Current Events in Accounting

            A little over a month ago, key player Procter & Gamble announced their new plan to cut costs and reach $10 billion in savings by 2016. The plan calls for a major overhaul and restructuring of many of the company’s various departments. To shave $10 billion off of their bottom line P&G CEO Bob McDonald laid out the multi-faceted plan, affecting many areas of the balance sheet, in late February 2012.

The first order of the plan calls for approximately 5,700 jobs to be cut from its nonmanufacturing work force by June 2013. These cuts will initially lead to savings of $800 million by 2014, rising to savings of $1 billion by 2016. The company plans to make adjustments to their marketing budget to save another $1 billion. To save $6 billion in their expenditures, P&G also plans on using less expensive materials for packaging, developing a more efficient supply chain, and altering products to be more concentrated. To achieve this multistep plan of $10 billion in savings will eventually cost the company close to $3.5 billion in restructuring costs.

In addition to the cuts within more their more stable markets, P&G is setting its sights on expansion in emerging markets in Africa, Asia, and South America. Expansion into these new markets includes opening 20 new manufacturing plants by 2015. Overall, the main goal of expansion is to increase revenues and add to their bottom line, while simultaneous cutting costs to create a larger profit margin.

Investors and analysts welcomed these extensive cuts to P&G’s budget. Many investors had been deterred by P&G’s inability to operate at more efficient costs, especially when sales growth in well-established markets, like the United States and Europe, has not been as strong as it once was. Upon announcement of the plan, stock rose 3%.

P&G’s budget cuts and new market expansion represents the company’s repositioning within the industry’s market, affecting its competitors. As P&G attempts to increase its market share by earning more, it inevitably takes away from fellow companies in the industry. This strategy also demonstrates what’s expected of a company from investors. Investors are looking for efficiency and future expansion. P&G is catering to what investors expect through the implementation of their four-year plan. 

How is your industry segmented (by customer, by geography, by cost, etc.)? Why?

The primary market segmentation is the differentiation between the household products and the personal care products. Household products account for 25.4% of the international market share, while personal care products account for 74.6%.

The household products and personal care markets are then subdivided. Both markets are segmented by the amount of different types of products sold.

The household products is segmented into six different product types. These six segmentations make up the 25.4%. The first is laundry detergent, which accounts for 32.2%. The second is general-purpose cleaners making up 7.7% of the market share. The next is dishwashing products holding 7.3% of the market. These are followed by air fresheners accounting for 4.5% and toilet care at 2.5%. The last and largest segmentation, accounting for 45.8% of the market are classified as other products.

The personal care products segmentation accounts for 74.6% of the market share for the entire international industry, which is obviously a vast majority. This market is also subdivided into six different product types. The first is over-the-counter healthcare accounting for 27.5%, which is then followed by skincare at 16.9% of the market. These are followed by hair care products, which account for 10.5%. The next two are fragrances making up 7.8% of the market and make-up accounting for 7.4%. Also like the household products market segmentation, products identified as other hold the largest market share of personal care products at 29.9%.

Another method for evaluating the market of this industry is to analyze various regions of the world and how much of each of these products they consume. Europe represents the largest share of the market at 34.4%. The next largest consumer of these goods is the Americas accounting for 29.4% of the industry’s market. The Asia-Pacific region closely follows with 29.3%, which leaves 6.9% to the rest of the world. 

Sources:
http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=d8275404-5467-4704-836b-1b4f288688df%40sessionmgr4&vid=2&hid=9
http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=015b7ad7-0054-46a3-aa1e-f1491eb9f7d8%40sessionmgr12&vid=2&hid=104
http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=423d4ffe-a198-46af-b7fe-9f70113468c2%40sessionmgr14&vid=2&hid=104

What non-US companies are key players in the industry?

            Two companies that are non-US, key players within the Household and Personal Products are the L’Oreal and Unilever. According to a report produced by Datamonitor, both of these two companies each hold considerable shares in the international markets alongside the big US companies like Procter and Gamble and Johnson & Johnson.  Unilever currently holds 5.7% of the international market share, while L’Oreal holds 4.5%.

            L’Oreal has earned its sizable share of the international market through numerous strengths it has garnered during its more than hundred years of operation. These strengths are, “strong international brands and presence in all distribution channels, accelerating globalization and internationalization of the brand portfolio, and focus[ing upon] innovation and differentiation through robust R&D.”

 The cosmetics company currently operates 23 unique brands in approximately 130 countries around the world. Each of these brands offers a varying product mix, including make-up, skin care, fragrances, and hair products all at various price points. Underneath the L’Oreal Group the company carries many well recognizable brands, such as L’Oreal Paris, Garnier, Maybelline, Redken, Lancôme, and Giorgio Armani.

Each of these brands is targeted to different market segmentations of socioeconomic status. Luxury brands like Lancôme are priced significantly higher and usually sold through higher end department stores compared to L’Oreal’s other makeup line Maybelline that is most commonly sold through drug stores. The brand differentiation allows for L’Oreal to be competitive in different segmentations, where price is a driving force.              

            Many of the strengths that have lead L’Oreal to be a key player in the international markets are very similar to those that have Unilever has utilized to earn its place in the share. Strengths unique to Unilever, carrying brands in both the household and personal products industry and the food products industry, are “diversified revenue streams, research and development activities, and a focus on sustainability.” With its combination of environmental conscientiousness and diverse brand and product selection, Unilever has become a formidable presence in the international markets. 

Sources:

http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=2849aa12-d5fa-4bed-86a4-984f7cd2220c%40sessionmgr4&vid=4&hid=24

http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=89cdf45a-5a42-4123-a432-a76aec76a7ed%40sessionmgr11&vid=2&hid=25

http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=2849aa12-d5fa-4bed-86a4-984f7cd2220c%40sessionmgr4&vid=5&hid=105

What are some interesting mission statements or values statements of some of the companies in your industry? What do their statements reveal about them?

While a vision statement may sound very much like a mission statement, each serves as different guidelines for a company or organization. The vision statement declares what the company ideally wants to be in the future and sets long-term goals. The mission statement simply proclaims how and what the organization does to reach its vision. Three companies’ statements that will be examined are Avon Products, Inc. The Clorox Company, and SC Johnson.

Avon Products, Inc.

            The combination of Avon’s corporate social responsibility, mission, and vision statements made it one of the most interesting to read. All three components contained a strong emphasis on the empowerment of women. Their statements highlighted their desire to achieve a premier status as a beauty products company, offering both a quality place of employment and quality products. In addition, Avon’s statements also focused on their social initiatives as becoming the leading foundation dedicated to women’s causes.

SC Johnson

            SC Johnson mission and vision statements are extensively explained within their, “This We Believe” document, which states the five groups it serves and hopes to bring greater good to. These are the employees, consumers and users, the general public, neighbors and hosts, and the world community. The great in-depth into which the company seeks to serve each of these groups currently and in the future demonstrates the good will of the company. Through serving these groups honestly and justly, they feel growth, development, and expansion with follow naturally.

The Clorox Company

            Clorox set forth simple, yet meaningful goals for its company. Clorox’s statement comes compactly in one sentence stating, “We strive to understand and delight consumers with brands that enhance their lives, as well as to make a positive impact in the communities where we do business.” Clorox also enumerated upon four values that serve as the foundation to everything they do. These values are “do the right thing,” “stretch for results,” “take personal ownership,” and “work together to win.” From their mission statement and four core values, Clorox also emphasizes community outreach and promises aid during disaster relief.

Overall, each of the three companies statements focused upon three main components. The first is to provide its customers with quality products. The second main component is to foster safe, open, and quality work environments for its employees. And thirdly is to benefit its local, national, or international community through philanthropy. By containing each of these components, Avon, SC Johnson, and Clorox are being responsible and ethical corporations, however each is serving their communities in unique, individual ways differentiating themselves from the competition.  

Sources:

http://www.scjohnson.com/Libraries/Download_Documents/TWB-English.sflb.ashx

http://www.thecloroxcompany.com/company/mission-and-values/

http://www.avoncompany.com/corporatecitizenship/corporateresponsibility/vmvp/index.html

http://www.avoncompany.com/corporatecitizenship/corporateresponsibility/index.html

What drives revenue growth?

Because the Household and Personal Products industry is a stable and well established industry, the leading companies must find more unique methods to garner revenue growth. Companies within this industry earn revenue simply through the sales of their products. In a market analysis compiled by Wipro IT Business, four recent trends in revenue growth strategies were discussed. These strategies are branding, “micro-selling”, product enhancement, and combating private label competitors.

Branding

For many companies within the Household and Personal Products industry, the importance of the marketing strategy of branding is key. Many companies are seeking to create a sense of loyalty with its customers. To create this brand loyalty, companies offer reward promotions, consistently provide highly quality, and maintain reasonable prices. The goal for these companies is when a customer is standing in front of well-stocked grocery shelves; the customer will purchase their brand again and again, rather than choosing another.

Micro-Selling

            Micro-selling is a revenue growth strategy that targets developing economies. Within developing markets, like India and China, there are lower incomes than compared to United States’ incomes. These lower incomes make it difficult for Household and Personal Products companies to enter and be successful in these types of markets.

A strategy to tap into these markets is the micro-selling method. The products within these low-income markets are packaged smaller. The smaller size of the product makes it cheaper but this is not a detrimental factor because of the sheer immense size of markets like China and India.

Product Enhancement

            Product enhancement deals with what companies call “value-added products.” What this means is that instead of simply selling tissues, companies are selling tissues with lotion inside of the paper tissue’s fibers so customers’ noses do not get chaffed. These “value-added products” are sold at higher prices and are sold within economic markets where they can be afforded.  

Combating Private Label Competitors

            Private label competitors, more commonly known as store brands, are a threat to companies because of their ability to be sold at low prices. These low prices found at private label competitor stores like Wal-Mart and CVS make it difficult for major companies to raise prices because they would quickly lose revenue. To deal with this threat, companies are investing their money into their research and development departments to create and innovate products worthy of higher prices.