P&g Japan: The Sk-Ii Globalization Project

P&G Japan: The SK-II Globalization Project

Section 1, Team 9

Tyler Turner, Taylor Murphy, Dan Gore, Michael Chang, Renan Tymoschenko

1. Does SK-II have the potential to become a global brand within P&G’s worldwide operations?  Why or why not?
   

The high margin, multistep prestige SK-II product will probably not be viable as a global brand in all markets. Consumer skin care preferences are unique in different regions of the world. SK-II products are a huge success in Asia because Asian women in general prefer a clear, pale look on their skin, whereas women in western countries generally prefer a tan look on the their skin. Multi-step facial care could also be a hindrance for new customers. Therefore, SK-II products can best meet the needs of only a particular segment/group.

Although entering global markets such as China show great potential, targeting an elite niche consumer group would be contrary to P&G’s goal to reach the 1.2 billion population with basic products such as diapers, laundry detergent and hair-care products. On the other hand, China presents an immediate opportunity for the SK-II products in the elite care market, and this opportunity must not be missed.

If SK-II were to go global, we believe that a slow, careful global expansion is ideal to mitigate risk with test markets. Additionally, it would probably mean that SK-II products will require a hefty price cut to compete in more competitive markets in Europe or other western countries because these consumers do not recognize the brand and prestige. It would also be in P&G’s best interest to continue targeting the younger generation, whereas the Olay brand can focus on the needs of older demographics. This will make it easier to crack into the skin care market and build brand loyalty. As such, in order to go global, the marketing strategy of P&G will need to be custom tailored to specific markets.

1. Which of the three market options should Paolo DeCesare recommend to the GLT?  Why?

Entering Chinese Market

We ultimately recommend making the pilot program in the major cities of China the main focus of the company at this time. China is undoubtedly an attractive market for SK-II. Beauty products in China work based on the Japanese model (service at beauty counters), as proven with Olay. In China, the prestige beauty segment is rapidly growing (30-40% per year), and P&G could move their Olay brand to department stores, and put SK-II products in high-end areas. There are huge import duties in China, but these could be counterbalanced by the fact that beauty consultants are much cheaper to hire in China--selling expenses would be about 15-20% less (as a percentage of sales) than any of the other options. From a revenue standpoint, P&G shows projections of 10-15m in sales over the first 3 years and a break even level of profitability at the end of that time (10% losses initially).

Through market experimentation with a few counters in Shanghai and other large cities, P&G will also be able to better understand whether a presence in China is viable. Furthermore, we feel that this is an untapped market that could yield significant benefits for P&G. However, time is of the essence for P&G when it comes to entering the untapped markets of China. We agree with the quote in the case regarding the Chinese market that: “If we don’t move soon, the battle for that elite will be lost to the global beauty care powerhouses that have been here for three years or more.” We also feel that focusing on this pilot program in China will allow the company to expand the product offerings under the SK-II line in Japan at a later date. Therefore, given the greater urgency with entering the Chinese market, we feel that this should be the main focus of the business at this time.

        Of course, there are a few risks associated with entering the Chinese market. All of the big competitors in the prestige beauty segment are already competing in China. Further, SK-II products, because of their premium price point and cost, may divert attention from P&G’s strategy to become a “mainstream Chinese company.” Chinese skin care habits and routines would have to be expanded yet again. A lot of counterfeiting happens in China. The biggest hurdle would be the import duties of 35 - 40%. However, we believe that the upside potential of China outweighs these risks.

Japanese Market Considerations

There are many attractive reasons to expand the product line in Japan. For example, per capita, Japanese women consume the most beauty products in the world. There is also a huge market opportunity ($10B), and Max Factor currently has less than a 3% share of the market. (“larger than the U.S. laundry market”). Because there is already awareness and traction for SK-II in Japan, the investment in Japan to expand into new product would be minimal in comparison with entry in to other markets. The Japanese are “analytically inclined,” and the newly-developed beauty image system (BIS) would show actual proof (at beauty counters) that skin condition is improved by SK-II. Most of all, there is high brand loyalty for SK-II already in Japan.

        However, there are a few risks in expanding the product line in Japan. Growth has slowed since 1999 to 5% per year (but P&G’s technological resources, if utilized correctly, could reverse this slowdown). Because of China’s high upside, we recommend that Japanese expansion can wait.

European Market Considerations

        Launching SK-II products in Europe would (according to projections) bring $10m in projected sales by year 4, with losses of $1-2m. Europeans are sophisticated and are used to multi-step facial care.