1. History 2. P&G's goal for SK-II in China 3. Challenges .

*Discussion*.

4. P&G’s entry strategy5. Scandal 6. Initial Response .

*Discussion*.

7. Recovery

P&G – Procter & Gamble Co.• Founded in 1837• Small shop selling candles

Multinational Corporation• More than 300 products• Over 40 brands (e.g. Crest, Oral-B,

Tide)• In 140 countries• 3 categories: Household Care,

Health & Well-Being, Beauty & Grooming

• First stepped into Chinese market in 1988

SK-II Background

• Launched in Japan in 1980• Originally a cream product

under Max FactorFamous Japanese cosmetic

brand• Compared with Shiseido:

- Greater market share in Japan- Much less in the world

Globalization of SK-II

• Make SK-II a global brand• Starts from Hong Kong and

Taiwan• Huge Success:- In 1999, 45% of SK-II total sales- In 2005, SK-II ranked the top in

Hong Kong’s skin-care market and the second in Taiwan

• Gained confidence for Mainland China

SK-II in China

• Entered in 1999• China – huge potential market

- Chinese women spend US$100/month on beauty & cosmetics

• Target market: affluent consumers in more wealthy cities (e.g. Beijing, Shanghai)

• Goal: Maintain Olay as mass market product; Introduce SK-II as premium brand

Organization 2005 (O2005)

• Organizational disruption and management distraction

• Profit responsibility shifted to Global Business Units

• Caused complexity in working relationships and responsibilities

Before Organization 2005

After Organization 2005

Chinese Market Challenges

• Targeting high income groups with niche products: conflict with company’s goal

• Counterfeits and cheaper versions of SKII by local companies

• Low Average Income in China: $2,400USD/year

Competitors in China

1) How should P&G effectively enter the Chinese market? What are some characteristics to consider?

2) How can P&G make sure SK II sales won’t heavily cannibalize Olay sales?

P&G’s Entry Strategy• O2005 benefited entry• Company culture

– Conservative & slow to modern & fast moving

• I.T.– Improve marketing

efficiency, product development and supply chain management

– Decentralize IT department• Improved communication

within company (intranet: WorkSmart)

Execution• Hired local beauty counselors

– Educate consumers• Understand the market

– Favor and welcome western products

– Western celebrity to represent SK-II

– Preferred whiter skin and less wrinkles

– Later used Asian celebrity endorsers

• Product with new formulas• New technology for skin care• Counter design

http://www.youtube.com/watch?v=K4_aRXhZhZk&feature=related

Example of Chinese celebrity endorser for SK-II

Beauty Counselor’s selling process:

The Scandal

• Mid-Sept 2006: Guangdong Center for Inspection and Quarantine- chromium and neodymium

• Angry Chinese consumers- refund, returned products- sued celebrity endorsers - Boycotts- Violence

Inappropriate response

• Stopped selling all products• Was “unavailable” to discuss

product quality• Refused to admit products

were toxic• Poor management of refunds

- Long lines- Delayed cash refund- Waiver

1) What lesson can be learnt from the scandal? How could P&G better handle the scandal?

2) How can P&G repair the SK II brand image in China? What marketing techniques would be involved? (4 P’s)

Later response and current status

• Re-tested products with individual dermatologists• October 2006: Ministry of Health in China said P&G products were safe • 3 stage recovery process: remove misperceptions, brand recovery, and

brand rejuvenation• Total sales increased by 89% after process• Prestigious image restored