The SK-II Globalization Project

Answer

The SK-II Globalization Project

SK-II is a skincare product that is highly competitive in the Japanese cosmetic market. SK-II has more steps than any other skincare. SK-II's success in Japan has led to Procter & Gamble (P&G) aspiring to expand the product to a global brand. Paolo de Cesare presented his analysis to the Global Leadership Team on SK-II's entry into the worldwide market and outlined a few risks to expanding SK-II to China and Europe. P&G was a failure until 1984 as the company did not take time to establish the local customer needs, stagnation of innovation, which made other competing companies to produce products fast. The case study evaluates the transformation of SK-II from a local brand to a global brand.

1. The SK-II was Successful in Japan

Research on the Japanese market showed that P&G made targeting, positioning, and developing new products to fulfill customers' requirements and effective distribution. P&G experienced advantages due to;

• Foaming facial cleanser that left women satisfied with skin conditioning and boosted skin clarity due to micro-fibers ability to clean pores and trap impurities.
• TV advertising resulted in a 270% increase in sales, reducing unit production costs by 62%. The advertisement featured a well-respected Japanese actress in her late 30s. Magazine advertisements also helped in product promotion.
• Premium pricing strategy, SK-II Foaming Massage Cloth was packaged in a more elegant dispensing box and was priced at $50, compared to $7 for Olay Facial cloth in the United States.
• Promotions of product by beauty counselors at the beauty counter attracted consumers (Ginting, Rangkuti, & Yusuf, 2020). The counselors communicate with customers effectively on how to use the SK-II product.
• Luxurious counter design and installation.
• Japanese customers were well educated, and an average number of women spent 4.5 minutes on their face cleansing and are the most sophisticated users of the beauty products worldwide.

2. Is the SK-II business model in Japan transferable to other markets?

The business model is transferable but needs to be modified depending on customer’s behavior, competitors, and market factor. Exporting SK-II product will be beneficial but should emphasize on;

• Differential positioning where the P&G Company should differentiate the SK-II product from competitors’ products by making it more attractive to reach the target market.
• Changing customer behavior by making the product more desirable and identifying customer expectations on the product can be collected using interviews to see the public's take on SK-II use.
• Positioning of the product can be through quality. Since the SK-II is a quality product thus would thrive in the highly competitive foreign market.
• Advertisement of the SK-II on TVs and magazines to increase awareness of the product in the foreign market.
• Counselor team on the foreign market to teach consumers on the usage of the SK-II product

1. The barriers for Japan transferring the SK-II business models to other markets

• The cost of running local product development labs and manufacturing plants was limiting the profits as the production cost was so high; thus, a product like SK-II could take decades to enter the global market.
• P&G handles its product in mass marketing and reduced-price strategies; hence entering the global market, the company would have to consider the impact of high cost brought by mass marketing had to be done to compete with other international markets Lancôme.
• The strategy to portray the SK-II product as a lower-end product to enter the global market suggested by Ram would destroy the brand's image created in Japanese consumers' minds, thus reducing sales in Japan.
• There are trade barriers in the Chinese market that impose challenges to foreign retailers.
• Independent national subsidiaries prevent the global rollout of new products; thus, local general managers resisted entering the global market due to the negative impact on local profits. The country subsidiaries were held accountable.
• It would not be easy to find raw materials to produce SK-II in another country.
• The loyalty of sophisticated consumers to the products of their own country.

1. Facilitators of SK-II Business to be transferable to other markets

• The SK-II product's success in Taiwan and Hong Kong; 45% of the SK-II total sale by 1999 encouraged the management to expand in other regional markets such as Singapore, Malaysia, and South Korea, but these were smaller markets. Thus, de Cesare pushed to explore other major markets like China.
• Implementation of the O2005 that aimed to grow the market to a global market.
• The beauty care management group of China was interested in introducing the SK-II into mainland China.
• At a Global Leadership Team (GLT) meeting, de Caser had discussed with the head of beauty care in Europe his interest in introducing SK-II in the Western market, easing the thriving of the product in Europe.
• United States women used soap and water; European women used cleansing milk with a cotton pad to moisturize their skins. Still, they were left unsatisfied hence this was an opportunity for SK-II to meet the need of the customers in Europe and the United States.
• Implementation of the 02005 by P&G aimed at changing the corporate from a domestic company to a global company and aimed at boosting sales profits by introducing new products and closing plants. To facilitate growth, it involved restructuring such as;

1. Changing the Company’s Structure

Jager, the new chief operating officer, concluded that the company experienced slow global growth due to the company's culture that was slow, conservative, and risk-averse. Employees wasted time on non-value-added work such as writing memos and chat preparations that slowed down decision making and innovation. The cultural invention aimed at increasing speed, risk-taking, and innovation that led to the introduction of two new products; Dryel and Swiffer whose sale was growing in the United States, Europe and America thus facilitated the company's growth globally.

1. Changing the Company’s Processes

This involved replacing the episodic nature of marketing separately, payrolls, and initiative budgets with a more integrated system where all budgets could be reviewed and approved together. Jager redesigned the company's reward system to strengthen the bond between executive compensation and results; thus, it would motivate employees and align them with the company's overall success.

1. Changing the Structure of the Company

This strategy aimed to eliminate bureaucracy while increasing accountability, leading to eliminating jobs with six management layers being stripped out, thus reducing the levels between the chairman and the front line from 13 to 7. Changing the structure also led to shifting primary profit responsibility from P&G's four regional organizations to seven global business units (GBUs). Transactional activities, human resources, and payrolls were coordinated through an international business unit (GBS) charged with new responsibilities such as standardizing production processes, simplifying brand portfolio, and coordinating marketing activities. The strategy would accelerate the company's growth.

3. Which Market should be Given Priority?

China is the best market option as it can take advantage of cultural similarities to establish markets in Taiwan and Hong Kong and provide an excellent economic prowess opportunity. P&G should take advantage of the growing market to introduce its product, unlike in Europe, where the market is already saturated.

1. Pros and Cons of the China Option

Pros

• The Chinese prestigious beauty segment is growing fast at 30% to 40%, attracting new firms to enter the market with international retailers establishing departmental stores in Taiwan, Hong Kong, and Singapore. Therefore, P&G has the opportunity to leverage its competitive advantage to enter China market.

• Rivalry among competing firms is low as the growing market reduces pressure for the firm to take customers from competitors.
• The Wealthy China, which had concentrated in Shanghai, Beijing, and Guangzhou, was a good target group hence the urge to introduce SK-II to the market before they lost the elite to the global beauty care powerhouse that has been there for more than three years.
• The bargaining power of suppliers and buyers is low.

Cons

• The Chinese market presented various risks such as widespread counterfeit prestige products due to the big players in the Chinese market are mainly global firms with high innovative power.
• Bureaucracy attached to the one-year import registration process would make SK-II attract entry duties of about 35% to 40%; hence SK-II would therefore be priced above retail prices in other markets.
• SK-II involved women developing a four to a six-step regime for their skincare which Chinese consumers felt was unrealistic as they practiced a one-step skincare process- washing with soap and water that was less tedious.
• The Chinese government's political protection of local industries is a threat to P&G since it is not a Chinese company and might face competition from rival companies. The Chinese companies are also able to sell products cheaply.
• High import tariffs and government delays in import processes are a disadvantage to this market (Vignoli, 2018). The tariffs on beauty products in China are very high.

1. Pros and Cons of the United Kingdom Market

Pros

• A group of beauty-conscious consumers who already practiced multistep regimens using various skincare products would quickly adopt SK-II with four to six steps.
• The delicate fragrance business was beginning to grow in the United Kingdom; hence introducing SK-II would be a significant asset.
• Women would easily take to using SK-II once they knew the benefits. It provided the fine fragrance business a way to extend its line in department stores that dominated United Kingdom distribution in the prestigious industry.

Cons                                         

• The European market had already crowded with well-known and respected competitors such as Estee Lauder, Clinique, and Lancôme; thus would be a challenge to introduce a new brand to such a market and make significant profits.
• The sophisticated and beauty-conscious customers are loyal to the companies in Europe, and this provides a high entry barrier.
• TV advertisements and printed advertisements are expensive. Without any real brand awareness, it would be difficult for the SK-II to thrive in the market as such advertisements led to the SK-II product thriving in Japan.
• The threats of products' substitutes are high due to brand globalization, and companies can legally imitate their competitor's products.
• Bargaining power by consumers is high due to a variety of options from other competing companies.

The case study concludes that P&G, as the leading global company, has made significant strides in establishing the market in Europe and China. The continuous involvement of P&G in customer satisfaction research, Improvement in technology, and advertisement has made the company thrive in the competitive markets. P&G should first focus on expanding the SK-II product in Japan to keep it globally and give the Chinese market priority based on its potential growing market and concentrate on the European cities that are less saturated with well-respected and competitive companies.