How big companies like P&G manages customers

Md Rezaul Karim By Md Rezaul Karim, 13th Jul 2013 | Follow this author | RSS Feed
Posted in Wikinut>Business>Analysis

Learning is never old and the human behavior and history repeat itself life a circle..

P & G manages Core Processes for Customer Value


When market research revealed that families loyal to P&G brands were paying $725 more each year than families buying private label or store brands, senior managers knew that a new strategy was called for. P&G had historically offered retail customers deals that included discounts, but it needed to offer these low prices every day to remain a market leader. However, it was obvious that it could not simply lower prices and hopes to maintain decent profits; a new operating strategy was required.

Eleven cross functional teams examined every part of P&G. For instance, they examined forty one work processes within the broader core process they called ‘customer management’ (roughly analogous to our ‘demand management)’. The teams operated under four rules: Change work, do more with less, eliminate rework, and reduce costs that do not produce value for the customer. This rethinking led to important changes in P&G’s core processes.

Core Process: (Product development, Demand management and order fulfillment)
1. New product development:
For decades P&G had followed the same strategy for managing research and development: producing technologically superior goods and depending on marketing to sell them at a premium price that would cover the high R&D costs while still allowing for healthy profit margins. However, most of P&G’s opportunities for growth lay outside the saturated developed markets, and developing markets cannot pay premium prices for technological marvels. Consequently P&G’s reversed its approach to R&D. Now marketing decides first what blend of price and features a particular market most values, providing guidelines for R&D’s new product development, For instances, the com. Offers Pampers Uni, lowered priced and simpler versions of their sophisticated pampers line, in developing markets , such as Brazil.

2. Demand Management:
Analysis revealed that P&G had the highest marketing overhead in the industry. This was undoubtedly related to the complexity of marketing P&G product line. Five divisions wit three sales layers each sold more than 2300 stock keeping units (SKUs) covering 34 product categories and 17 basic pricing brackets. Special deals meant that an average of 55 price changes worked through the system everyday. The quarterly sales promotion plan for health and beauty products (one of five divisions) alone was more than 500 pages long and was sent to every sales person in the division. To simplify this complex process, P&G reduced the number of pricing brackets from 17 to just 3 and the number of special prices from 55 per day to only 1 per day. It also reduced its number of SKUs by 25 percent.
The changes had a dramatic short run impact, but another change may have a still greater impact in the long run. Part of the reason P&G‘s product line was so complex was its practice of introducing a new brand for every significant technological innovation that occurred (E.g., when the company added cold cream to its soap, a new brand was created, and the famous Ivory brand was left unimproved). Customers found the latest technology in newer P&G products but not in the famous brand names they valued. So, as P&G’s product line grew more complex many of the most famous brands saw their market share slowly decline as customers sought out newer brands with enhanced features. For example, P&G’s Spic & Span cleaner was not significantly reformulated for 45 years, and its once dominant market share gradually disappeared.

To address this problem, P&G combined its latest technology with its strongest brands, producing such items as Tide with Bleach and Tartar Control Crest. Now, loyal customers find their favorite brands with value-enhancing innovations, and P&G’s demand management process is simplified with fewer brand names to manage.

Core Process- Product development, Demand management and order fulfillment


3. Order Fulfillment:
The US Packaged goods industry is involved in a massive cooperative re-engineering effort that will change the way the entire industry operates. This effort is meant to reduce the $30 billion annually the industry must spend on non-value added activities, such as excess paperwork, handling, and inventories. The end result will be an order fulfillment process based on continuous product replenishment. In this process, when an item is purchased, information from the checkout line automatically triggers the work involved in replenishing the shelf. This largely paperless process reduces mistakes, lowers inventories all along the product pipeline, and improves cash flow.

Under the old process, special deals were constantly sending bubbles of artificially created demand through P&G’s factories. Though higher capacity was unnecessary most of the time, production facilities were sized to handle even these large bubbles in a timely fashion. Consequently, capacity utilization was a low 55% company-wide. As the company moves toward a simpler product line, everyday low pricing, and continuous replenishment, the bubbles are disappearing. Consequently, the company has been able to reduce its production capacity (Closing some thirty plants worldwide) and improve capacity utilization at its remaining plants to 80 percent.

Industry experts feel these changes in core processes have left P&G in a string competitive position. As one explains- ‘what we have here is a company that has created a platform to execute a strategy that is dramatically superior to anything its competitors can offer. This new platform is anchored on customer value.’

Tags

Customer Care, Customer Feedback, Customer Satisfaction, Customer Service, Customer-Service, Customers, Services

Meet the author

author avatar Md Rezaul Karim
I am a teacher engaged with the Southern University Bangladesh. I Like to use my spare time by writing and reading. I take it as a fun and source of inspiration in pursuing knowledge.

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Comments

author avatar Mariah
13th Jul 2013 (#)

Excellent and detailed journalism on changing and clever marketing strategies MD.
A most interesting and informative page you have written here my friend, both factual and impressively presented.
Thank you for this great share.
Mariah

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author avatar Md Rezaul Karim
14th Jul 2013 (#)

My pleasure and thank you Mariah for your time.

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author avatar cnwriter..carolina
13th Jul 2013 (#)

indeed most interesting Md but what does P & G stand for....

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author avatar Md Rezaul Karim
14th Jul 2013 (#)

Thank you friend, you look changed in the picture! Procter and Gamble is P&G- cnwriter.

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author avatar Sivaramakrishnan A
14th Jul 2013 (#)

Yes, customer is the king or queen. Companies like P & G are market leaders but others are closing in on them. They have to respond faster than before to market trends. Thanks Karim to see your post after a while and also Air India Maharajah taking it easy as always! siva

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author avatar Md Rezaul Karim
14th Jul 2013 (#)

Thank you Siva ji, yea, busy doing some other things you know + family hassles.... you understand...
Bless you all,.

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author avatar Delicia Powers
14th Jul 2013 (#)

Outstanding Md...thank you...

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author avatar Md Rezaul Karim
15th Jul 2013 (#)

Thank you Delicia, nice to see you again here..

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author avatar Connie McKinney
15th Jul 2013 (#)

Very interesting. Thanks for sharing.

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author avatar Md Rezaul Karim
17th Jul 2013 (#)

Thank you for your time Connie..

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author avatar Carol
18th Jul 2013 (#)

Interesting facts, thanks for sharing

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author avatar Md Rezaul Karim
25th Jul 2013 (#)

Thank you Carol for stopping by..

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author avatar madugundurukmini
24th Jul 2013 (#)

much value to P & G products in the market.

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author avatar Md Rezaul Karim
25th Jul 2013 (#)

Indeed Sir, Thank you for your precious time Madu ji.

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author avatar vpaulose
30th Jul 2013 (#)

Interesting info. Thank you.

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author avatar Md Rezaul Karim
31st Jul 2013 (#)

My pleasure vpaulose..

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author avatar Souvik
24th Aug 2013 (#)

Good article Karimji about marketing strategy.

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author avatar Md Rezaul Karim
25th Aug 2013 (#)

Thank you Souvik bro..

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author avatar Ptrikha
14th Apr 2014 (#)

Time to Market and Cost control is very key for companies that have highly customer centric business.

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author avatar Md Rezaul Karim
15th Apr 2014 (#)

Great... thanks for adding comments Ptrikha..

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