The SK-II Globalization Project

P&G Japan
The SK-II Globalization Project

Executives Krivec, Jacklin Merkel, Jan Oshima, Yoshiko

29th of November 2005

International Marketing Department of Marketing III Prof. Dr. Sabine Kuester

The SK-II Globalization Project

Agenda
Introduction and Problem Definition Situation Country selection 1 Country identification 2 Preliminary screening 3 In-depth screening (SWOT) 4 Final selection (Portfolio) Globalization strategy Implementation Forthcoming analysis
2

The SK-II Globalization Project

Introduction and Problem Definition

SK-II: prestige skin care lotion invented by P&G Japan Launched succesfully in some Asian countries (export sales of $69 m.)

Is SK-II ready to become a global brand?

Transfer of SK-II business model to other countries possible?

The SK-II Globalization Project

Situation P&G
P&G worldwide Total sales $38 billion (1999) Global company geocentric orientation Euro Brand/Technical Teams Strategy Innovation of products with a global scope Extension of global products with minor local adaptations P&G Japan Entered in 1972 Strong competitor 1997: turnaround (cosmetics) Source of innovation (Lipfinity, technology centers)

The SK-II Globalization Project

Structure P&G
Organisation 2005 Risk loving culture Global budgets MDOs 7 GBS 7 GBUs (profit responsibility) Globalization advantage Innovation Simple ressource allocation Local adaptation Coordination of transactional activities Reduced bureaucracy Efficience

O2005 supports the global focus of P&G

5

The SK-II Globalization Project

SK-II Business Model

Target segment: wealthy women above 30

Product High quality Nobel packaging Complex usage High class brand Price High price ($120)

Place Beauty counselors Special stores

Promotion Mystique of special ingredient pitera TV commercials Testimonials

6

The SK-II Globalization Project

Globalization of SK-II
Positive aspects Global need for soft, moistured, clean-feeling skin Global prestige skin care market is huge ($9 billion) SK-II big success in some Asian countries High brand awareness/brand image in Japan Complements global brand portfolio (Max Factor, Olay) Brand name legally available Universal brand name Negative aspects SK-II high priced limited customer segment no fit to P&G portfolio (Stack it high, sell it cheap) SK-II developed for Japanese market SK-II known in a few asian countries Narrow product line Complicated usage (6-8 steps) Senseless brand name Special distribution system needed

Product characteristics, brand name could be extended globally Do minor adaptions, if needed e.g. price, distribution system

The SK-II Globalization Project

1. Country identification
Old product Old market
Market penetration Option 1: Japan

New product
Product development

New market

Market development Option 2: China Option 3: Europe (France, Germany, UK)

Diversification

The SK-II Globalization Project

2. Preliminary screening
Japan / China / UK Worth In-depth screening Germany / France Strong competitors Major sales through mass distribution outlets Expensive advertising costs

IN

OUT

The SK-II Globalization Project

3. SWOT: SK-II
Strengths High brand awareness of 70% in Japan High product margin Innovative product Excellent quality Universal brand name Weakness High marketing, research and administrative costs Doesnt address young consumers No fit to P&G image High prices

10

The SK-II Globalization Project

3. SWOT: Japan
Opportunities Social/cultural forces Skilled labour High demand for skin care products (95% use facial lotion) Need of new product lines (e.g. whitening) Economic forces Huge market for skin care (over $6 mio.) Established distribution network Opportunity to double sales in 6 years Technologic forces Lead market for innovative products Regulatory / legal / political forces Political stability Threats Economic forces Mature market with low growth rate (6%/year) High labour costs Competitive forces Strong competitors (e.g. Shiseido)

Further development of business model needed

11

The SK-II Globalization Project

3. SWOT: China
Opportunities Social/cultural forces Skin type similar to Japanese Developed skin care practices Economical forces Sales of $10-15 mio. (first 3 years expected) Existing distribution network/trained councelors Low labour costs High general market growth (28%) Economical growth (9,1%) Growing prestige beauty segment (30-40%) Competitive forces No dominating competitors Threats Economical forces 10% of sales for introduction (first three years) Low average income Competitive forces First mover advantage of existing competitors Regulary/legal/political forces High import duties (35-40%) Risk of piracy Limited political stability 1 year import registration

Business model transferable with minor adaptation

12

The SK-II Globalization Project

3. SWOT: UK
Opportunities Social/cultural forces UK women use multiple step skin care Possibility: department stores Economical forces UK: trial / platform for European market High purchasing power Regulatory/legal/political forces Political stability Threats Social / cultural forces Different skin types SK-II: too many steps for UK habit Cultural gap between Europe and Asia Economical forces $ 1-2 mio. losses for introduction High labour costs Mass media is too expensive Competitive forces High competition

Non favourable conditions at the moment

13

The SK-II Globalization Project

4. Portfolio Analysis
30% Market attractiveness (growth rate)
Country market share Relative market share = Market share of strongest country

China: 1,022 / 6,869 * 100 ~ 14,9%

10% ? - market Star market

UK: Japan:

1,052 / 6,869 * 100 ~ 15,3% 6,869 / 5,6031 * 100 ~ 122,6%

-10%

Marginal market

Cash cow market 0,5 1 1,2

Relative market share (skin care)

1 Retail

sales USA
14

The SK-II Globalization Project

Globalization Strategy
Waterfall strategy

Hold position

Roll out (short-middle term)

Use as European platform (longterm)

15

The SK-II Globalization Project

Implementation Japan
Product Promotion Place Price Introduce new product lines (e.g. whitening) Use BIS Attract also younger segment Additional online distribution / counselling No change

Expected SK-II life cycle

16

The SK-II Globalization Project

Implementation in China
Product Standardised, extension => high privilege, sophisticated package, create prestigious brand TV commercials (testimonials), trials, events Limited to special stores in big cities with counsellors, avoid discount stores 20~30times higher as the local brand, a bit cheaper than Japan prices (penetration strategy) Our expected market size is huge! Population 1,3** billion Women 0.5 25~55 37% Rich 9.8% Product Usage 45% Potential customers 10,606,050

Promotion Place Price

**CIA The World Factbook China

17

The SK-II Globalization Project

Forthcoming Analysis China

Customer 2000 2001 2002 sum 15,000 30,000 45,000 ~37,0001
1

Purchase / customer 120 140 180

Sales in $ 1,800,000 4,200,000 8,100,000 14,100,000

expected repurchase rate of customer about 70%

Net sales

Cost of product sold (45%) $6,345,000

Marketing administrative costs (44%) $6,204,000

Operating income (11%) $1,551,000 Expected from 2000-2002

18

$14,100.000

The SK-II Globalization Project

SK-II The future star in the land of the rising sun!

19