Proctor & Gamble: Crisis

Response in China

ASIA CASE RESEARCH CENTRE

 1950s +:
Acquires
brands
such as
Folger’s,
1880: Charmin,
1961:
Launches 1911: Max
1837: Introduces
Ivory Soap Begins Factor,
Company 1859: 1940: First
Producing Iams and
Founded Sales Introduces Disposable
Crisco more
Reach $1M Tide Diaper
Detergent

1940s:
1930s:
Expands to
Expands to
Asia & S.
Europe
America

Proctor & Gamble

Global Brand Powerhouse
Billion Dollar Brands
Billion Dollar Brands
IT’S A P&G WORLD
FOUR INTERNATIONAL DIVISIONS: NORTH AMERICA, EUROPE, LATIN AMERICA AND ASIA
 Cultural Nuances Create Challenges
Establishing market presence in
Japan was slow:

Lack of regard for distinct

needs and habits of
Japanese.

Inability to keep pace with

major competitors in Japan:
more creative and more
agressive

Inadequate adaptation to
Japanese distribution
system.
P&G and the Japanese Cosmetics Market

Entry into beauty market strained

growth
1991: P&G purchased Max
Factor
Max Factor is a distant 5th place
in market with only 3% market
share (Shiseido has 20%)
New high end product: Max
Factor Blue is a flop
Asian VP cleans up: down to 500
SKUs and 150 staff
 SK-II in Japan

• Discriminating Japanese customers were already using SK-II

• P&G purchased the company and within three years boosts awareness
from 20% - 70%
• Ad campaign is launched in Hong Kong & Taiwan (30% of brands’s sales)
• Loyal SK-II customers spend about $1,000 each year
So why not China?

Olay model: Sales at

counters in state-
owned department
stores

30% - 40% growth

rate of prestige beauty
segment anticipated
 Potential Challenges
with Chinese Market
A strategic distraction from
becoming mainstream Chinese
company
Is Chinese customer ready?
Historical conflict between
Japan & China
Widespread counterfeit
prestige products
Import registration process &
duties
SK-II: DAMAGE CONTROL IN CHINA
A PROCTOR & GAMBLE NIGHTMARE OF COSMETIC PROPORTIONS
By September 2006
97 sales counters

400 sales personnel

Every tier one city

Most tier two cities

China: 7% of brand’s
global sales
 Chromium & Neodymium
National Quality Inspection
Department of the State
Administration of Quality
Supervision, Inspection &
Quarantine (AQSIQ)

9 products contained two

ingredients banned under
Chinese law.
Initial Statement from P&G
We are actively communicating with the relevant government
departments with their investigations and problem solving.
Corporation executives today are in consultation with the relevant
agencies, and next Monday will have talks with the parties
concerned.

Accordingly, SK-II can be returned by consumers to SK-II counters

following the authorisation of related products return procedures; we
will provide the best possible service to meet consumer demand.

On the relevant SK-II products under the frame of investigation, we

are working to communicate with the relevant government
departments to make a final decision.
Why the storm?
Customers had to sign a
document saying SK-II was
not faulty (the “King
Clause”)

Product had to be more

than 2/3rds full

One month waiting period

for refunds
Arrogance!

P&G is seen as arrogant in the mind of media and Chinese

consumer.
THE TWO WEEKS FROM HELL
SEPTEMBER 14 - SEPTEMBER 27
Your
Assignment
It’s September 30...

How does P&G respond?

• Create a plan outlining the
recommended response to quell
crisis and rebuild the prestige of
SK-II in China
Considerations
• Pullall product from shelves?
• New spokesperson?
• Government advocacy?
• Media relations?
• New return policies?
• Consumer relationships?