committed to supporting sustainability and providing our consumers around

the world with the products they need to look good, feel good and get more out of life

(About Unilever, 2016). This idea of sustainability once had been an idea amongst

many but now is the basis and foundation that Unilever currently stands upon.

Unilevers Sustainable Living Plan is now that foundation and this foundation is built on

three pillars they hope to fulfill; help more than a billion people to improve their health

and wellbeing, halve the environmental footprint of our products, source 100% of our

agricultural raw materials sustainably and enhance the livelihoods of people across our

value chain (About Unilever, 2016). Similar to Procter & Gamble, Unilevers culture is
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upheld by its values and principles that they emphasize ignorer to have a returning profit

for investors and positive value for customers. Unilever emphasizes always working

with integrity, having positive impacts and continuous improvements, setting goals and

aspirations, and working well with others (Unilever Purpose, Values, and Principles,

2016). These values combined with their principles supports Unilevers sustainability

plan as well as their plan for future growth that encompasses both the consumer and

the environment.

In September of 2016, an article was released that stated Reckitt Benckisers

who produces air freshness and dehumidifiers has killed more than 100 pregnant

women and children do to a product error. Whether being an ethical decision or an

opportunity to capitalize on a possible market, Procter & Gamble Opened its Cincinnati

research center to more than 40 Korean journalists in July. South Korea is P&Gs third-

largest air-care market, and the company reacted after seeing concern over a variety of

air-freshener and air-care products (WSJ, Reckitt Benckiser, 2016). Procter & Gamble

ethical nature guided them to assist in this research along with the motivational

opportunity of a possible market expansion as they only have a portion of the air

freshener market in South Korea. Unilever on the other hand faced serious ethical

issues a couple years ago in 2011 for unethical marketing campaigns that were racist

as well as sexist. However, they have changed these issues and released a statement

in in 2016 that stated, We conduct our operations with honesty, integrity and openness,

and with respect for the human rights and interests of our employees. We shall similarly
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respect the legitimate interests of those with whom we have relationships (Unilever

Principles, 2016).

Current Strategies
Procter & Gamble and Unilever both share similar current strategies that allow

them to be in the top five on the most successful consumer goods companies

(ConsumerGoods.com, 2014). Since both these companies are in the international

consumer goods they both use similar strategies in order to remain competitive against

the other companies such as Nestl and PepsiCo. This strategic focus includes both

innovation of their products and business in addition to both global expansion and the

expansion to other markets.

Procter & Gamble pride themselves on their innovation as this is the basis of how

their company survives and grows. With a culture rooted in learning and productivity,

our researchers become technical masters who apply their skills across multiple

categories. They use their expertise in digitization, modeling, simulation and prototyping

to bring world-class innovation to our consumers (Our Approach to Innovation, 2016).

Using this approach, Procter & Gamble has innovated brands such as Tide, Crest,

Pantene, Downy, and Pampers. Unilever similarly comprises their business and focus

off of innovation stating that, Innovation is at the heart of Unilevers ambition to grow

sustainably. Science, technology and product development are central to our plans to

keep providing consumers with great brands that improve their lives while having a

positive impact on the environment and society (Innovation in Unilever, 2016).

Innovation is Unilevers main driver because all of their product developments,

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developing a cleaner life style while reducing their environmental footprint which all

starts with innovation through science, research, and testing. Using this innovation, both

Procter & Gamble and Unilever have been centralizing and compressing their

operations to reduce their costs and increase their efficiency.

Procter & Gamble has recently created a new avenue to create its products

specifically its Tide Detergent, using wind power. The global consumer products giant

is teaming up with EDF Renewable Energy to build a wind farm in Texas that it says will

power all of its North American plants that manufacture home care and fabric products.

Those facilities make some of the companys best-known household items, including

Tide, Febreze and Mr. Clean (NYtimes, 2015). Similarly, Unilever is cutting its costs

through packaging materials hoping to reduce its environmental footprint. By replacing,

RIN laundry powder pouches and the flow wrap around our VIM dish-wash bars we are

looking at the potential of reducing polymer usage in flexible packaging by around 5,000

metric tons. By the end of 2015, we reduced our polymer usage by around 850 metric

tons, resulting in a cost saving of around 3 million (Unilever, Sustainable Living,

2014).

Although both companies share similar strategies, they also both have individual

strategies that will assist in separating themselves further from the competition and

drive them towards their goals of greater profit margins. Procter & Gamble released a

statement in their annual report introducing that they would be focusing on 10 product

categories which include but not limited to personal and hair care, beauty, grooming etc.

with 65 different brands in total (Marketline, 2011). Being the leader in all of these
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categories allows for the advantage for serious growth potential in all of their brands in

these categories (P&G Investor, Company Strategy, 2016). Just recently in 2015

Procter & Gamble merged 43 of its brands with Coty for $12.5 billion in order to help

streamline their assets more efficiently. The merger with Coty, a strategic acquirer, will

provide an excellent new home for these businesses and brands, as well as for the

talented people who are operating them. We look forward to a successful transition and

we will work together to maximize value for the shareholders of both companies

(Business Insider, 2015) (News.pg.com, 2015). This move lightened their product

categories which included professional hair, fragrances, and cosmetics selling both

Covergirl products and Gucci fragrances (Yahoo Finance 2015).

Unilever on the other hand is focusing on two main strategies that they will use

not only to differentiate themselves from the market but in turn boost their profits

exponentially. As stated before, Unilever places heavy importance on innovation to

drive their segments and create new ways in which they can benefit the world around

them and the environment as that is their goal (Marketline, 2011). Released in the 2015

annual report, Unilever hopes to grab more market share through advertising and

selling their products through their 10 million Perfect Stores program (Unilever Annual

Report, 2015). The purpose of the Perfect Store is to enhance the connectivity of their

products to the consumers through better displays and marketing tactics to have the

consumer more involved and eventually buy their products (Fox.Temple.edu, 2015)

Another way that Unilever diversifies itself from its competitors is through their cost

reduction and new plan of zero-based budgeting (Unilever annual report, 2016) This
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plan requires Unilever to start from scratch to identify marketing issues and financial

efficiency issues in order to figure out the most effective and efficient route for their

company. Also, this is not the first time Unilever has done a cut and in past experiences

the results were positive. We will make a further step change in our overheads and

brand and marketing efficiencies with the global rollout of zero-based budgeting," said

CEO Paul Polman in a presentation to analysts and investors today. Unilever piloted

zero-based budgeting in Thailand last year, reducing overall spending across all areas

by 2 percentage points as a share of sales (Advertising Age, 2016).

Organizational Structure
A structurally sound organizational structure encompasses a companys strategy

that assists in this case the innovation for both Procter & Gamble and Unilever and

company specific strategies to improve efficiency. There are multiple ways to determine

a companys structure. There are two types which in which there will be a focus. The

first is a functional structure in which, each functional unit handles one aspect of the

product or service provided: information technology, marketing, development, research,

etc. Top management is responsible for coordinating the efforts of each unit and

meshing them together into a cohesive whole (Smallbusiness.com). The other structure

is a divisional setup in which the structure usually consists of several parallel teams

focusing on a single product or service line (Smallbusiness.com).

With Procter & Gamble and Unilever, they have different focuses based off

different goals for the companies. Procter & Gamble focuses its efforts on a divisional

structure. Using this type of structure allows them to have several different segments
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which they have recently centralized into 10 different product categories with each

category having separate marketing, financials, research and development, and

accounting firms. This tight knit organization allows the head of each level to make

decisions at that level and then report to the chief executive officer. This helps Procter &

Gamble streamline is decision making chain and helps changes to be made a lot

quicker which is necessary as they have over 60 different products that they carry.

Unilever on the other hand focuses its efforts on a functional level. With Unilever

all of the different services in the company such as accounting, R&D, and marketing are

all combined for the four different segments; personal care, refreshment, home care,

and food. This helps Unilever streamline its business more effectively. Unilever used to

be a divisional structure but due to cost cuts and as mentioned before through their new

zero-based budgeting, they are looking toward other measures to make their business

more efficient as they pride themselves on their efficiency (About Unilever, 2016).

The organizational structures for both firms will be included at the end of the paper in

the appendix.

Financial Analysis: Procter & Gamble and Unilever

*All financial information was gathered from company annual reports and then calculated (Procter & Gamble, 2016) (Unilever, 2016).
*Industry Averages were calculated using top four companies in the consumer goods market (PepsiCo, 2016) (Nestl, 2016).

Procter & Gamble

Gross Profit per dollar of Research and Development: (Gross profit / R&D expenses)

The purpose of this financial ratio is to determine the effectiveness of their

Research & Development expenses that Procter & Gamble has displayed over the past

five years. This ratio is crucial because Procter & Gamble prides themselves on
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innovation and this is a very good measure of how effectively and efficiently they are

innovating.
Figure 4
Gross Profit per R&D (All financial numbers are in billions)

- 2011: $35,110 / $1,812 = $19.38

- 2012: $35,254 / $1,874 = $18.81

- 2013: $35,858 / $1,867 = $19.21

- 2014: $35,371 / $1,910 = $18.52

- 2015: $33,693 / $1,991 = $16.92

As evident of the ratios Procter & Gamble is not leaking innovation but rather

gross profit. Additionally, their sales have fallen for the sixth straight quarter

(NYtimes.com, 2016) However recently Procter & Gamble has been rolling out new

products in lines such as Swiffer, Pantene, and Luvs. It could be that this increase in

innovation is not proving to be productive however its areas innovation is showing

positive growth. Procter & Gamble is hoping with this new area of innovation of products

they will catch up to the industry average of gross profit per research and development

dollar.

Unilever

Gross Profit per R&D (All numbers are in billions)

- 2011: $18,537 / $1,009 = $18.37

- 2012: $20,621 / $1,003 = $20.55

- 2013: $20,732 / $1,040 = $19.93

- 2014: $20,048 / $955 = $20.99

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- 2015: $22,464 / $1,005 = $22.35

Unilever has a stronger grasp on their efficiency in its innovation that P&G. Part

of this could be because of the strategy discussed above stating how Unilever is starting

a zero-based budget and they are taking a serious look into what parts of their company

they need improvement. This is evident from the upscale trend increasing approximately

$4 over the past five years.

Procter & Gamble

Operating Cash Flow to Total Debt: (Operating Cash Flow / Total Debt)

This ratio includes both short term and long term debt determining if a company

can cover its debt up yearly with the cash flow that they maintain from year to year.

Here, we look for a high percentage because this means a company is more efficiently

carrying its debt.

Figure 5
Operating Cash Flow to Debt (All financial numbers are in billions)

- 2011: $13.3 / $32.0 = .42

- 2012: $13.3 / $29.8 = .45

- 2013: $14.9 / $31.5 = .47

- 2014: $14.0 / $35.4 = .39

- 2015: $14.6 / $30.3 = .48

These numbers are relatively low for Procter & Gamble as they are covering

about less than half of their debt currently. Recently in 2016, P&G started selling its debt

in a tender offer of $1.25 billion in order to try and make interest off of their debt

(News.PG.com, 2016)
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Unilever

Operating Cash Flow to Debt (All numbers are in billions)

- 2011: $3.50 / $14.72 = .24

- 2012: $4.85 / $14.85 = .33

- 2013: $4.40 / $15.13 = .29

- 2014: $3.50 / $17.50 = .20

- 2015: $5.42 / $18.74 = .29

In comparison to Procter & Gamble, these numbers are not only lower but

concerning to an investor. Also, Unilever is doing worse than the industry average and

this will be concerning going forward as they begin to innovate more and need more

free cash flow. If a company does not have enough operating cash flow to cover its

debt, this will lead to foreseeable issues with lenders and banks in the future.

Procter & Gamble

Advertising Expense to Sales Ratio: (Advertising expenses / Total Sales)

How effectively a firm is communicating with the public and possible consumers

in the future is very important as this can forecast and produce sales. A higher ratio will

indicate that a companys advertising is reaching a lot of consumers and those

consumers are purchasing products based off of the ads. A low ratio will indicate poor

marketing techniques and the inability to control consumer behavior.

Advertising Expense to Sales Ratio (All numbers are in billions) Figure 6

- 2011: $8,868 / $76,982 = .115

- 2012: $8,981 / $79,545 = .112

 Conboy 24

- 2013: $9,364 / $80,116 = .116

- 2014: $8,979 / $80,510 = .111

- 2015: $8,290 / $76,279 = .108

These numbers show that P&G has been effective at displaying its marketing

campaigns and reaching the maximum amount of consumers. Also the industry average

is around .1 of advertising expense to sales showing that Procter & Gamble is above

the average. With this said, Procter & Gamble is number one in the industry for reaching

its consumers. P&G will continue efforts to improve profits by cutting costs. $370

million in cuts to agency and production fees last year and $200 million this year should

reduce spending in the area from $2 billion to $1.5 billion annually. But he said that still

leaves "more room to improve. Likely a bigger focus of future cost cutting efforts is in

promotion spending, primarily with retailers (Advertising Age, 2016).

Unilever

Advertising Expense to Sales Ratio (All numbers are in billions)

- 2011: $6.1 / $46.5 = .131

- 2012: $6.8 / $51.3 = .132

- 2013: $7.84 / $49.8 = .157

- 2014: $8.3 / $48.5 = .171

- 2015: $8.01 / $53.3 = .151

Compared to Procter & Gamble, Unilever is producing better yearly numbers for

advertising to sales but their sales numbers are on a smaller scale. Unilever is the

second-biggest spender on advertising in the world, behind packed goods rival P&G,
 Conboy 25

according to Adbrands.net, which compiles ad spend data from several sources. In

2014, Unilever spent $8.3 billion on advertising, AdAge reported (Business Insider,

2016).

Drivers of Cost Advantage

The consumer goods industry has recently been switching over to more of a

reliance on technology. This technology such as the internet has provided a more

personal and closer relationship with the consumers that are trying to be reached. In the

same manner, mergers, acquisitions, and alliances should be engaged in to build a

closer relationship with consumers along with the expansion that is occurring in foreign

nations as a way to reach more consumers (Globaledge.msu.edu, 2016) The first

effective driver that can aid in cost advantage is the production techniques that are used

by both firms. By looking at production techniques a firm will be able to examine its own

process of innovation and possibly re-engineer the format that the business uses.

Focusing on efficiency is the single most important part of the differences in both cost

and sales of two competing firms.

Input costs is the second biggest driver of cost advantage. A business starts from

the ground up meaning all of the raw materials used to produce goods needs to be as

low but as efficient as possible. This difference is a huge factor as companies can

create better margins depending on raw materials and other materials used along the

way. Unilever has recently reduced their input costs and cut down their plastic usage on

bottles by creating a new development processthis process is known as MuCell

technology which uses gas to expand the bottles of Dove to make them more durable
 Conboy 26

using less plastic (Unilever, Press Release MuCell, 2014). This type of advantage is a

huge driver in a companys cost advantage and can separate good companies from

great companies.

Competitive Advantage / Strategic Fit

Resources and Capabilities Figure 7

Procter & Gamble

Resources Capabilities

1. Product Line Innovation / Technology

2. Global Expansion Brand Development

3. Financial Resources Retail Store Relationship

Figure 8

Unilever

Resources Capabilities

1. Product Line Innovation / Technology

2. Global Expansion Retail Store Relationship

3. Financial Resources Brand Development

In the Consumer Goods industry, specifically when looking into Procter &

Gamble and Unilever three key resources play a big role. Note that the above charts are

listed in order of importance relative to the firm. The first of these is product line which

ranks first for both companies. For Procter & Gamble their product line is currently

shrinking because for the need for better efficiency in both the products and the

factories that they are constructed. Unilever on the other hand is focusing on improving
 Conboy 27

their product line to reach a larger variety of consumers. In the current generation there

is a push for more environmentally friendly products so they purchased Seventh

Generation who Specializes in environmentally friendly products, including detergent,

diapers and tampons (LAtimes.com, 2016) (WSJ.com, 2016).

Global Expansion is the second biggest resource that firms focus on. Often,

certain markets around the world are under developed as far as the market potential is

concerned. Procter & Gamble has benefited from expansion tremendously expanded

its retail sales in its top five foreign markets by more than 40 percent since 2009 to

$29.4 billion in 2013 almost equal to sales in the U.S (USAtoday.com, 2014).

Similarly, Unilever is opening their Perfect Store program which includes better store

displays in order to attract more consumers by appealing to their needs. The third

resource is the financials which is just as important as any of the other resources

especially when it comes to total debt as discussed above and the need for free

operating cash flow; this cash flow will assist in lower debt for more investment into

assets. Also, Unilever has been expanding more into the United States by purchasing

Dollar Shave Club which they expect will accelerate their growth exponentially

(WSJ.com, 2016). They have also acquired GROM who owns more than 60 gelato

shops around the world. The reason for this purchase is hopes to expand their food

segment as this area is very under develop as gelato and other items only make up

14% of the entire foods industry (Hoovers, 2016) (Unilever.com, 2015)

Although resources are important, the capabilities of a firm and what the firm can

accomplish is far more important and strategic. For both firms, innovation trumps all. In
 Conboy 28

the consumer good industry is built on innovation and this is how these firms

differentiate themselves. Procter & Gamble has recently been developing products that

reach the individual needs of a particular consumer; in May of 2016 they produced a

new shampoo called Pantene Pro-V3 that contains deeper conditioning products to

meet different needs per consumer (US.pg.com, 2016) Procter & Gamble has also

recently developed an online subscription service for their Tide pods in order to attract

more sales and communicate and become closer with consumers (WSJ.com, 2016)

Unilever as well has been developing more environmentally friendly products that will

benefit or reduce the impact on the environment aligning with their mission statement

and values.

A capability that is often over looked is the relationship a firm has with its retailers

as most often a firm displays a majority of their products here and relationships are

important due to large contract investments. Recently, Procter & Gamble has been

having trouble with its main retail store Walmart. The issue here was that Walmart set

up displays of Persil, a German owned company, right next to their Tide product

(WSJ.com, 2016). Additionally, an often overlooked capability is the ability to develop

ones brand. This brand image is the main picture of firm and their actions and products

directly relate to how consumers and retailers receive them. By creating quality products

through technological advantages while considering the environment creates a strong

image that both Procter & Gamble and Unilever look to include.
 Conboy 29

Value Chain

A value chain is an extremely useful asset as it allows a firm to identify the

process in which they produce and sell a product to the public helping to determine

what aspects of the process can be added or deleted. The value chains for Procter &

Gamble and Unilever are referenced below.

Figure 9
Procter & Gamble

Unilever Figure 10
 Conboy 30

Although Procter & Gamble and Unilever both sell to the consumer, they first sell

directly to retail stores. This relationship with retail stores is far overlooked when

analyzing the consumer goods industry so that is the focus in the above figures.

The first linkage is between operations of the firm and sales of the retail store.

Research and development, innovation, and other operations are what drives a retail

store to first buy a product to have on its shelves and then sell to the consumer. This

relationship is why most consumers choose the product that they choose, because its

innovation is different and the user feels personalized to the product.

The second linkage is between marketing and sales and new product research.

This relationship shows what a firm such as Unilever is selling in accordance to what a

retail store is looking for in products they want to advertise and sell. Procter & Gamble

has recently come across issues regarding its marketing as they went with too wide with

their advertising campaign using Facebook. This caused a decrease in its sales and

thus P&G has decreased its advertising on Facebook as this advertising has proven not

to be as effective (WSJ.com, 2016) (Advertsingage.com, 2016).

The third linkage is between customer service and support and new product

research. Customer service of a product is often over looked however many consumers

have questions about quality, product use, and other things that determine if a

consumer will continue to buy a product or possibly stop buying or return the product.

The fourth linkage is between marketing and sales and the sale of actual

products from the retail store. This link is equally as important because the marketing

and advertising that Unilever uses to sell their products to the retail store directly
 Conboy 31

correlates to the consumer. Unilever is appealing to the environmental impact of its

products and this advertising strategy directly correlates to a consumers feeling toward

the environment in this instance.

Strategies for the Next Five Years

Having a plan for the future is critical for firm as it provides a direction for the

business that they will aim for. Procter & Gamble and Unilever already are in the top

five companies for the consumer goods industry with Procter & Gamble being number

two and Unilever being number three (Consumergoods.com, 2014). However just

because these two companies are near the top of their industry does not mean they

need constant improvement.

As the world progresses, economies rise, and global warming increases both

firms will have to look more into lowering their initial costs as well as their impact on the

environment. This is one area that Procter & Gamble is focusing on currently as this is

the mindset of the consumers in this decade. Taking this into account, Procter &

Gamble can begin to used more recycled materials and even begin to innovate their

products to either be more concentrated to reduce the amount of packaging used or

innovate the packaging to use less plastic.

Additionally, Procter & Gamble is currently working to reduce the number of

segments they have to focus their efforts on the brands that are having the most

success. With that said, Procter & Gamble should look to improve the customization of

their products. For example, in their hair products, all consumers have different types of

hair that requires different product. Therefore, a survey or research should be done in
 Conboy 32

order to possibly attract more consumers to figure out what types of shampoo would be

most popular among consumers. Although this would cost money in research and

development, a more personable item could attract more consumers increasing their

sales margins.

Unilever already has a variety of green products that play their part to assist in

reducing greenhouse gasses ultimately helping the environment. For Unilever,

expansion geographically and within their product lines will assist in company growth.

Currently, less than half of Unilevers sales come from Africa and other under developed

type of economies. Unilever is already heavy into reducing their environmental foot

through their Sustainable Living Plan which aims to improve the health of its consumers,

reduce the environmental impact, and enhance the communities they sell and operate

in. With all of this considered, Unilever should look to create a segment of products that

are more affordable for underdeveloped economies for example like regions in Africa.

By doing this, they would be able to aid their Sustainable Living Plan because they

would be using less packaging material with their products, they would be able to assist

with some of the current health issues in Africa while providing better hygiene, and

ultimately increase the quality communities of Africa. All of these goals go directly back

to what their mission statement is.

Additionally, through Unilevers Sustainable Living Program, they have been able

to approach becoming a zero waste company. Unilever believes in re-using its items to

obtain a full life out of its products while using less of the worlds resources that are

precious to our earths survival. However, once the consumer uses the product it goes
 Conboy 33

directly into the trash afterwards. As a future strategy, Unilever should focus on eco-

friendlier containers that they sell their products in so that after its use, can be bio-

degradable to give back to the environment. Poland Spring recently released in 2016

that they have created a bio-degradable bottle that takes less 200 years less than the

industry average. This new creation has shown positive feedback wit consumers as

sales have increased (Polandspring.com, 2016) If Unilever used an idea similar to this

not only would they increase their product margins by using less material but the

generation of millennials would be more keen to buy their products over a company like

Procter & Gamble who is on a later start towards eco-friendly products and practices.
 Conboy 34

Appendix

Organizational Structure
Figure 11
Procter & Gamble

Unilever Figure 12
 Conboy 35

References
> Advertising Age, 2016. Providing information about current Procter & Gamble actions.
http://adage.com/article/cmo-strategy/pg-hiking-ad-spend/303731/
http://adage.com/article/digital/p-g-decided-facebook-ad-targeting-worth-
money/305390/
http://adage.com/article/cmo-strategy/unilever/302196/

Advertising Age is the leader in global news. I used this source to gather information on
why Procter & Gamble have had to hike their prices and why they are no longer using
Facebook for advertising. These links also talk about Unilever and Procter & Gambles
strategy.

> Bloomberg, 2016. Provides information on Procter & Gamble innovation.

http://www.bloomberg.com/news/articles/2016-02-19/p-g-s-new-ceo-vows-to-
improve-quality-of-its-everyday-products

Bloomberg private software and media company in New York. I used this source to
provide company information on Procter & Gamble.

> Business Insider, 2016. Providing information on Unilever advertising information.

http://www.businessinsider.com/unilever-digital-advertising-budget-up-to-24-
2016-1
http://www.businessinsider.com/procter-and-gamble-merging-43-brands-with-
coty-2015-7

Business Insider is a business site that has deep financial as well as media information.
I used this source to gather information on Unilevers advertising as well as the merging
they are completing.

> Consumergoods.com, 2014. Providing information on the top companies in the

consumer goods industry.
https://consumergoods.com/2014-top-100-consumer-goods-companies

Consumer goods technology .com is a research website specifically for consumer

goods. I used this source to gather information on what were the top consumer goods
companies.

> CSI Market, 2016. Provides company ratios of any stock or firm.
http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=507

CSI Market is an independent financial media source to the community. I used this
source to provide information on the consumer goods industry.
 Conboy 36

> DJIndexes, 2016. Information regarding the personal and household top goods
companies.
https://www.djindexes.com/mdsidx/downloads/fact_info/Dow_Jones_Personal_an
d_Household_Goods_Titans_30_Index_Fact_Sheet.pdf

DJIndexes is the S&P index that provides information on the industry as well as firms. I
used this source to provide information on the industry and both firms.

> Fidelity, 2016. Information regarding personal and household/consumer goods

market.
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/industries.jhtml?
tab=learn&industry=303010

Fidelity is a corporation that provides financial services and is the 4th largest mutual
fund in the world. Provided information regarding personal and household/consumer
goods market.

> Fox.Temple, 2015. Provides information on Unilevers Perfect Store Program

http://www.fox.temple.edu/cms_blogs/gmba_colombia_2015/2015/03/23/unileve
r-and-their-perfect-store/

Fox.Temple.com is business school for the University of Temple. I used this source
because it included information on Unilevers perfect store program.

> Global Edge, 2016. Provided information about consumer goods industry and how
technology is important.
http://globaledge.msu.edu/industries/consumer-products/memo

Global Edge is a knowledge portal connecting business professionals to information. I

used this source to gain information on the industry and how technology is important as
a capability. Also the pdf talked about drivers.

> Happi, 2014. Provided information on Procter & Gamble.

http://www.happi.com/heaps/view/952/page_1/160299

Happi is the industry leader magazine for personal care, household, and cleaning
market. I used this source to provide information on Procter & Gamble.

> Hoovers, 2016. Provided background information as well as focus and values of both
firms.
http://subscriber.hoovers.com/H/company360/competitiveLandscape.html?comp
anyId=11211000000000&newsCompanyDuns=001316827
 Conboy 37

http://subscriber.hoovers.com/H/company360/competitiveLandscape.html?comp
anyId=55275000000000&newsCompanyDuns=210300901

Hoovers is a research database that provides information on companies and industries.

I used this source to find background information as well as company values and
focuses.

> Kaneisable, 2015. Provided information on the consumer goods industry.

https://www.kaneisable.com/blog/5-ways-to-reduce-logistics-costs-in-consumer-
goods-distribution

Kaneisable is a website that provides information about logistics and consumer goods. I
used this source to provide information about consumer goods and reducing costs.

> LAtimes.com, 2016. Provides information on how Unilever is advancing their

environmental position.
http://www.latimes.com/business/la-fi-unilever-20160920-snap-story.html

The LA times is another newspaper that has been around for decades providing
information about all occurrences. I used this source because it provided information on
how Unilever is advancing in their sustainable living plan.

> Market Line, 2011. Provided information about consumer goods and Procter &
Gamble and Unilever.
http://advantage.marketline.com/Product?ptype=Industries&pid=MLIP0238-0001
http://advantage.marketline.com/Product?ptype=Industries&pid=MLIP0242-0001

Market Line advantage is a resource that can profile both industries and companies. I
used this source to profile the consumer goods industry and identify key aspects of both
firms being analyzed.

> Market Watch, 2016. Information regarding personal and household goods market.
http://www.marketwatch.com/tools/industry/focus.asp?
bcind_ind=3700&bcind_sid=69&bcind_period=3mo

Market Watch is a financial information website that provides information on stocks. I

used this source to provide financial information on the personal and household goods
market.

> Marketing Mag, 2011. Provides information about Unilever as a company.

https://www.marketingmag.com.au/hubs-c/universal-charm-unilever-brand-
profile/
 Conboy 38

Marketing Mag is a magazine in Australia that provides information on consumer good

firms. I used this source to provide information on Unilevers advertising.

> Nestl 2016. Providing annual reports for the past five years.
http://www.nestle.com/investors/publications#tab-2016

Nestl is one of the top firms in the consumer goods market. I used this link to gather
information over the last five years of their annual reports to assist in calculating the
financial rations specifically the industry averages.

> New York Times, 2015, 2016. Provides information about Procter & Gambles latest
actions.
http://www.nytimes.com/2015/10/20/business/energy-environment/procter-
gamble-to-run-its-factories-with-wind-power.html
http://www.nytimes.com/2015/07/31/business/procter-gamble-earnings-hurt-by-
low-sales-volume.html

The New York Times is a newspaper that is the most famous newspaper in the world. I
used this source to provide information on Procter & Gamble and how they were
affected by low sales and how they are innovating through technology.

>PepsiCo 2016. Providing annual reports for the past five years.
http://www.pepsico.com/Investors/Annual-Reports-and-Proxy-Information

PepsiCo is one of the top firms in the consumer goods market. I used this link to gather
information over the last five years of their annual reports to assist in calculating the
financial rations specifically the industry averages.

> Procter & Gamble, 2015. Providing news articles on current company actions and
decisions.
http://news.pg.com/press-release/pg-corporate-announcements/pg-accepts-
cotys-offer-125-billion-merge-43-pg-beauty-brand
http://news.pg.com/blog/leadership/ceo-mag
http://news.pg.com/press-release/pg-corporate-announcements/procter-gamble-
announces-125-billion-debt-tender-offer
https://us.pg.com/who-we-are/our-approach/our-approach-innovation/recent-
innovations
http://us.pg.com/sustainability/environmental-sustainability/focused-on/packaging
http://cdn.pgcom.pgsitecore.com/en-us/-
/media/PGCOMUS/Documents/PDF/Sustanability_PDF/sustainability_reports/20
15SustainabilityReportExecutiveSummary.pdf?la=en-US&v=1-201512231813
http://www.pginvestor.com/CustomPage/Index?keyGenPage=1073748359
http://us.pg.com/who-we-are/our-approach/purpose-values-principles
 Conboy 39

Procter & Gamble .com is the main place to find up to date articles about company
news. I used this source when discussing debt and a billion-dollar merger as well as
why they are the leaders in the industry. These sources also included information about
innovation, and sustainability. Also, the PG investor link included all information for
determining financial feasibility of ratios.

> Quartz Procter & Gamble, 2015. Article providing information about Procter & Gamble
company issues.
http://qz.com/466004/procter-gamble-has-an-incredibly-simple-business-
problem/

Quartz is a news outlet for business. I used this source to provide information about
Procter & Gambles company and how consumers are paying more than average.

> Revenues and profits, 2016. Proving information about how Procter & Gamble profits.
http://revenuesandprofits.com/how-procter-gamble-makes-money/

Revenues and profits is a research website for consumers to find information on

companies. I used this source to gather information on how Procter & Gamble makes its
money as well as for company background.

> Small Business.com. Providing a definition of organizational structure.

http://smallbusiness.chron.com/functional-organizational-structure-advantages-
3721.html

Small business is a website that provides information about business terms. I used this
source to provide a definition of organizational structure.

> The Telegraph, 2015. Fast Moving Consumer Goods information.

https://jobs.telegraph.co.uk/article/what-is-fmcg/

The Telegraph is a newspaper company in the United Kingdom that was founded in
1855. I used this source to give information on the consumer goods industry as whole.

> Unilever Report, 2016. Provided information about their sustainability program.
https://www.unilever.com/sustainable-living/what-matters-to-you/product-safety-
and-quality.html
https://www.unilever.com/investor-relations/annual-report-and-accounts/

Unilever.com is the official website of Unilever. I used this source to provide information
on their sustainable living plan. Unilevers investor relations provided all financial
backing information to calculate ratios.

> Unilever Press Release, 2015. Provided information on all segments of business.
 Conboy 40

https://www.unilever.com/news/press-releases/2016/Continued-competitive-
growth-in-challenging-markets.html
https://www.unilever.com/news/press-releases/2015/Unilever-acquires-
GROM.html?criteria=year%3d2015
https://www.unilever.com/news/press-releases/2014/14-04-24-Unilever-launches-
breakthrough-packaging-technology-that-uses-15pc-less-plastic.html

Unilever news .com is the main news source for Unilever where they post and have
articles pertaining to company business. I used this source when analyzing competitive
strategy and looking at companies acquired.

> USAtoday.com, 2014. Providing information on how Procter & Gamble has expanded
its sales in the United States.
http://www.usatoday.com/story/money/business/2014/09/07/procter--gambles-
global-reach-changing/15205713/

USA Today/Money is similar to Yahoo finance in that it provides the best up to date
news on finances in the United States. I used this source to provide the sales for
Procter & Gamble over past years.

> Value Line, 2016. Consumer goods/household products information.

http://www.valueline.com/Stocks/Industries/Industry_Overview__Household_Prod
ucts.aspx#.WAAy7ja7f-Y

Value Line is a research firm in New York that deals with investments. I used this
source to provide research and information on household products.

> Wall Street Journal, 2016. Provides information on both Procter & Gamble and
Unilever.
http://www.wsj.com/articles/p-g-starts-online-subscription-service-for-tide-pods-
1468941036
http://www.wsj.com/articles/unilever-to-buy-u-s-home-and-personal-care-
company-seventh-generation-1474303177
http://www.wsj.com/articles/unilever-ceo-speaks-of-expanding-in-u-s-acquiring-
more-companies-1469118408
http://www.wsj.com/articles/p-g-to-scale-back-targeted-facebook-ads-
1470760949
http://www.wsj.com/articles/reckitt-benckiser-struggles-to-move-past-disinfectant-
deaths-1474480171
http://www.wsj.com/articles/wal-mart-and-p-g-a-10-billion-marriage-under-strain-
1465948431

Wall Street Journal is an online journal that covers all business news on all companies. I
used these sources to provide strategic fit analysis, companys current strategies,
information concerning global expansion, changes in advertising, and innovation.
 Conboy 41

> Yahoo Finance, 2015. Providing information about the selling of Procter & Gamble
assets.
http://finance.yahoo.com/news/procter-gamble-just-sold-48-122850431.html

Yahoo Finance contains free stock quotes as well as financials and media information
of all companies and firms. I used this source to gather information on the selling of
some of Procter & Gambles products.