Clorox STRATEGIC ANALYSIS

Presented to: Dr. Karen Middleton Texas A&M University Corpus Christi

Submitted By: Crystal Featherling Treesa Genus Javier Gonzalez Bettsy Hucker Zhen Li Anthony Silvas

December 10, 2012

TABLE OF CONTENTS LIST OF FIGURES ................................................................................................................... iii

LIST OF TABLES ..................................................................................................................... iv EXECUTIVE SUMMARY ........................................................................................................ v EXTERNAL ANALYSIS Macro-Environment Analysis Economic Segment ............................................................................................. 1 Socio-Cultural Segment ...................................................................................... 2 Demographic Segment ........................................................................................ 4 Political/Legal Segment ...................................................................................... 7 Technological Segment ....................................................................................... 9 Global Segment ................................................................................................. 10 Physical Environmental Segment ..................................................................... 12 Industry Level Analysis Threat of New Entrants ..................................................................................... 13 Bargaining Power of Suppliers ......................................................................... 15 Bargaining Power of Buyers ............................................................................. 16 Threat of Substitutes ......................................................................................... 16 Intensity of Rivalry ........................................................................................... 17 Strategic Group Members Strategic Dimensions ........................................................................................ 17 Industry Averages Liquidity Ratios ................................................................................................ 19 Leverage Ratios ................................................................................................ 20 Activity Ratios .................................................................................................. 21 Profitability Ratios ............................................................................................ 22 Growth Ratios ................................................................................................... 23

Stock Analyses .................................................................................................. 23 Opportunities & Threats Opportunities..................................................................................................... 24 Threats............................................................................................................... 25 Competitor Analysis Strategic Group Member 1: Church & Dwight Co., Inc. (CHD) ................... 26 Strategic Group Member 2: Colgate-Palmolive Co. (CL) .............................. 27 Strategic Group Member 3: Unilever (UN) .................................................... 28 Strategic Group Member 4: Clorox Company (CLX) .................................... 29 INTERNAL ANALYSIS Mission Statement ......................................................................................................... 1 Financial Ratio Analysis Current Ratio ....................................................................................................... 2 Long-term Debt to Equity Ratio ......................................................................... 3 Interest Coverage Ratio....................................................................................... 4 Total Asset Turnover Ratio ................................................................................. 5 Gross Profit Margin Ratio ................................................................................... 6 Operating Profit Margin Ratio ............................................................................ 7 Net Profit Margin Ratio ...................................................................................... 8 Return on Assets ................................................................................................. 9 Return on Equity ............................................................................................... 10 Return on Investment ........................................................................................ 11 Stock Analysis Stock Prices ....................................................................................................... 12 P/E Ratio ........................................................................................................... 13

Earnings Per Share ............................................................................................ 14 Dividend Payout................................................................................................ 15 Beta ................................................................................................................... 16 VRIO Test Core Competencies ........................................................................................... 17 Strengths & Weaknesses Strengths ........................................................................................................... 21 Weaknesses ....................................................................................................... 22 Value Chain Analysis Primary Activities ............................................................................................. 23 Support Activities ............................................................................................. 24 Current Business Level Strategy....................................................................... 26 Current Corporate Level Strategy ..................................................................... 26 SWOT Matrix SO Strategies ..................................................................................................... 27 ST Strategies ..................................................................................................... 28 WO Strategies ................................................................................................... 28 WT Strategies.................................................................................................... 28 Feasible Strategic Alternatives Feasible Strategic Alternatives ......................................................................... 29 Future Corporate-Level Business Strategy .............................................................. 29

LIST OF TABLES Table 1: Strategic Dimensions .................................................................................................. 15

Table 2: Product Mix ................................................................................................................ 15 Table 3: Liquidity Ratios .......................................................................................................... 16 Table 4: Leverage Ratios .......................................................................................................... 17 Table 5: Activity Ratios ............................................................................................................ 18 Table 6: Profitability Ratios ...................................................................................................... 19 Table 7: Growth Ratios ............................................................................................................. 20 Table 8: Stock Ratios ................................................................................................................ 21 Table 9: Nine Components of a Mission Statement ................................................................. 29 Table 10: VRIO Test ................................................................................................................. 45 Table 11: R&D as a Percentage of Revenue ............................................................................. 46 Table 12: Strengths & Weaknesses........................................................................................... 49 Table 13: SWOT Matrix ........................................................................................................... 55 Table 14: Feasible Strategic Alternatives ................................................................................. 57

LIST OF FIGURES Figure 1: United States National Population: 2010 .................................................................... 5 Figure 2: Current Ratio ............................................................................................................. 30 Figure 3: Long-term Debt-to-Equity Ratio ............................................................................... 31 Figure 4: Interest Coverage Ratio ............................................................................................. 32 Figure 5: Total Asset Turnover Ratio ....................................................................................... 33 Figure 6: Gross Profit Margin Ratio ......................................................................................... 34 Figure 7: Operating Profit Margin Ratio .................................................................................. 35 Figure 8: Net Profit Margin Ratio ............................................................................................. 36 Figure 9: Return on Assets Ratio .............................................................................................. 37 Figure 10: Return on Equity Ratio ............................................................................................ 38 Figure 11: Return on Investment Ratio ..................................................................................... 39 Figure 12: Stock Prices ............................................................................................................. 40 Figure 13: P/E Ratio.................................................................................................................. 41 Figure 14: EPS .......................................................................................................................... 42 Figure 15: Dividend Payouts .................................................................................................... 43 Figure 16: Book Value Per Share ............................................................................................. 44 Figure 17: Employees U.S. Nonproduction ........................................................................... 53 Figure 18: Sales by Category .................................................................................................... 54

EXECUTIVE SUMMARY The household goods industry has enjoyed moderate growth in the past year despite the slow recovery from the recession. Research shows that people will spend more time at home in times of economic downturn. More people are using household goods. There are many competitors in the household industry that employ economies of scale greater than Clorox. Gross domestic production was at 1.8 percent at the end of 2011, and dropped to 1.5 in the first quarter of 2012. However, personal spending levels increased to 42.3 billion (%?). This can be attributed to lower unemployment rates. Unemployment dropped from 9 percent two quarters ago to 8.2 percent. There is now a large demand for more green products. There has been an increase in females present in the workplace and it is expected that women will make up 47 percent of the workforce by 2014. Today, there is a great need for a balance between work and life, which has prompted employers to develop structured work/life programs. On March 23, 2010, President Barak Obama signed the health reform legislation into law. Most Americans will have to have health insurance or face being taxed. The new legislation also extends eligibility for Medicaid, which provides health care to the poor. Beginning in 2014, Medicaid will be available to adults with no children with an income of up to 138% of the poverty line. Another major political issue is taxation. The tax breaks set forth by former President George Bush are set to expire at the end of 2012. Political Action Committees (PACs), donate money to political parties for use in campaigns. Federal laws restrictions on donations to federal political parties have forced donors to contribute to nonparty organizations. In the 2012

elections, Republicans have received 56 percent of donations made by corporate PACs, which suggests a financial swing of upwards of $300 million to the Republican party. One of the biggest innovations in the 21st century is the use of robots. A huge leap in the robotics technology world was the invention of Kinect, which allows a robot to map out the environment that its in and also store information for future references to objects. The inventor of the vacuum robot, Roomba, foresees robots being a part of the around-the-clock nursing staff for the elderly in the next 20 years. Waterless technology is also a major, recent innovation. Xeros is currently working on a modified washing machine that involves waterless technology. Global economic conditions have been very unstable over the past year. The European Union has been having economic problems, and the investment slump in China has led to a weak global market. GDP in emerging countries is expected to increase between 5.3 and 6 percent. Canada and Mexico are the two biggest export partners of the United States. Another major partner is China. Exports to China were worth $177.97 billion at the end of August 2012. Consumers are more concerned about their health and the environment. Despite the poor state of the economy, it has been noted that environmentally friendly products, although they have higher prices, are maintaining. The trend for going green is seen globally. Firms spend a lot of money to market their products with the hopes of gaining the advantage of brand recognition. The barriers to entry for a small-scale company are relatively low, as the technological skills and financial resources necessary to launch a consumer products company are dramatically less than for a larger-scaled company. Switching costs are low in the household goods industry, especially with the new competition of private label brands who offer lower prices.

The power of the supplier in the household goods industry is considered moderate to high. The raw materials needed in the household goods industry consist mainly of specialized chemical and packaging materials. This allows suppliers to have more leverage compared to other industries where materials are more common. The power of buyers is fairly strong in the household goods industry. Major supermarket chains hold a 58% share of the market, which allows them to have a lot of control over household goods manufacturers. The household goods industry in the U.S. is very fragmented, making competition intense. There are three major companies that account for 46% of the industry share. Retail sales in the U.S declined in April, and in May sales dropped again by 0.2 percent, which indicates that rivalry among companies will be increasing. The Clorox Company has chosen Church & Dwight Co., Inc., Colgate-Palmolive, and Unilever as its strategic group. The strategic dimensions in which they are compared include market cap, technological leadership, product mix, and number of employees. These companies are also analyzed based on their future objectives, current strategies, assumptions, and capabilities. We have concluded that opportunities in the household goods industry include the current trend of going green and the rapid growth of the Asian population. The threat that we see posed to the industry is homemade substitutes. The Clorox Companys mission statement is We make everyday life better, every day. The company believes that exceeding customer and consumer expectations, being a market leader, and working together with employees, partners, and the community will ensure success.

Clorox states that consumer insight and innovation are at the core of the companys strategy. Green Works grew the natural cleaners market in the U.S by 100 percent in 2008 and solidified a 40 percent share of the market. Another innovation came from Clorox in 2009 when they introduced biodegradable cleaning wipes and non-synthetic detergents to the Clorox line up. Donald R. Knauss, has been the CEO for Clorox since 2006. Clorox acquired Burts Bees in 2007 under Knauss management and started the eco-friendly brand Green Works in 2008. Knauss efforts to develop a corporate responsibility strategy led him to be named Responsible CEO of the Year by Corporate Responsibility Magazine. Research shows that consumers are open to green products, though they are often in conflict with having to pay a higher premium and the scarcity of the product in their place of shopping. Clorox ensured their customers that they are listening to their needs when they introduced the Green Works line nationally. Clorox has been very outspoken about their support for Gay, Lesbian, Bisexual, and Transgender (GLBT) issues. The company won the Employee Resource Group (ERG) of the Year award from Out & Equal Workplace Advocates in 2010. Clorox has also partnered up with the National Association of Hispanic Nurses to launch the Hispanic Nurses Network. Clorox has committed to helping this group of nurses to provide better care and education to patients and keep them as informed as possible. The Clorox Company features over 20 brands that are spread across four categories. The business has been able to outperform many of their competitors with the brand strength and variety of products offered. One of the major weaknesses in the Clorox Company is that they primarily focus on the

U.S. market. Eighty percent of their business is done in the United States. Clorox has decided to confine their expansion to the markets they are familiar with instead of entering emerging economies which may be costly to enter. A large percentage of Cloroxs net sales come from a limited amount of customers. The five largest customers for Clorox accounted for 44 percent of the companys net sales in 2011. Cloroxs sales could be significantly reduced if one of their main customers was to change their order amount or frequency or completely quit ordering from the company altogether, Clorox spends almost 10 percent of net sales on advertising. Clorox has been focusing on branded entertainment, also known as product placement. One way that the Clorox marketing department is reaching out to their consumers is by targeting niche audiences, such as the Hispanic community, and utilizing product placement. Clorox plans to diversify and increase their sales by investing heavily in the health-care industry. Clorox has made it easy for customers to provide feedback to the company by writing, calling, emailing or using social media sites like Facebook. The Clorox Company also provides excellent service to their retail customers. Clorox shows that it cares for their employees and their advancement in the company by providing career development through training programs. Clorox also encourages diversity in the workplace since the company understands that it is crucial in order to ensure innovation and growth. The company understands that their employees are essential for the growth of the company. The Clorox Companys business-level strategy is focused differentiation and it currently employs a related-linked corporate-level strategy.

Clorox could use the opportunity of the growing Asian population and the companys strengths of having a broad product portfolio and a strong reputation to attract Asian consumers. Clorox could also continue to innovatively create new products that are eco-friendly to meet consumer demands and further improve their existing green products. ST Strategies include investing heavily in research and development to develop new products that are not affected by poor economic conditions. The company can also allocate revenues to their best selling products and expand their product lines into new categories that are less sensitive to the economy. WO Strategies include diversifying into the health-care industry to generate revenues from a new market that will lessen their dependence on their top customers. WT strategies include Clorox reducing their global limitations by extending sales to countries with more stable economies than the United States. The Clorox Company plans to continue with its current corporate-level strategy of related-linked diversification, but will focus on the health-care sector and diversifying into more stable and growing economies.

EXTERNAL ANALYSIS Macro-Environment Analysis Economic Segment Current Conditions GDP was at 1.8 percent at the end of 2011 and in the first quarter of 2012 dropped to 1.5 percent, which is blamed on slower private consumption, lower government spending, and weak

external demand (United States of America, 2012). As of July 2012, personal income increased $42.3 billion, disposable personal income has increased by $39.9 billion and the personal savings rate was 4.2 percent (Rankin & Brown, 2012). Inflation was at 1.2 percent in 2010, rose significantly to 3.3 percent in 2011 largely due to high oil prices, and again has dropped to 1.7 percent in May of 2012 (Strauss & Wang, 2012). The government is struggling to make a decision as to what changes need to be made in regards to tax reform to speed up the nations economic recovery period, but the decision will depend significantly on who is elected to the presidency. The federal budget deficit was 8.7 percent of GDP in 2011 (USA, 2012). The unemployment rate has lowered from 9.0 percent in 2011 to 8.2 percent as of the second quarter of 2012, and employers created 163,000 new jobs in July alone, which is up from the average of only 75,000 per month in the three months preceding. Economic Forecast GDP growth is expected to average 2.2 percent per year (USA, 2012). The issues with the federal fiscal policy will likely have a major effect on the economy following the recession, making the recovery period much longer. Unemployment is expected to fall to 7.9 percent by the end of 2012 and drop slightly more to 7.6 percent by the end of 2013 (Strauss & Wang, 2012). The residential construction market is finally bouncing back. Residential investment has had a negative effect on GDP for the past six years, but is expected to finally make a positive contribution at year end of 2012 (USA, 2012). The federal budget deficit is expected to decrease to 7.3 percent of GDP by the end of 2012, and to further decline to 5.3 percent of GDP in 2013 (Country report, 2012). Oil prices, should they stay low, will play a large factor in bringing inflation down to 1.6 percent in 2013. Core inflation is also expected to gradually drop. One

obstacle that Americans will have to contend with in the near future is significantly higher food prices. Drought has had a huge negative impact on corn and soybean yields, and therefore the price of food will be high. Socio-Cultural Segment Family Values Gone are the days when a family was described as a married man and woman and their offspring. Today, many families are comprised of same-sex couples and their adopted children, single parents raising their children, and heterosexual couples who choose to have children but dont see the need to marry (The Associated Press, 2010). Research in 2010 showed that for individuals between the ages of 25 and 44, marriage was the most common type of union compared to cohabitation, with 62 percent of women being married and only 8 percent cohabitating, and 59 percent of men being married versus the 10 percent cohabitating (U.S. Department of Health, 2012). President Barak Obama recently announced his support of gay marriage and the argument for and against same-sex marriage is heating up as the election draws nearer (Calmes & Baker, 2012). A recent poll has showed that 63 percent of adults born after 1981 support gay marriage, up from 51 percent in 2009 (Turning the tide, 2012). Work/Life Balance Females have increased their presence in the workforce over the years (Craig, & Gottschalck, n.d.). Women in the workforce usually spend 50 percent more time as caregivers than men. The need for a balance between work and personal life has also increased over the years, given that most women in the workforce are also the main caregivers of their household.

Work/Life programs usually focus on families, such as dual-career couples with children and single parents (ten Brummelhuis & van der Lippe, 2010). Employers realized that many employees with families were under more stress, had low levels of job satisfaction, and also tended to be absent due to family situations. Employers established work/life programs that lighten up the load on their employees by giving workers flexible schedules, childcare assistance, and emotional support. Lower turnover rates, reduced stress, and higher organizational commitment were only a few of many benefits that came as a result of the established work/life programs. Demographic Segment Population The current U.S. population is 314 million people (U.S. Census Bureau, 2012). The current population growth is .97 percent and it is expected to decrease to .79 percent by the year 2050 (U.S. Census Bureau, 2008). The decline in fertility rates from 2.06 percent in 2010 to 2.03 percent in 2050 is a major factor in the deceleration of the population growth (U.S. Census Bureau, n.d.). If the growth rate remains constant, it is estimated that by the year 2050 the population will be close to 400 million (Ortman, & Guarneri, 2009). Age and sex structure The majority of the U.S. population is between the ages of 25 and 64 and 50.84 percent of the population composed by females (U.S. Census Bureau, 2012). This is particularly good for the household product industry because 74.9 percent of women are the main shoppers in their household (Buying power, 2012). It is expected that in the coming years the majority of the population will be over the age of 65 due to the aging of baby boomers (Country report: United

States, 2012). Family Structure In 2010, 87 percent of families in the U.S. consisted of the householder, his or her spouse, and daughters and sons (Lofquist, Lugaila, O.Connell, & Feliz, 2012). The majority of the children living with their parents were under the age of 18. The number of husband-wife households made up 55.2 percent of all households in 1990, 51.7 percent in 2000, and 48.4 percent in 2010. Single-person households have increased to 26.7 percent in 2010. These single-person households are mainly comprised of women and totaled 17.2 million people. Race Distribution As of 2010, 72 percent of the population was white, 13 percent was black or African-American, 5 percent was Asian, and 1 percent was American Indian or Alaskan natives (Humes, Jones, & Ramirez, 2011). According 2010 U.S. Census, the Asian population is the fastest growing race in America (Hoeffel, Rastogi, Kim, & Shahid, 2012). The Asian population grew by a total of 45.6 percent from 2000 to 2010 and there was a growth of at least 30 percent in almost every state (see Figure 1) (U.S. Census Bureau, 2012). This is about 4 times the total population growth of the U.S which grew only 9.7 percent (Hoeffel, Rastogi, Kim, & Shahid, 2012). The three largest recorded Asian groups in 2010 were the Chinese, Indian Asians, and Filipinos at 22, 18, and 17 percent, respectively, of the total Asian population (Bureau of Labor Statistics, 2012). With the population of Asians rapidly on the rise comes an increasing number of Asians who are participating in the labor force. This leads to Asians having increasingly more buying power. The second fastest growing race is the Hispanic population at 16 percent of the total population in 2010 (Humes, et al., 2011). Hispanics grew a

total of 43 percent from the year 2000 to 2010. Figure 1: United States National Population: 2010

Income Distribution The median household income in 2011 was $50,054, which was 1.5 percent lower than the median household income in 2010 (DeNavas-Walth, Proctor, & Smith, 2012). The real median family household income decreased a total of 1.7 percent in 2011 to $62,273. In 2011, Asian households had a median income of $65,129, non-Hispanic or whites was $55,412, and the median income for black or African-American households was $32,229. The GINI index showed a 1.6 percent increase in income inequality since 2010. Political Legal Segment Political Action Committees

Democratic political action committees (PACs) rapidly increased their funds in an attempt to catch up to the Republicans toward the end of the 2012 presidential campaign (Confessore, 2012). Individuals donate to campaigns not necessarily because they want a candidate in office, but because they want the party that particular person is associated with in control of Congress. Federal law restrictions on donations to federal political parties have forced donors to contribute to nonparty organizations (Mitchell, 2012). Super PACs, which are nonparty organizations, are able to accept and spend unlimited amounts of contributions thanks to the Citizens United decision from the Supreme Court. Republicans seemed to be benefitting most from these Super PACs during the recent election, which is a turnaround from the 2008 election. 55 percent of the funds contributed by corporate PACs, which are able to give money directly to candidates, were received by the Democratic Party in 2008 (McGinty & Mullins, 2012). Republicans received 56 percent of donations made by corporate PACs during 2012, which suggests a financial swing of upwards of $300 million to the Republican Party (Mullins & Yadron, 2012). Health-care Industry Hospitals are required to report incidences of infections to the Centers for Disease Control as of January 2012 (McKinney, 2010). Hospitals must report this information, and the punishment for not doing so is a reduction of up to 2 percent of their Medicare payments for the year. It is estimated that there are over 100,000 deaths per year in hospitals that are attributed to infections, which costs the health-care industry billions (Glazer, 2012). Free Trade The United States currently has 12 Free Trade Agreements in force with 17 countries

with 41 percent of the countrys exports going to those partner countries in 2010 (Free trade agreements, 2010). Canada and Mexico were the top two purchasers of U.S. exports in 2010 and U.S. exports to NAFTA partner countries accounted for 32.2 percent of overall U.S. exports in 2010 (Office of the United States Trade Representative, 2012). The United States is currently negotiating a new agreement with South Korea called the U.S.-Korea Free Trade Agreement and a regional FTA called the Trans-Pacific Partnership (International Trade Administration, 2010). Technological Segment Waterless technology Commercial cleaners, hotels, and hospitals wash large amounts of laundry per day which leads to mass amounts of wastewater (Aston, 2009). Xeros is currently working on a modified washing machine that involves waterless technology. The basic concept of this technology is a process that replaces most of the water and detergent with small nylon beads (Nylon beads to cut wash water, 2012). The tiny beads are thrown in the wash with a small amount of water and detergent, and once the wash is complete, the machine separates the beads from the wash. These beads can be reused many times, and when they cannot be used any longer, can be recycled. Lab tests have shown that the amount of water saved through the use of these washing machines and nylon beads will cut the amount of water used by up to 90 percent and also cut down energy use by around 30 percent (Aston, 2009). Global Segment (MUST REDO) Current Conditions Global economic conditions have been very unstable over the past year (The World Bank, 2012). Output in the second half of 2011 was particularly weak but by 2012 things were

beginning to look up. There was a significant improvement in market sentiment and less constraining financial conditions. The biggest risks that remain for the global economy are the European crisis, the United States fiscal cliff, and the investment slump in China. Global GDP is projected to increase 2.5 percent in 2012, and then accelerate to 3.0 percent and 3.3 percent in 2013 and 2014, respectively. GDP in developing countries, which will remain somewhat weak, is expected to reach 5.3 percent in 2012 but no higher than 6.0 percent in 2013 and 2014. Brazil as an Emerging Economy Brazil is set to become a key player in global commerce (Brazil, 2011). The countrys economy is the largest in Latin America and had already experienced steady economic growth. Brazil has a large domestic market, political stability, and reliable macroeconomic policies which makes the country a great choice for foreign direct investment. FDI increased from $48.51 billion in 2010 to $66.66 billion in 2011 which was over 43 percent of the FDI inflows to its region. The middle class has been expanding in the country which is creating greater domestic demand and is making it possible for the development of new businesses and for them to be successful. Consumer spending in the country has increased since 2011 and is expected to continue on this upward trend through 2015 (Country Report: Brazil, 2012). Unemployment rates have reached historical lows, income has increased, and job creation is high. All of these factors have caused consumer confidence to increase and is considered high overall. The Brazilian economy has experienced consistent growth despite the financial crises in the United States and Europe. This growth is expected to continue through 2015 due to an expanding labor force, fiscal spending, and the upcoming World Cup that will be held in Brazil in 2014 (Brazil, 2011).

Physical Environment Segment Going Green Consumers are more concerned about their health and the environment. Environmentally conscious mothers are worried about the conditions in which they live, like unfair distribution of hazardous waste sites, air pollution, occupational hazards and other environmental conditions (Schloss, 2012). It has been noted that environmentally friendly products, although they have higher prices, were maintaining market share (Byron & Vranica, 2010). Companies are now taking notice of their consumers wants and needs and are developing products that are biodegradable, include ingredients that are natural, and use sustainable packaging such as lightweight beer bottles, recyclable packaging, and re-usable boxes (Cowlett, 2011). Companies are now luring consumers with slogans such as Protecting Planet Home, No one holds their breath while theyre cleaning and Jug-free America (Byron & Vranica, 2010). Global Concern for the Environment The trend of going green is not only seen with U.S. consumers but also throughout the world (Kan, 2010). The Chinese, for example, are also interested in environmentally friendly products and practices. The Chinese government is a strong promoter of protecting the environment; they provide incentives such as subsidies and tax policies to consumers who are willing to trade old for new energy-efficient products. Nongovernmental organizations (NGOs) are also bringing awareness to the Chinese consumers of environmental issues. NGOs assist in raising awareness of air and water pollution and many other environmental issues in China. Price is a critical factor when deciding whether or not to buy green products (Kan, 2010).

Approximately 75 percent of Chinese consumers are willing to spend a 10 percent premium for green products given their current economic condition and up to a 15 percent premium once the economy recovers. Concern for the environment is also growing in the UK market. Milk bags, which fit easily into a reusable jug, have become a growing trend in the UK because they use significantly less packaging than regular plastic bottles and cost less to produce (Cowlett, 2011). Consumers around the world appear more concerned than ever about the environment they live in and the role they play in it. INDUSTRY LEVEL ANALYSIS Threat of New Entrants Economies of Scale Large scale household product companies have a better chance of survival than smaller companies due to their ability to acquire and divest product lines easily (Industry analysis: household products, 2012). They can either do away with a line of products that is not performing well, or they can acquire a line that will complement one of their current products. Larger scale firms are also able to invest much more into research and development. They are able to spend more on advertisement and marketing as well, which gives them the advantage of name recognition with consumers.

Product Differentiation Competitors in the household goods industry have their own unique products to help them lock down their share of the market. Although there are similar products offered by different companies, they still want customers to compare all products and choose their favorite

ones (Industry analysis, 2012). Firms spend a lot of money to market their products with the hopes of gaining the advantage of brand recognition. Many consumers prefer to continue buying the same products they always have, and seldom break that cycle except when experiencing financial hardships. Manufacturers of household goods use innovation to add value to their existing products or to develop new complementary items to capture more of the market share. Capital Requirements The barriers to entry for a small-scale company are relatively low, as the technological skills and financial resources necessary to launch a consumer products company are dramatically less than a larger-scaled company (Gordon, 2012). Launching a large scale company requires a large amount of capital to build manufacturing facilities and to pay for advertising to attract customers, so the barriers are much higher. Switching Costs Consumers do not have to spend a significant amount of money to purchase a new or different product (Gordon, 2012). Purchasing power is weakened due to slow growth in income levels and consumers are less likely to purchase more expensive brands when they can buy another product that is just as good at a cheaper cost. Switching costs are low in the household goods industry, especially with the new competition of private label brands who offer lower prices.

Expected Retaliation Firms have been forced to compete more aggressively over the past several years due to poor economic conditions. One of the main ways they have done this is by starting price wars, which is an effective way of blocking new entrants (Cite). Another major consideration for new

entrants is brand equity (Industry analysis, 2012). Existing firms with mature products have the advantage of name recognition. The longer a consumer has used one product, the less likely they are to switch to using a different product sold by a competing firm. Bargaining Power of Suppliers Supplier power in the household goods industry is considered moderate to high (Household Products Industry Profile, 2011). The inputs needed to produce the products consist largely of specialized chemicals and packaging materials, and most of these inputs are supplied by major chemical manufacturers. This gives them increased power over the firm because they are able to negotiate favorable deals. Chemical manufacturers would not suffer significantly with the loss of business from the household goods industry as they supply to a number of industries, which again increases the power of suppliers. Some household good firms have started producing their own raw materials. For example, Procter & Gamble has opened up a separate chemical unit to produce the chemicals needed to produce some of their products. This gives them an advantage over competitors because they do not have to enter into contracts with suppliers, which can be costly. Overall, the power of the supplier is considered moderate for the household goods industry.

Bargaining Power of Buyers The power of buyers in the household product market in the United States is fairly strong due to the fact that supermarkets and hypermarkets hold a 58 percent share of the overall market

and the overall function of household products is uniform (Household Products, 2011). The household goods industry consists of many companies with undifferentiated products competing against one another, which increases the power of the buyer. Although buyer power is high overall, it is diminished somewhat by the large number of products that manufacturers have to stock in order to provide for the different preferences of consumers. Threat of Substitutes Homemade Products One of the biggest threats to the household goods industry is homemade products (Bleach in the United States, 2011). As the environmental crisis worsens, people are more likely to use

green products. There are many green products on the market, but these products come with a higher cost. Consumers will increasingly continue to mix their own environmentally friendly cleaning products (Zaharia, 2011). Some of the main products sold in the household goods industry are toothpaste, laundry detergent, dishwashing detergent, and cleaning products. Consumers are able to make these products on their own for a fraction of the cost. Intensity of Rivalry The household products industry in the U.S. is fairly fragmented, making competition intense (Household Products Industry Profile: United States, 2011). The top three companies, who account for 46 percent of the market share, are Procter & Gamble, Kimberly-Clark, and Koch Industries. Switching costs are practically nonexistent, which is increasing rivalry. There is also a lot of competition from private label brands who offer similar products for significantly less (Gordon, 2012). Consumers are swapping their premium products for lower priced value products. Many of Procter & Gambles customers have made the decision to no longer buy the

companys products and have begun purchasing products such as Purex and Xtra, which are similar but are more affordable. This consumer trend is intensifying rivalry (Elliot, 2012). Another factor to consider when analyzing rivalry among competitors is the relatively slow industry growth and the decrease in consumer spending (Townsend, 2012). Retail sales in the U.S declined in April, and in May sales dropped again by 0.2 percent, which indicates that rivalry among companies will be increasing. STRATEGIC GROUP MEMBERS Strategic Dimensions The following tables display the strategic dimensions and show the relationships between each of the companies (see Table 1). The first table compares the four companies that make up the strategic group by market capital, technological leadership (patents), product mix, and number of employees. For product mix, the numerator indicates the amount of products that they produce, while the denominator indicates the total number of product mix categories.

Table 1: Strategic Dimensions Clorox Church & Dwight Colgate-Pal molive Unilever

Market Cap (In Millions) Technological Leadership (Patents) Product Mix Number of Employees

9,338.69 597 3/4 8,400

7,516.44 354 4/4 3,500

50,840.51 2733 2/4 38,600

60,838.55 1311 4/4 169,000

Source: Mergent Online: Company Analysis, 2012 United States Patent and Trademark Office

Table 2: Product Mix Clorox Cleaning Household Lifestyle Personal Care X X X --Church & Dwight X X X X Colgate-Pal molive X ----X Unilever X X X X

Source: Colgate-Palmolive: Our Brands, 2012 Clorox: Products, 2012 Church & Dwight: Brands and Products, 2012 Unilever: Brands in Action, 2012

INDUSTRY AVERAGES Liquidity Ratios

Table 3: Liquidity Ratios

Source: Mergent comparison report, 2011 All four companies are below the industry average with respect to their current ratio (See Table 3). Church & Dwight has the highest current ratio at 1.97 which indicates it has a stronger ability to use assets to pay current liabilities than other companies. It also has the highest quick ratio at 1.33. Only Colgate-Palmolive and Church & Dwight have positive net current asset ratios and are above the industry average. Clorox and Unilever performed poorly with respect to net current asset ratios because theirs is negative, which means they do not have enough cash available for their companys day-to-day operations.

Leverage Ratios Table 4: Leverage Ratios

Source: Mergent comparison report, 2011 Colgate-Palmolive and Unilever were both above the industry average with respect to total debt to equity (See Table 4). Higher ratios signal excessive debt, lower creditworthiness and weaker balance sheet strength. Colgate-Palmolive and Church & Dwight do a better job as far as interest coverage ratios go, which indicates that they are better able to pay interest on their outstanding debt.

Activity Ratios Table 5: Activity Ratios

Source: Mergent comparison report, 2011 Clorox has inventory turnover at 7.9 which is higher than the industry average and the other three companies in the strategic group (see Table 5). This indicates that either sales are strong or that management is not purchasing effectively. Clorox and Colgate-Palmolive are both higher than the industry average, which indicates that their management teams are best using their assets to generate revenue. Church & Dwight and Unilever are both below the industry average. Profitability Ratios Table 6: Profitability Ratios

Source: Mergent comparison report, 2011 All four companies performed above the industry average in all aspects of profitability (see Table 6). Colgate-Palmolive did the best, having the highest gross profit margin, operating margin and net profit margin. Colgate-Palmolive is also the most able to cover the costs of goods sold and pay their debts, interest expenses, and taxes. They also have the highest rate of return on assets, return on equity and return on invested capital. Colgate-Palmolive makes effective use of its invested capital.

Growth Ratios Table 7: Growth Ratios

Source: Net Advantage stock report, 2011 Unilever had the highest sales growth rate at 10.17, followed by Colgate-Palmolive, Church & Dwight, and finally Clorox. Colgate-Palmolive has the highest net income growth rate at 15.93 (see Table 7). They performed the best with respect to increases in net income growth followed by Church & Dwight, Clorox, and finally Unilever. This indicates that Colgate-Palmolive is growing the fastest with respect to growth in net income which is more important that having the highest sales growth rate because this shows investors that they have the most money remaining after operating costs and expenses have been deducted from sales.

Stock Ratios Table 8: Stock Ratios

Source: NetAdvantage stock report, 2011 Colgate-Palmolive had the highest earnings per share at 4.94, so it is the most profitable stock (see Table 8). Unilever had the lowest EPS at 2.03. Church & Dwight had the highest P/E ratio at 20.8. The high P/E ratio shows that investors expect higher earnings growth in the future. Clorox and Unilever are tied with the lowest ratio of the strategic group at 17. Church & Dwight had the highest book value per share of the group at 14.34. Church & Dwight could pay more on each share by far than the other companies in the group. Clorox had the lowest book value per share. Unilever had the highest beta at 0.81 and Church & Dwight had the lowest beta at 0.34. All four of the companies betas are less than 1, which means their securities will be less volatile than the market.

COMPETITOR ANALYSIS Strategic Group Member 1: Church & Dwight Co., Inc. (CHD) Future Objectives Church & Dwight hopes to deliver excellent Total Shareholder Returns and through the introduction of new products, build customer loyalty (Church & Dwight Annual Report, 2011). Current Strategies Church & Dwight maintains a diverse product portfolio (Church & Dwight, 2011). 60 percent of their products are considered premium and the remaining 40 percent are value brands. The company has increased their spending on marketing and also developed new products the support their premium brands. 21 percent of Church & Dwights sales now come from foreign countries, which is a big change for the company, whose sales used to come almost entirely from the U.S. Assumptions Church & Dwight expects some challenges in the near future (Church & Dwight, 2011). This is mainly due to weak consumer demand, high commodity costs, and increased competitive spending. They foresee having to lower the prices of products, especially their premium products, in response pricing wars and consumer pressures. Strengths and Weaknesses The companys value products have thrived due to the weak economy (Church & Dwight, 2011). Their management team consists of individuals that previously worked for larger

firms and have the knowledge to compete when challenged. The companys gross margin declined over the past two years due to competitive pricing wars and higher commodity costs. It is difficult for Church & Dwight to compete because the larger firms have significantly greater financial resources. Another weakness for the company is the fact that their top three customers account for approximately 33 percent of their net sales. This is a negative factor because if one of those customers decreased the volume of their orders, or if they completely quit purchasing altogether, Church & Dwight would suffer major decreases in sales and profitability. Strategic Group Member 2: Colgate-Palmolive Company (CL) Future Objectives The Colgate-Palmolive Companys main goal is overall growth and eco-friendliness (Colgate-Palmolive Annual Report, 2011). They hope to achieve this by focusing on consumer consumption, pricing excellence and simplification, go-to-market strategies, and delivering products that not only please customers but are environmentally friendly. Colgate-Palmolive is striving to reduce water consumption not only in the manufacturing of their products, but also the amount of water associated with their products. Current Strategies Colgate-Palmolive is currently working hard to make products available and easily accessible by consumers (Colgate-Palmolive, 2011). They want their products to be highly visible, which means having prime shelf location and a lot advertisement. The company has also been sponsoring recycling centers to further their objective of becoming a more environmentally friendly organization. Assumptions The Colgate-Palmolive Company expects further challenges in respect to the economy

(Colgate-Palmolive, 2011). They also anticipate competition in the form of pricing wars, promotional activities, and new product introductions. The company also believes that consumers are demanding more value in their brand choice and are influenced by more factors other than price when purchasing products. Strengths and Weaknesses Colgate-Palmolive has built strong customer loyalty in emerging markets and holds leading market positions in many of the core categories (Colgate-Palmolive, 2011). They are competing against much larger, multinational companies that have far greater resources. They are also too dependent on key retailers, some of whom have much more bargaining power. Strategic Group Member 3: Unilever (UN) Future Objectives Unilever aspires to have the best and most innovative and agile brands in the world (Unilever Annual Report, 2011). They would also like to improve in their business performance by increasing volume and sales growth. The companys hopes are to steadily improve operating margins and cash flow. Current Strategies Unilever has been monitoring external market trends in the hopes of gaining insight into what consumers want so they can develop their category and branding strategies (Unilever, 2011). They are also investing in markets and segments where they feel they already have, or can easily attain, a competitive advantage. They are most interested in markets that have the greatest long-term potential. Assumptions Unilever believes that the intensity of rivalry in the industry will remain the same over

the next year, and possibly even longer (Unilever, 2011). They believe this because they also feel that consumer markets will stay down in developed markets. Unilever expects pricing wars and innovation to be the strongest types of competition they will experience. Strengths and Weaknesses Unilever quickly leverages ideas across their geography, categories, and brands, which allows them to focus their resources more wisely and efficiently (Unilever, 2011). Their growth was driven mainly by price and volume, which reflects their brand strength and their ability to compete in unfavorable market conditions. Unilever only had volume growth of 1.6 percent in 2011, which was a decrease from 2010. Their gross margin was also down by 1.8 percent. Strategic Group Member 4: Clorox Company (CLX) Future Objectives The Clorox Companys overall objective is to make everyday life better (Clorox Company Annual Report, 2011). They hope to contribute to economic profit growth and employee engagement. The Clorox Company is striving to be as environmentally friendly as possible. They endeavor to continue to grow the company, while also minimizing their effect on the environment. Current Strategies Clorox has been active in divestitures and acquisitions in an attempt to reshape their product portfolio (Clorox, 2011). They have invested in improving their global information technology processes and systems and have restructured their operating model to be more efficient and effective. Assumptions Clorox expects to face intense competition in the national and international markets in the

future, which could affect their profitability (Clorox Company 10K Report, 2011). They also expect unfavorable economic conditions to suppress consumer demand, making the level of competition much higher. Strength and Weaknesses The Clorox Company serves over 100 markets and has recorded more share growth over the past three years than any competitor in the industry (Clorox, 2011). Nearly 90 percent of the companys brands are ranked in the top two in market share. OPPORTUNITY & THREATS Opportunities Going Green Todays society is more aware and worried about the environment (Schloss, 2012). For consumers, concern for the environment makes them less price sensitive when it comes to purchasing products that are environmentally friendly (Byron & Vranica, 2010). Going green is a use trend globally. Some countries, such as China, even offer tax incentives for people who trade in old products for more energy-efficient ones (Kan, 2010). This trend presents a great opportunity for companies in the household goods industry. Firms can create a wide variety of environmentally friendly products that consumers in todays society are looking for. Asian Population Growth The Asian population is the fastest growing race in the United States as previously discussed. About 55 percent of Asian men and 49 percent of Asian women had at least a bachelors degree as of 2010 (DeNavas-Walth, Proctor, & Smith, 2012). Asian Indians had a remarkably high number with 79 percent of men and 70 percent of women having at least a bachelors degree. This indicates that not only are there many more Asians earning money in the

United States, but they are also making better amounts of income. The median Asian-American household income in 2011 was $65,129 (DeNavas-Walth, Proctor, & Smith, 2012). These things make the Asian race a great market to target because they have increased buyer power and money to spend. Threats State of the Economy Inflation has significantly fluctuated from 1.2 percent in 2010, to 3.3 percent in 2011, to 1.7 percent in May of 2012 (Strauss & Wang, 2012). Inflation is expected to decrease in 2013 to 1.6 percent. Americans will continue to feel economic pressure because of expectations of higher food prices due to the environmental conditions (Country report, 2012). Real median family household income is also decreasing, dropping 1.7 percent from 2010 to 2011 (DeNavas-Walth, Proctor & Smith, 2012). To make matters worse, the household goods industry has virtually no switching costs. With decreasing income, consumers will be less likely to purchase expensive products and will most likely begin buying products from new competitors or private label brands who offer lower prices (Gordon, 2012).

INTERNAL ANALYSIS Mission Statement The Clorox Companys mission statement is We make everyday life better, every day (Mission & Values, 2012, 1). The company strives to enhance the lives of their customers through the use of their products. They are also determined to give back to the community and to

make positive impacts on the communities where they do business. The Clorox Companys mission statement did not satisfy any of the nine components of a mission statement (see Table 9). Their corporate values do meet five of the nine components. First, the company believes that attempting to Do the right thing will benefit their long-term success and is dependent upon their integrity, honesty, and ethics (Mission & Values, 2012, 6). Their next corporate value, Stretch for results, rests upon the belief that the companys success is measured by exceeding customer and consumer expectations and by the firms ability to be a market leader (Mission & Values, 2012, 7). Third, the Clorox Company feels that taking personal ownership will drive progress and will aid in delivering exceptional results and achieving their goals. And finally, the company believes that the success of the company is largely based on the ability of Clorox employees, business partners, and communities to work together.

Table 9: Nine Components of a Mission Statement

Mission Statement Customers Products/Services -----

Vision Statement

Markets Technology Concern for Survival, Growth & Profitability Philosophy Self-Concept Concern for Public Image Concern for Employees

--------------

FINANCIAL RATIO ANALYSIS Current Ratio

Source: Mergent comparison report, 2012

Church & Dwight had the highest current ratio from 2007 to 2011 (see Figure 2). This shows that they are better able to cover their current liabilities through use of their assets. In 2011, the current ratio for Church & Dwight increased significantly. At the very end of 2010, Church & Dwight acquired a cash consideration of $46 million from Natures Earth Products, Inc., which explains the significant increase in their current ratio (Church & Dwight 10K, 2011).The other three companies were below the industry average for all five years. Clorox and Unilever struggled more than their competitors in these years with current ratios well below the industry average. Colgate-Palmolive performed better than Unilever and Clorox, but still had a ratio lower than the industry average and Church & Dwight. Long-Term Debt to Equity Ratio

Source: Mergent comparison report, 2012 Unilever and Church & Dwight had relatively low long-term debt to equity ratios (see Figure 3). This indicates that these two companies are in better positions to take on more debt should the need arise. Colgate-Palmolive had the highest ratios in every year, excluding 2010. Unilever has outperformed their competitors over the past five years with respect to long-term debt to equity. In 2008, the commodity and energy costs of Clorox increased to $137 million and was expected to increase in the following years, which resulted in the increase in the ratio from 8.55 in 2007 to 25.59 in 2010 (Clorox Company 10K, 2008). Interest Coverage Ratio

Source: Mergent comparison report, 2012 Unilever performed the best with respect to interest coverage (see Figure 4). This indicates that they have the best ability to use their capital to cover interest expenses and also

indicates that they have far better creditworthiness. Colgate was second best in the strategic group topping out at 69.77 in 2011. Church & Dwight started off the five year period with the lowest ratio of 5.18 but had increased to 56.62 by 2011.

Total Asset Turnover Ratio

Source: Mergent comparison report, 2012 Clorox and Colgate-Palmolive performed the best with respect to asset turnover for all five years, which indicates good quality management of assets (see Figure 5). Colgate-Palmolive had the highest ratio of the strategic group over the past five years and has stayed well above the industry average. Their ratio did drop after 2008 because their total assets increased by $2 million, while their sales remained about the same (Colgate-Palmolive 10K, 2010). Church & Dwight performed worse than their competitors and stayed below the industry average in each of the five years indicating that the companys management team was not efficiently utilizing their assets to generate profits.

Gross Profit Margin Ratio

Source: Mergent comparison report, 2012 All four of the companies in the strategic group performed above the industry average from 2007 to 2011 (see Figure 6). Colgate-Palmolive had the highest profit margins indicating that they are the most efficient in their manufacturing and distribution process. They are able to

get their products at a reasonably low cost and are then able to sell their products at a price high enough to generate a high margin of profit. Clorox also performed well with their gross profit margin just under Colgate-Palmolives. Church & Dwight had the lowest gross profit margin which was just about the industry average. Operating Profit Margin Ratio

Source: Mergent comparison report, 2012 All companies in the strategic group performed exceptionally compared to the industry averages (see figure 7). Clorox remained fairly stable over the period but dropped in 2011 due to their operating income and net sales both decreasing (Clorox Company 10K , 2011). Church & Dwight has steadily improved and Colgate had the highest operating profit margin of the strategic group. Unilever peaked in 2008, but decreased over the next two years. Compared to the industry, all four companies are generating a good profit on each dollar of sales revenue earned. Net Profit Margin Ratio

Source: Mergent comparison report, 2012 Colgate-Palmolive has outperformed each of its competitors in the strategic group with respect to the net profit margin ratios (see Figure 8). This indicates that their after tax profits per dollar of sales was greater than the other companies, as well as the industry average. Church & Dwights performance has steadily improved since they experienced a significant drop in 2008, yet still remained about the industry average. This drop in 2008 was caused by the companys intangible assets decreasing by $2 million, causing them to lose key customers (Church &

Dwight 10K, 2009). Unilever has had very unsteady net profit margins over the past five years which may have been caused by the poor economic environment. Return on Assets (ROA)

Source: Mergent comparison report, 2012 All four of the companies in the strategic group performed above the industry average (see Figure 9). Colgate-Palmolive performed the best of the four companies, indicating that the companys management team effectively uses their assets to generate net profits. Cloroxs return on assets increased since 2008, and it performed stable in these years. Return on assets can be an index to indicate how much value per unit can create. As of 2011, Clorox was generating 12.78 percent of profit for every dollar of assets. Church & Dwight had the lowest return on assets in every year except for 2011 when it narrowly outperformed Unilever, but the company has experienced the most stable and steady increase compared to its competitors. Unilever had very inconsistent net profit margins over the past 5 years which may have been caused by the global financial crisis, which caused a decrease in purchasing power and a weaker market.

Return On Equity (ROE)

Source: Mergent comparison report, 2012 Colgate-Palmolive still maintains its strong performance with the highest return on equity

ratio (see Figure 10). This indicates that they are generating the most profit through the use of money that was invested by shareholders. Church & Dwight has remained fairly stable, although the company is not improving with respect to their return on equity. This indicates that the companys management team is not effectively utilizing their equity to generate returns for shareholders. Unilevers ratios were again inconsistent, ranging from 44.89 to 29.55. Cloroxs returns have been unstable and well under the industry averages, ranging from -6.48 to 11.27 over the five year period. Return on Investment

Source: Mergent comparison report, 2012 All four of the companies in the strategic group performed above the industry average (see Figure 11). Yet again, Colgate-Palmolive has much better ratios than the other companies, indicating that they are effectively using their investments in their operations to generate returns. Clorox was fairly stable over the first three years but took a drop in 2011. Church & Dwight remained very stable over the five year period, while Unilever experienced some ups and downs.

STOCK ANALYSIS Stock Ratios

Source: Yahoo! finance historical prices, 2012 Colgate-Palmolive had the best performing stock over the five year period (see Figure 12). Cloroxs stock has been relatively steady since experiencing a drop in 2008. Church & Dwight performed well from 2007 to 2010, but then the stock price dropped in 2011 from 69.02 to 45.76. Unilevers stock prices have experienced consistent ups and downs over the five year period.

P/E Ratio

Source: (a) Value Line investment survey, 2012 (b) Net Advantage stock report, 2012 Colgate-Palmolive was again the leader with respect to the P/E ratio, indicating it has the highest investment value, with Church & Dwight following at a very close second (see Figure 13). Cloroxs price to earnings ratio was a bit rocky, ranging from 14.4 to 19.7 from 2007 to 2010, but experienced a huge increase in 2011, coming in at 31.9. According to the stock price, Colgate had a very high price which means it might be overvalued because its P/E ratio was not high enough. Church & Dwight remained relatively stable, only experiencing a slight decrease in 2009, and then increasing from then on. Unilever performed the best in regards to the P/E ratio because it has the lowest stock price with a relatively high P/E ratio.

Earnings Per Share

Source: (a) Value Line investment survey, 2012 (b) Net Advantage stock report, 2012 Colgate-Palmolive again performed the best of the strategic group (see Figure 14). Clorox did very well with a slight increase through 2010, but then in 2011 experienced a significant drop down to 2.01. Church & Dwight maintained a steady increase over the five year period, indicating that they are a good company to invest in. Unilever was very rocky over the period, ranging from 1.62 to 2.4.

Dividend Payouts

Source: Value Line investment survey, 2012 Net Advantage stock report, 2012 Each of the companies in the strategic group experienced steady increases in their dividend payouts over the five year period, with the exception of Unilever in 2009 (see Figure

15). Compare with their competitors, Colgate had the highest dividend payouts in 2011 at 2.27 and Clorox had the highest dividend payouts from 2008-2010. The increasing dividend payouts for Clorox and Colgate indicates that their operations are performing the best and that they would be good companies to invest in.

Book Value Per Share Source: Value Line investment survey, 2012 Church & Dwight was by far the best performer of the strategic group with respect to book value per share (see Figure 16). The company peaked in 2011 at 14.34, while the next closest company is Colgate-Palmolive at 4.95 in 2011. Clorox had its best book value per share in 2008, but has since decreased. Colgate-Palmolive experienced a slight increase in 2009, but has since continued to decrease. No data on Book Value per Share could be retrieved for Unilever.

VRIO TEST Table 10: VRIO Test

Core Competencies Innovation Clorox has invested a significant amount of resources into a new facility located in Pleasanton, California which will serve as their primary research and development facility (Clorox 10K, 2012). The facility will have extremely advanced laboratories and also open work spaces to influence creativity. Clorox has been rapidly increasing its number of patents. The company also allocates a large amount of its revenues to R&D (see Table 11).

Table 11: R&D as a Percentage of Revenue

R&D

Revenue

R&D/Revenue

Clorox Church & Dwight Colgate-Palmolive Unilever

115M 55.1M 262M N/A

5,231M 2,749M 16,734M 60,103

2.2%
2.0% 1.6% N/A

Source: Mergent comparison report, 2011 Clorox held 601 patents as of October 2010 (United States Patent and Trademark Office, 2012). Measured by the size of the firms and their number of patents, proportionally Clorox is doing better than their competitors. Innovation has led to success for Clorox. The company is the first to launch a line of non-synthetic cleaning products called Green Works. Green Works grew the natural cleaners market in the U.S by 100 percent and solidified a 40 percent share of the market in its first year (Nidumolu, Prahalad, & Rangaswami, 2009). Studies have projected that green cleaning products will have a 30 percent hold of the market by 2013 (Said, 2010). This shows the enormous growth potential for Green Works. Another innovation came from Clorox in 2009 when they introduced biodegradable cleaning wipes and non-synthetic detergents to the Clorox line up (Nidumolu, Prahalad, & Rangaswami, 2009). One of the technologies that Clorox has invested in is Spinlace Technology, which makes the wipes stronger and more durable (Zwirn, 2009). Clorox continued to invest in innovation, and especially eco-friendly products, throughout the recession. Donald R. Knauss, CEO Donald R. Knauss has been the CEO for Clorox since 2006 (Donald R. Knauss, n.d.). He worked for 12 years with Coca Cola and started working for Minute Maid in 1994 as Senior Vice President of Marketing. Knauss became President and CEO for Minute Maid in 2000 and in 2004 became President and COO of Coca-Cola North America. Clorox acquired Burts Bees in

2007 and started the eco-friendly brand Green Works in 2008 under Knauss management (Clorox Company 10K report, 2008). Knauss efforts to develop a corporate responsibility strategy led him to be named Responsible CEO of the Year by Corporate Responsibility Magazine (Green, 2012). Net sales grew a total of 9 percent from 2007 to 2008 and the growth was primarily due to the acquisition of Burts Bees and the new brand, Green Works, among other established products (Clorox Company, 2008). Clorox acquired HealthLink and Aplicare as part of a portfolio transformation at the end of 2011 (The Clorox Company acquires Aplicare and HealthLink, 2012). Net sales and volume increased during the first quarter of 2012 with a 4 percent volume growth in shipments of professional products due to the most recent acquisitions (Clorox Company 10Q Report, 2012). Mr. Knauss has performed remarkably as CEO of the Clorox Company and his ability to exceptionally lead his team shows through the companys growth and success. Reputation Research shows that consumers are open to green products, though they are often in conflict with having to pay a higher premium and the scarcity of the product in their place of shopping (Clorox Green Works case study, 2008) **Cannot use this source**. Clorox ensures their customers that they are listening to their needs by introducing the Green Works line nationally. The company is also able to provide this product to their customers at a price that they can afford by utilizing their economies of scale. Clorox is making it easier for consumers to find these products in their local supermarkets. Clorox teamed up with the Sierra Club, which is the largest national environmental organization, and their logo appears on all Green Works products (Kamenetz, 2008). Clorox has been very outspoken about their support for Gay, Lesbian, Bisexual, and

Transgender (GLBT) issues (Zerrudo, 2012). The employees at Clorox made a video for the It Gets Better Project, which is a movement to encourage GLBT youth to persevere through their difficult teenage years. Senior Vice President and Chief Innovation Officer Wayne Delker wanted to send a message to say that they will one day be able to say that they are happy and feel accepted. Clorox prides itself on being named one of the best places to work for GLBT equality. The company won the Employee Resource Group (ERG) of the Year award in 2010 from Out & Equal Workplace Advocates (Outie Awards, 2012). Clorox has also partnered up with the National Association of Hispanic Nurses to launch the Hispanic Nurses Network (Clorox teams up with National Association of Hispanic Nurses to announce Hispanic Nurses Initiative, 2012). This network will serve as a healthcare resource for Hispanic families and consists of Spanish speaking nurses in different cities who will share information on how to manage a healthy home. Clorox feels that the network will help to keep the Hispanic community informed about health and wellness since Hispanics have lower rates of access to medical care. Clorox has committed to helping this group of nurses to provide better care and education to patients and keep them as informed as possible. Clorox has also established a Facebook page for the Latino community and a Clorox website for Spanish speaking customers.

STRENGTHS & WEAKNESSES Table 12: Strengths & Weaknesses

Strengths Product Portfolio The Clorox Company features over 20 brands that are spread across four categories (Products, 2012). The cleaning category is made up of laundry and home care products and consists of seven brands, including Clorox and Green Works. The household category contains five brands, including Glad and Kingsford, that produce bags, containers, charcoal, and cat litter. The lifestyle category consists of food, water filtration, and natural personal care products and the four brands offered include Brita, Burts Bees, and Hidden Valley. The international category is made up of four brands. These brands include the household cleaners Mistoln, which is sold in Latin America, and Ayudn, which is sold in Argentina.

Weaknesses Global Limitations

One of the major weaknesses in the Clorox Company is that they mainly focus on the U.S. market. Eighty percent of their business is done in the U.S. (Glazer, 2012). Clorox has decided to confine their expansion to the markets they are familiar with instead of entering emerging economies which are costly to enter. Clorox has experienced growth of five to seven percent in the Latin American market and a five percent growth in the U.S. market. Mr. Knauss, CEO of Clorox, feels that they should double down on their current markets rather than lose money investing in new markets. Customer Dependency A large percentage of Cloroxs net sales come from a limited number of retail customers (Clorox Company 10K Report, 2011). Their largest customer, Wal-Mart, accounted for 26 percent of the companys net sales in 2010. The five largest customers for Clorox accounted for 44 percent of the companys net sales in 2011. Clorox does not typically enter into any long-term contracts with customers, and their business is based primarily on individual sales orders. Cloroxs sales would be significantly reduced if one of their main customers significantly changed the frequency of their orders or quit ordering from the company altogether. Clorox could also suffer decreased orders from their major customers, which would negatively affect sales, if the company is unable to satisfy customer demands. The buyer power is very strong for the Clorox Company, which creates a weakness for the organization.

VALUE CHAIN ANALYSIS Primary Activities

Marketing & Sales Clorox spends almost 10 percent of net sales on advertising, which was roughly $502 million of their $5.231 billion in net sales during the 2011 fiscal year (Clorox 10K, 2011). They focused in particular on their Hidden Valley and KC Masterpiece brands and the Brita on-the-go water bottles, while cutting back on their investment in the Green Works and Glad brands. Clorox is focusing on branded entertainment, or product placement (Stuart, 2012). One way that the Clorox marketing department is reaching out to their consumers is by targeting niche audiences, such as the Hispanic community, and utilizing product placement. Clorox plans to diversify and increase their sales by investing heavily in the health-care industry (Clothier, 2010). New health-care laws are being enforced in 2012 and Clorox intends to take advantage. The health-care industry only accounts for 2 percent of Cloroxs business, and they plan on actively working their way into becoming one of the top suppliers for hospitals. Service Nearly ninety percent of the Clorox brands are ranked number one or two in market share (The Clorox Company annual report, 2011). Clorox makes it easy for customers to provide feedback to the company by writing, calling, emailing or using social media sites like Facebook (Harmon, 2012). The company encourages feedback so that consumers feel that they are heard, acknowledged, and understood. They do this because they believe that it helps build loyalty and also forms a positive perception of Clorox and their other brands. The representatives that make up Cloroxs Consumer Affairs division are also knowledgeable on every product. Every time a new product is released, the representatives receive a sample of the new product so that they can

familiarize themselves with it and be able to discuss it with consumers. The Clorox Company also provides excellent service to their retail customers (Dozier, 2012). Consumer Affairs Representatives take the time to understand the customers strategy and who their customers are and then make suggestions on how to effectively price and sell their products. Clorox understands that positively influencing these areas promotes category growth, and ultimately the Clorox brands in that category. Support Activities Human Resources Clorox shows that it cares for their employees and their advancement in the company by providing career development through training programs (Clorox Company annual report, 2012). The company developed the Diamond Leadership Institute where executives can enroll in programs where they experience challenges to help them become better leaders (Professional development, n.d.). Clorox also encourages diversity in the workplace since the company understands that it is crucial in order to ensure innovation and growth (Clorox Company annual report, 2012). Clorox U.S. ethnic diversity figures surpass those of the U.S. Census by 5% on U.S. employees in nonproduction positions and by 1% in management positions (see Figure 17).

Figure 17: Employees U.S. Nonproduction

Source: Clorox annual report, 2012 Clorox also tries to partner with diverse suppliers in order to get different perspectives on the needs of consumers. The company promotes safety for its employees, and in 2011 the company spent 11,000 hours on training for its employees relating to procedures, operations, policies and other areas (Clorox Company annual report, 2011). The company understands that their employees are essential for the growth of the company. Current Business-Level Strategy The Clorox Companys business-level strategy is differentiation. Clorox uses research and development as well as its reputation to create value for their customers, as mentioned in our previous discussion. The company also has a reputation for supporting minority groups, including the GLBT community and Hispanics, which many of their consumers, especially those who define themselves as members of those groups, perceive as valuable. Current Corporate-Level Strategy

The Clorox Company is a diversified firm and is employing a related-linked corporate-level strategy. Less than 70 percent of the companys revenue comes from their dominant businesses, which are the cleaning and household segments. Figure 18: Sales by Category

Source: Company snapshot: The Clorox Company, 2012

SWOT MATRIX Table 13: SWOT Matrix

Strengths(S) S1: Innovation S2: CEO, Donald R. Knauss S3: Reputation S4: Product Portfolio

Weaknesses(W) W1: Global Limitations W2: Customer Dependency

Opportunities(O) O1: Going Green O2: Asian Population Growth O3: Health-care Industry

S4O2: Develop products to attract the growing Asian population in U.S. S1O1: Develop and promote green products

W2O3: Continue to diversify more into health-care industry

Threats(T) T1: State of the Economy

S1T1: Invest heavily in R&D to develop new products that are more resistant to economic downturns S4T1: Allocate revenue to best-selling products and expand product lines into new categories

W1T1: Reduce global limitations by extending sales to countries with stable economies

SO Strategies S3S4O2: The Clorox Company could use the opportunity of the growing Asian population and the companys strengths of having a broad product portfolio and a strong reputation to attract Asian consumers. They could make minor changes, such as using different scents or flavors, to existing products that appeal to Asian customers. This would be a cost effective and profitable way for Clorox to use their reputation product portfolio to target a new market. S1O1: Clorox could continue to innovatively create new products that are eco-friendly to

meet consumer demands and further improve their existing green products. The company could modify their existing Green Works products or create a new line of green cleaning products that offer different features than their existing eco-friendly product line. ST Strategies S1T1: Consumers are more concerned about the level of quality they can receive at an acceptable cost due to the current economic conditions. Clorox can invest heavily in their research and development department to develop new value-packed products that are not costly to produce and therefore can be offered at a low price. S4T1: Clorox could allocate revenues to their best selling products and expand their product lines into new categories that are less sensitive to changes in the economy to increase profits in turbulent economic conditions. WO Strategies W2O3: Clorox stands to profit greatly from the health-care industrys need for cleaning products. Clorox will generate revenues from this market and will therefore lessen their dependence on their top customers by diversifying more into the health-care industry. WT Strategies W1T1: Clorox could reduce their global limitations by extending sales to countries with stable economies, such as Brazil or India. Future Corporate-Level Strategy The Clorox Company plans to continue with its current corporate-level strategy of

related-linked diversification, but will focus on the health-care sector and diversifying into more stable economies. Feasible Strategic Alternatives Table 14: Feasible Strategic Alternatives

Feasible Strategic Alternatives

I. Develop products to attract the growing Asian population in the United States II. Continue to diversify into the health-care industry III. Reduce global limitations by extending sales to countries with stable economies

Feasible Strategic Alternative I Our first strategic alternative for Clorox requires developing products to attract the growing Asian population in the United States. The three states with the largest Asian consumer markets are California, New York, and Texas (Asian-American Consumers, 2012). The cities that should be targeted in California include Los Angeles, San Jose, and San Francisco because they have the highest Asian populations. New York City should be targeted as well, along with Houston, Texas.

Short-Term (0-1 Years) Clorox should begin by researching and developing new products for Asian consumers.

Clorox should also research Asian preferences, such as the types of products they like to use, the types of stores they frequent, and their television network preferences. Their preferences in TV programs and networks could help the company when it comes to formulating their advertising strategy. For example, the majority of the Asian population prefers watching the local or national news networks, movies, and documentaries (Asian-American Consumers, 2007). This suggests that Clorox should focus on placing their commercials on these types of networks to advertise their products. The company could also use an approach similar to the one used to target the Hispanic population, such as figuring out preferred scents or flavors by the Asian population and adjusting products to meet those preferences (New Clorox line targets Latinos, 2012). In 2007, Clorox spent $108 million in research and development due to an increase in the investment for innovation (Clorox 10K, 2007). This was a 9 percent increase in R&D expenses from 2006 and accounted for 2.2 percent of net sales. The increase was most likely due to the development of the Green Works line. We can use this amount as a rough estimate for the expenses that will be incurred by the company while developing a new product for the Asian population. Clorox should next research the major cities that will be targeted to find out what stores they already sell products through and what stores they will need to begin using as distribution channels. Mid-Term (1-3 Years) Once the company has developed a product or product line for the Asian-American consumers, the company can start advertising on some of the networks previously mentioned. In 2008, the company spent a total of $486 million on advertising (Clorox 10K, 2008). This was a 3 percent increase in advertising costs and accounted for 9.2 percent of net sales. In 2011,

advertising costs accounted for 9.6 percent of net sales. We believe total advertising costs for the company will be roughly $525 million. During this time, the company can better the product by adding scents or improve the quality of the product to better meet the expectations of the Asian-American consumers. Another way to attract Asian-American consumers and gain their loyalty could be to invest in Asian cultural organizations and provide scholarships that target the Asian-American youth. In 2012, Clorox spent $3.5 million in supporting cultural organizations and scholarships (Purpose, 2012). This would show the Asian consumers that the company cares about them and it would add value to the product. Long-term (3-5 Years) At this point, Clorox should evaluate the popularity of the products and also the effectiveness of their investments. The company must decide if this is a market they wish to continue to participate in or if they should concentrate on other opportunities. If they wish to continue, the companys management team should then decide which products will stay, be modified further, or will be eliminated from the line-up. Feasible Strategic Alternative II Clorox should continue to diversify into the health-care industry by investing more of its resources in the industry. Clorox is already present in the health-care industry thanks to the companys acquisition of Caltech, Inc. in 2010 (The Clorox Company acquires Aplicare and Healthlink, 2012). Clorox closed the deal for the acquisition of Aplicare, a company that manufactures products that aid in the prevention of skin infections caused by needles and surgery, and Healthlink, which provides products like anti-microbial hand soap to doctors

offices and care centers, in December 2012 (Lee, 2012). Clorox will use these new business units to build relationships with major health-care distributors and also to expand their product portfolio to include infection control products (The Clorox Company acquires Aplicare and Healthlink, 2012). Hospitals are now required to report incidences of infections to the Centers for Disease Control (McKinney, 2010). Clorox can take advantage of the health-care industrys need for new and better infection control products. Short-term (0-1 Years) Clorox should make use of their recent acquisitions, Caltech, Inc., Aplicare, and Healthlink, to become a one-stop shop for health-care facilities. The company should also use their reputation of being in business for 99 years as a way to assure their clients that their facilities will meet or exceed their standards based on their past performance. Clorox should establish relationships with different hospitals and health facilities to provide them with the products they need. Mid-Term (1-3 Years) If in year one Clorox has experienced growth between 3 and 5 percent with the health-care segment of their business, Clorox should continue with the strategy. If they have not, then they should continue with the activities performed during the first year until achieving their goal of 3 to 5 percent growth. If they have met or exceeded that goal, Clorox will have gained experience in dealing with the health-care industry. Their relationships will have grown to allow for further contact between the healthcare facilities and Clorox, which would permit the opportunity for further growth. Clorox can then use its capacities and resources in plastics manufacturing to develop plastic products for the industry. This could include, but not be limited

to, gloves for cleaning and limiting contamination and plastic surgical equipment that is used during various procedures. The existing channels can be used to distribute the products in a manner that is consistent with company practices, making it easier to distribute and manage the product delivery. Long-term (3-5 Years) At this time, Clorox needs to determine if they will continue to actively pursue becoming a market leader for the health-care industry. If they have not become one of the top five distributors to the hospitals and health centers in the United States by the beginning of year three, then they should continue with the activities they performed in years one and two. If they have reached their goal by the end of year two, Clorox should use the profits generated from the health-care sector to make mergers or acquisitions that will further their advancement to becoming the market leader in the health-care industry. One company that Clorox should take interest in is Katecho, Inc. This company currently produces disposable therapy electrodes, conductive adhesive hydrogels, and wound care (Manufacturing, 2012). The company is not publicly traded on the New York Stock Exchange and no financial information is available. Feasible Strategic Alternative III Our second feasible strategy involves reducing Cloroxs global limitations by extending sales to countries with stable growing economies. The country we feel Clorox should target is Brazil. Consumer spending in the country has increased since 2011 and is expected to continue on this upward trend through 2015 (Country Report: Brazil, 2012). Their economy has also experienced consistent growth despite the financial crises in the United States and Europe. Wal-Mart helped Clorox take the Green Works brand to Japan (Orgel, 2011). Clorox can again

partner with Wal-Mart to gain traction in the Brazilian market. Wal-Mart had an estimated 8.2 percent share of the grocery and retail market in Brazil two years ago (Consumer goods and retail report, 2011). Wal-Mart currently operates 512 stores in Brazil (Wal-Mart Stores, Inc. data sheet, 2012).Vice President of international strategy for Wal-Mart, Norbert Hsu, stated that Wal-Marts growth is sustained by their supplier partnerships and understanding the trends of different countries (Orgel, 2011). With the help of Wal-Mart and choosing the right products to stock, Clorox can be profitable in the Brazilian market. Short-term (0-1 Years) The Clorox management team should first develop and entry plan with Wal-Mart. Wal-Mart and Clorox presently have a business partnership and Wal-Mart has already helped Clorox take the Green Works line to Japan, Mexico, and Central America (Orgel, 2011). Clorox can build on this partnership to get products on the Wal-Mart shelves in Brazil. Clorox and Wal-Mart also currently have an international team leader, Ken Simpson, who stated that Wal-Mart had some great success introducing new product to new countries with the help of Wal-Marts global branded imports team (Clorox creating value worldwide, 2010). Simpson could prove to be essential in determining which products will and will not succeed in the Brazilian market. Mid-term (1-3 Years) Next, Clorox should implement the chosen products into the Brazilian market. Latin America accounts for over 65% of Cloroxs international business (Glazer, 2012). Clorox should choose products that are already thriving in the Latin American and American markets. Ayudn is a Clorox brand of bleach and cleaning products that is a leader in the Argentinean

market (Ayudn, 2012). Clorox and Pine Sol have an active presence in Mexico (Glazer, 2012). Lavender scented Pin Sol is seen to be very successful among Latin consumers, so this would be a great choice to market in Brazil. Long-term (3-5 Years) Clorox should next evaluate their success in the Brazilian market. They can determine their success of failure based on their market share in the country. Clorox should be ranked as one of the top three brands in Brazil by year three. The Clorox brand was ranked number one or number two in market share in the United States in 2011(Clorox Company annual report, 2011). Mistoln brand cleaners are ranked number one in their category in Venezuela (Clorox worldwide, 2012). Cloroxs Clorinda brand is the second ranked bleach in Chile. If the Clorox Company has not reached this status by year three, they should continue with their activities from the mid-term period and further research the consumer needs and wants in the Brazilian market to improve their products. Once Clorox products have become a top three seller in Brazil, Clorox should pursue a joint venture with an established Brazilian firm, such as Bombril SA. Clorox cancelled a previously planned joint venture with this cleaning product manufacturer in 2001 (Walsh, 2001). Clorox had planned to pay $175 million for a 50 percent holding in Clorox-Bombril, but terminated to agreement based on unmet conditions by Bombril. Clorox can expect to pay between $200 and $250 million for a joint venture deal with a firm such as Bombril.

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