This Five Forces analysis of The Procter & Gamble Company (P&G) identifies the competitive forces and associated external factors in the consumer goods industry environment. Michael Porter’s Five Forces Analysis is a tool for determining business strategic decision-making considerations. Procter & Gamble’s managers can use the Five Forces analysis model to evaluate the business situation to identify the most significant external factors in the consumer goods industry environment. The objective is to ensure that the company has sufficient capabilities to address the impacts of such external factors. As a major firm in the global consumer goods industry, Procter & Gamble is an example of effective management despite the five forces in its external environment. An evolving set of strategies keeps the business successful and fulfills Procter & Gamble’s mission statement and vision statement. P&G monitors the industry environment to ensure the appropriateness of strategies in addressing the external factors enumerated in this Five Forces analysis.
This Five Forces analysis of The Procter & Gamble Company stresses the significance of the intensity of competitive rivalry in affecting the business. However, all the five forces in the industry environment influence the performance of P&G in the consumer goods market. It is important that Procter & Gamble remain effective in addressing the five forces and their corresponding external factors. However, this Five Forces analysis shows that competitive rivalry must take priority. Procter & Gamble must strengthen its business against tough competition.
Summary & Recommendations: Five Forces Analysis of P&G
Summary. This Five Forces analysis of Procter & Gamble shows that competition or competitive rivalry has the highest intensity among the five forces. As a result, the company must prioritize competition in strategic formulation. The force of the threat of new entry comes second in intensity and impact on Procter & Gamble and the consumer goods industry environment. The forces of the threat of substitution, the bargaining power of P&G’s suppliers, and the bargaining power of consumers or customers have the lowest intensities among the five forces. Based on this Five Forces analysis, Procter & Gamble’s strategic decision-making must address the five forces based on their intensities, as follows:
- Competitive rivalry or competition: Strong force
- Bargaining power of buyers or customers: Weak force
- Bargaining power of suppliers: Weak force
- Threat of substitutes or substitution: Weak force
- Threat of new entrants or new entry: Moderate force
Recommendations. Procter & Gamble needs to improve its competitive advantage. One recommendation is to increase the company’s online presence. This step addresses the external factors responsible for the strong intensity of competitive rivalry determined in this Five Forces analysis of Procter & Gamble. For example, expanding P&G Shop’s operations to more countries could improve sales revenues and increase the company’s competitiveness in the global consumer goods market. Another recommendation based on this Five Forces analysis is to strengthen the company’s online presence and improve the online visibility of its consumer goods brands. As shown in the SWOT analysis of The Procter & Gamble Company, the online market presents growth opportunities. In addition, it is recommended that the company invest more in technologies to improve efficiencies. Such efficiencies can add to Procter & Gamble’s competitive advantages. These actions can bolster the company’s ability to withstand competition. Also, based on this Five Forces analysis of Procter & Gamble, another recommendation is to expand the organization’s distribution network. A more extensive distribution network can address potential new entrants in the industry environment. The expansion can also support Procter & Gamble’s further growth in the global consumer goods market.
Competitive Rivalry or Competition (Strong Force)
Competitive rivalry determines the benefits of Procter & Gamble’s competitive advantage and how the business develops its competitiveness in the consumer goods market. This element of Porter’s Five Forces Analysis identifies the influence of competition on the industry environment. The following external factors contribute to the strong intensity or force of competition with Procter & Gamble:
- Large number of firms (strong force)
- High variety of firms (strong force)
- Low switching costs (strong force)
There are many firms operating in the consumer goods industry. In the Five Forces analysis model, this condition imposes a strong force on Procter & Gamble, with consideration for competitors, like Unilever. On the other hand, the high variety of manufacturers of consumer goods makes it difficult to compete in the industry. This external factor strengthens the intensity of competitive rivalry that Procter & Gamble experiences. The force of competition is further intensified because of the low switching costs that, in the Five Forces analysis model, corresponds to the low level of negative consequences of moving from P&G’s brands to other firms’ brands. For example, consumers can easily choose to move from Procter & Gamble’s Tide laundry detergent products to Surf laundry detergent products. This movement has minimal consequences on consumer experience regarding product effectiveness, among other factors. The external factors in this element of the Five Forces analysis point out the strong force of competition against Procter & Gamble.
Bargaining Power of Procter & Gamble’s Customers/Buyers (Weak Force)
The Procter & Gamble Company aims to satisfy consumers’ preferences and needs to attract them to its consumer goods. Satisfaction determines how customers or buyers impact firms and the industry environment, as considered in this element of Porter’s Five Forces Analysis model. Procter & Gamble must address these external factors that cause the weak intensity of the bargaining power of customers or buyers:
- Low switching costs (strong force)
- Low availability of substitutes (weak force)
- High overall market demand (weak force)
Procter & Gamble faces low switching costs among buyers, as consumers can easily move away from one consumer goods brand to another. However, in this Five Forces analysis context, the low availability of substitutes limits the intensity of the bargaining power of P&G’s consumers. For example, it is difficult for consumers to find natural or homemade substitutes for many of Procter & Gamble’s personal care products. Moreover, the high overall market demand minimizes the effect of individual consumer purchase decisions on the company’s business performance and the consumer goods industry environment. Based on these external factors, the bargaining power of customers or buyers is weak in affecting Procter & Gamble. This element of the Five Forces analysis indicates that the bargaining power of consumers is a low-priority strategic consideration in Procter & Gamble’s decisions.
Bargaining Power of P&G’s Suppliers (Weak Force)
Suppliers support the business through the availability of raw or intermediary materials needed for Procter & Gamble’s operations. This element of Porter’s Five Forces Analysis deals with the influence of suppliers on the condition of the industry environment. The following external factors are the determinants of the weak intensity of the bargaining power of suppliers over Procter & Gamble and the consumer goods industry:
- Moderate degree of forward integration (moderate force)
- High overall level of supply (weak force)
- High population of suppliers (weak force)
The moderate degree of forward integration refers to suppliers’ considerable but limited control of the distribution and sales of their products to firms, like Procter & Gamble. For example, many third-party intermediary firms control the flow of materials from suppliers to P&G’s facilities. In the Five Forces analysis model, this external factor imposes a moderate force on Procter & Gamble’s consumer goods business. On the other hand, the high overall level of supply limits the influence of individual suppliers on the company. In relation, the high population of suppliers further reduces the intensity of individual suppliers’ influence on Procter & Gamble and its industry. These external factors highlight the weak position of suppliers, especially when compared to large global consumer goods companies. In this Five Forces analysis of Procter & Gamble, the bargaining power of suppliers is a minor issue in strategic decisions. Nonetheless, this external force affects the consumer goods business. The supplier power characterized in this Five Forces analysis affects supply chain management and other areas of Procter & Gamble’s operations management.
Threat of Substitutes or Substitution against Procter & Gamble (Weak Force)
Some products on the market can function as substitutes for Procter & Gamble products. The effects of substitution on companies and the industry environment are considered in this element of Porter’s Five Forces Analysis. The following external factors are responsible for the weak intensity of the threat of substitutes against Procter & Gamble:
- Low switching costs (strong force)
- Low availability of substitutes (weak force)
- Low variety of substitutes (weak force)
The intensity of the threat of substitution against Procter & Gamble is strengthened through low switching costs. In the Five Forces analysis context, this external factor refers to the negative consequences of consumers’ movement away from P&G’s brands to other companies’ brands. However, the low availability of substitutes weakens this threat. Moreover, the low variety of substitutes further reduces their impact on Procter & Gamble. For example, homemade personal care items are typically available in only one or a few variants. The combination of these external factors imposes a weak force on Procter & Gamble and the industry environment. Thus, this element of the Five Forces analysis indicates that the threat of substitution is a minor concern in the consumer goods business. The other forces have a more significant impact on Procter & Gamble.
Threat of New Entrants or New Entry against Procter & Gamble (Moderate Force)
Procter & Gamble’s performance is partially based on the presence or absence of new firms or new entrants in the consumer goods market. This element of Porter’s Five Forces Analysis evaluates how new entry influences firms and the industry environment. Procter & Gamble’s strategies must consider these external factors that lead to the moderate intensity of the threat of new entrants:
- Low switching costs (strong force)
- Moderate capital costs (moderate force)
- Moderate economies of scale (moderate force)
The Procter & Gamble Company’s consumers can easily move to competing brands, based on low switching costs. In this Five Forces analysis, such an external factor enables new entrants to exert a strong-intensity force against the company. However, the moderate capital costs limit this threat against Procter & Gamble. New firms find it difficult to directly compete, considering the company’s organizational size and capitalization. Also, the moderate economies of scale limit the effects of new entry on Procter & Gamble. For example, typical new entrants cannot easily match P&G’s strengths linked to its global scale of operations. Based on this element of the Five Forces analysis of Procter & Gamble, new entry is a considerable strategic issue in the consumer goods industry environment.
References
- Mukherjee, S., Das, M. K., & Pal, S. (2024). Exploring Key Factors Apart from Price and Quality and Effective Ad Media to Get a Foothold in the Fast-Moving Consumer Goods (FMCG) Segment. In Contemporary Digital Transformation and Organizational Effectiveness in Business 4.0 (pp. 171-185). Apple Academic Press.
- Ogbeyemi, A., Ogbeyemi, A., & Zhang, W. (2024). Integrating human factors into the distribution model of goods and fast-moving consumer goods for effective inventory control. International Journal of Engineering Business Management, 16, 1-21.
- P&G History.
- The Procter & Gamble Company – Form 10-K.
- The Procter & Gamble Company – Innovation.
- U.S. Department of Commerce – International Trade Administration – Consumer Goods Industry.