P&G Japan: The SK-II Globalization Project

SK-II is high-end product that succeed in Japan, Taiwan, and Hong Kong. Then, P&G management would like to
expand the market to other regions, which have three possible alternatives. First, expand SK-II market in Japan
that already acquired market share. Second, to penetrate to new market in China, which other P&G products are
exist and going well and China is a high growth market. Third, expand products in European market. From the
analysis, SK-II should expand to only Japanese market and it is not a right time to penetrate into either China or
Europe.
As seen in Exhibits 1, P&G highly invested in R&D to gain superior technology, they do consumer research to
identify unmet customer need. A researcher center has to develop new product innovation that respond the need
and roll new products out rapidly worldwide via marketing expertise, in order to survive in the business. Moreover,
P&G also restructured their organization (O2005) by setting profit responsibility based on seven global business
units and consolidating transaction activities based on global business service unit. The change of organization
restructure would increase the efficiency by standardize manufacturing processes, simplifying brand portfolios and
coordinate marketing activities. However, the negative impact of restructure organization caused a lot of best local
manager left the company and mislead the team to focus on maximize sale volumes rather than profits.
SK-II already had brand awareness and loyal customers in Japan. SK-II also had succeeded in launching the
foaming massage cloth. Therefore, there was a significant opportunity to success in expand into new product
segment. Moreover, SK-II technology and marketing teams had developed an innovative beauty imaging system
(BIS) which would help SK-II to become the brand that solved individual skin care problem. It could attract more
Japanese customers, which was the most sophisticated users of beauty products and build more loyalty for SK-II
Japan is also the biggest in skin cares market size ($6,869 million in retail sales). De Cesare predicted that SK-II
will double sales over the next six or seven years. This mean, SK-II will have sales of more than $300 million in the
next six or seven years. Moreover, SK-II is such a high margin product and its operating income will increase $16.5
million ($150 x 11%). Therefore, the expansion in Japanese market is very appropriate.
Some of P&G products (such as Olay) are huge success in China and some of Chinese customers already
practiced three-step cleansing and moisturizing process. Chinese market has very high growth rate. These factors
should help SK-II to success in expanding into Chinese market. Unfortunately, SK-II is prestige products and must
sell through counter in department stores with beauty consultants and Chinese market open department stores
only in Beijing and Shanghai. Moreover, Chinese market also has many risks such as the risk that Chinese women
will not develop their discipline to six- to eight-step ritual, the counterfeit prestige products and especially high
import duties (35% to 40%), which cause SK-II to price its product above the retail level in other markets. These
factors may damage the attractiveness of SK-II. For sales forecast, they expected to generate $10 million to $15
million of sales over the first three years, so they will have $1.65 million of operating income ($15 million x 11%).
However, they have initial investment $1.5 million (10% of sales), so as they expected the brand to break even.
From this information, it is not the right time to expand into China
European market is a huge market and has moderate growth rate. Customers already practiced a multistep
regimen but de Cesare was not sure whether a significant group willing to adopt the disciplined six- to eight-step
ritual or not. Moreover, the biggest problem, some people think SK-II is like Olay for Japan. SK-II has to make clear
of its positioning but the cost of advertising in Europe is very high. European market has many high-profile
competitors like Estee Lauder, Clinique, Lancme, Chanel and Dior. It is very difficult for SK-II to create more brand
awareness. The projection of operating income is also loss $1 million to $2 million annually. Therefore, expanding
into European market is not attractive enough.
As the reason mentioned, SK-II should focus on expanding in Japan. Although Chinese market and European
market are very interesting but there are many risks and their return on investment is still low. Therefore, it is not
the right time to develop into these two markets.

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Exhibits 1: SWOT Analysis for P&G and SK-II

Strength

P&G had strong team for technology and marketing expertise, that they could work so well together and P&G could
earn synergy from these two team. From the case, SK-II had Beauty Imaging System (BIS), which could make SK-II
become the brand that solved individual skin care problems.
P&G management understood issues so quickly and flexible to adjust themselves to solve the issue. From the case,
P&G had restructured organization many times when they faced issues. In 1990, P&G replaced international divisions
by four regional entities after experiment model in European.
P&G highly invested for Research and Development (R&D). They had strong R&D team, and superior technology.
Therefore, they had more opportunity to expand their product line, moved into new segments such as anti-aging and
skin-whitening products.
P&G was highly adaptive for change. They were ready to change structure, process, and culture as they believed
these changes increase their ability to develop new product and rolled the out rapidly worldwide as mentioned in
organization 2005: Blueprint for global growth.
They believed that superior technology is their strength.
P&G is customer centric, they had consumer research to identify unmet customer need and implemented new global
product development process to find out how P&G could respond to the need. They used their superior technology and
expertise markets to design and adapt the core technology or product to local market as you can see from the case 10micro fiber with SK-II.

Weakness

To use SK-II, customers must develop at least a four- to six-step regimen. Its not fit for unsophisticated customer.
Doubt on P&G capability to leverage their superior technologies and marketing skill for luxury products, as they are well
played in high-volume products
The implementation of O2005 was causing a good deal of organizational disruption and management distraction.
To Swing from local to global plan made new people not understand the competitive and trade differences across
market.
The O2005 make country subsidiary GMs focus more on maximizing sales volume than profits.
Pressure and not able to prioritize work between launching new product of the month and sale effort on cosmetics, how
to balance.
Only few outside Japan understand SK-II, so they may think SK-II was like Olay for Japan. SK-II has to make clear of
its positioning and create more brand awareness.

Opportunities & Threats in each country

Opportunities & Threats
in each country
1.

Skin Care Market Size

2.
3.

Skin Care Market Growth (Two-year growth

rate)
Operating Income

4.

Usage of Facial Moisturizer (Lotion Type)

5.

Brand Awareness & Loyal Customers

6.

Cost of Advertising

7.

Numbers of High-profile Competitors

8.

User Experience in Multistep Regimen

9.

Sales Forecast

Japan

China

Europe

Large

Small

Large

Low

Very High

Moderate

11%

11%

8%

Very High

Low

Low

High

Low

Low

High

Moderate

High

High

High

Moderate

High

Double sales over

next 6 - 7 years

Expected to break
even in first three
years ($10 - $15
million of sales) and
loss about 10% of
sales over that period

Achieve $10 million

by the fourth year
and loss $1 - $2
million annually over
that period

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