Traditionally, The Procter & Gamble Company (NYSE:PG) has been a leading player, and the company to beat in the beauty and hair products category. The company primarily offers a large variety of shampoos, creams and fragrances. It consists of an impressive portfolio of brands and some of the most popular ones under The Procter & Gamble Company (NYSE:PG) are Olay and Pantene. These brands are front runners in their respective categories, and pull in large volumes of cash for P&G.
The global market share of the company is under immense pressure with competitors such as Unilever plc (ADR) (NYSE:UL) offering high quality products at cheaper prices.
The consumer confidence has been dropping considerably, leading to dip in overall sales
Restructuring in product pricing and improvisation with product packaging and quality will enable P&G to still remain dominant and competitive
Other than Unilever, P&G competes with in the skin and hair care segment. The company is a massive player in this space with a market cap of $93.5 billion. It generates approximately 33% of its total revenue through hair care products, followed by skin care (26%), makeup (20%) and other small categories. Similarly, Unilever is another huge player in this space with a market cap of $123 billion. It generates revenue through skin and hair care products. The company has managed much deeper penetration in the emerging markets relative to both The Procter & Gamble Company (NYSE:PG) and L’Oreal. Although, both companies are much smaller in size relative to The Procter & Gamble Company (NYSE:PG) in terms of market cap, they present a stiff challenge to the company in the skin and hair care space.
Heavy dependence on mature markets – Historically, P&G always held a dominant position by focusing on developed markets, in contrast its main competitor Unilever primarily concentrates on market penetration of emerging economies. This is reflected in the figures reported by the two giants for 2012. P&G reported a contribution of approximately 30%, where as Unilever reported a 50% contribution from the emerging markets. The consumer demand in the developed region such as Europe and North America has fallen considerably in the past few years due to weak economic conditions. The beauty segment of The Procter & Gamble Company (NYSE:PG) struggled to post any like for like growth in the first six months of the previous year. Like for like sales were down by 2%, in contrast Unilever continued to report growth as the demand from emerging markets continued to drive sales for the company. The personal care segment of Unilever reported a robust 7% growth.
Weak pricing strategy - In addition to falling demand in the developed region, the pricing strategy of P&G is not ideal. P&G’s top line of products is targeted to the premium end of customers. Considering the weak economic environment, consumers are turning away from buying expensive beauty products. This benefited more economically positioned brands of Unilever to a large extent. Unilever is positioned in a slightly lower bracket and provides a higher value for money, thus the penetration rate in emerging markets has been phenomenal.