Colgate-Palmolive PEST and Porter’s 5 Analysis
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Published: Thu, 26 Jul 2018
Companies seeking to gain a competitive advantage in today’s environment, where competition is very tough where technological improvement have pushed major companies forward are in need of a strategy development process. By using several capabilities like creativity and originality, companies can come up with a number of options and possibilities that can be used while building a strong strategic plan. Today, Companies should develop the sense of controlling and monitoring of processes, nothing should be left at random, because important losses can incurred.
Many thinkers have argued that a strong strategy should consider three important factors (3C): Customers, Competencies and Competition. To begin with customers, companies should be able to distinguish between existing customers and potential customers; in addition, they have to understand customers’ needs for a better profitability. Competencies are perhaps the most important tool in this chain, it can raise the company’s stock index or lead it to bankruptcy, and it’s by recognizing multi-skilled peopleÂ trained and capable in a large variety of skills or activities that companies can carry on ‘the adventure’. Finally, competition is no longer a concept to be defined or explained, it’s becoming a double-edged sword for companies in a world where the number of firms is growing exponentially.
Analysis of the areas cited above is interconnected. Who you select as your target group will have consequences on capabilities you require, which will have an impact on what the competition policy which will pressure who you choose as your target group.Â
Furthermore, a well structured strategic analysis will induce to brighter more significant goals, and a more safe future as companies are better aware of possible threats that may happen. They may be also known as (External Environmental analysis), it’s may be seen as the connection between going in the right track and making the appropriate decisions, a kind of trade-off established by the company.
It’s through strategic analysis that organizations are capable of encouraging funders for future perspectives. Funders are more likely to go for donations or loans, in case of strategic analysis environment, to enlarge the gap between the organization and its competitors. In the other hand, not considering at least a little amount of strategic analysis means losing opportunities called also (opportunity cost). A ‘left behind’ status can be reached in case of ignoring strategic analysis.
BNET Business Dictionary defines the strategic analysis as the way of conducting researches on the external environment or business environment where the organization performs and on the organization in the purpose of drawing a strategy. In the other hand, Professor Les Worrall thinks that strategic analysis is a fair understanding of organization surrounding, it takes into consideration the interrelation between the firm and its environment to improve organizational efficiency and effectiveness, by increasing the organization’s capacity to deploy and redeploy its resources intelligently.’
Many studies have been conducted in this field, they may have suggested different definitions of strategic analysis but three important characteristics are commonly linked with it:
- Identification and evaluation of important data to strategy elaboration.
- Recognition of both external and internal environment to be considered.
- Multiple analytical methods that can be used in the analysis.
Examples of analytical methods used in strategic analysis include:
- Value chain analysis
- Four corner’s analysis
- Early warning scans
- War gaming
PEST analysis and Porter’s five forces analysis
Analytical tools are meant to ensure the sustainability and reliability of the analysis proposed. Analytical methods are worldwide used and understood, they have reached a mature state where every organization can use them to better work However, while dealing with the analytical methods, companies should keep in mind some considerations:
- The tool or method should be able to answer question that may be raised by the organization.
- The benefit coming from using any tool or method should be clearly defined and stated. To ensure a successful analysis, organization need to go forward a great understanding of the tool used.
- The tools proposed are empowered if there is collaboration as input with other people surrounding the company, in addition, time should be allocated to people concerned so they accommodate the analysis.
- Every member of the organization must be aware that the use of any analysis tool is time and effort consuming, decision-making board and stockholders ,in the implementation phase, should be ‘flexible’ and provide the necessary to complete the project.
The objective of using an analytical tool is to go deeply in the analysis and to ensure a better approach more balanced and methodical. In addition, all analytical tools are using historical data, they rely on past data to better understand futures wants. Moreover, results coming from the analysis should be interpreted with caution or the analysis may lead to an influenced result, due to pressures, which look for a particular strategy. One of the important competencies of an analyst is to understand which tool or technique is most appropriate in the context.
Nature of Business
Colgate-Palmolive is generating benefits from manufacturing and selling shampoo and toothpaste , 80% and 15% respectively. The remaining is shared between home care products (softeners).Colgate-Palmolive is the leader in the domestic market on the shampoo and the second on the toothpaste.Â The battle for market share with competitors is at:Â
Shampoo with brands such as: Head & shoulders / Pantene
Toothpaste with brands such as: Signal
CPM Company is present in several markets of consumer goods. Indeed its wide product range covers both Personal Care as the Home Care.
Colgate-Palmolive operates in the market of Oral Care through Tonigencyl and Colgate toothpaste and Colgate toothbrushes. In addition the Company has a strong presence in the market with shampoo brands:Â Cadum, Alert and Palmolive.
In 1806, Mr. Colgate William, a soap and candle maker, opened a shop where he sold candle and soap and multiple cosmetics in New York under the name “William Colgate & Company”. In the 1840s, the company started to sell energetic bars for uniform weights. In 1857, His son took over,, when his father Samuel Colgate passed away , the company was renamed as “Colgate & Company” under the management of Samuel Colgate, his son.
In Milwaukee, “B.J. Johnson Company” was producing a special and famous soap by mixing only palm and olive, the formula used was developed by B.J. Johnson in 1898. The soap was very popular, thanks to the recipe originality, and took the name of Palm-Olive (Palmolive)
Between 1928 and 1953 many changes occurred, they are summarized below:
- The merging of “Peet Brothers with Palmolive to become Palmolive-Peet.
- Palmolive-Peet bought Colgate company form Samuel Colgate to create the Colgate-Palmolive-Peet Company.(1928)
- In 1953, the company changed its to the current name “Colgate-Palmolive Company”.
Colgate-Palmolive has been competing with the world’s largest soap and detergent producer for decades. After the World War II, P&G had decided to a launch a diversified range of products under the name of TIDE, many consumers turned to this new products when they used to buy Colgate-Palmolive Products. Moreover, the company faced another challenge when P&G decided to add Fluoride in the toothpaste an achievement never done before, due to this fact, Colgate-Palmolive lost his first place in the toothpaste market. To compete with Procter and Gamble, CP(Colgate-Palmolive) have used television(new invention at that time)and decided to sponsor some shows so they can regain their market share against P&G.
In 2006, Colgate-Palmolive has intended to acquire the major part of Tom’s of Maine, a pioneer in the natural toothpaste maker, for US $100M. Today, Colgate-Palmolive has a number of plants and subsidiaries around the world, more than 200 countries are using Colgate-Palmolive Products.
Colgate Palmolive Values
“Our three fundamental values-Caring, Global Teamwork and Continuous Improvement-are part of everything we do”
“Valuing Colgate People”
“Becoming the Best Place to Work”
Colgate strategic analysis
Nowadays, to ensure a sustainable, competitive and successful company, managers and board of executives has to cope and operate within a rigorous “macro-environment” that is shaped by influences of different factors. These factors can emerge from many sources: The overall economy, population, governmental legislations and regulations, societal values, new technologies.
All of these represent relevant factors that can have a gigantic impact on all the decisions the company makes concerning its direction, business model, objectives, strategy and thus, the ability to impact on the company’s overall situation. Now that we have understood the importance and the impact that an external environment can have on a business’s situation, it’s compulsory to sort those factors into categories and assess their importance to the business.
After assessing their importance, external factors can be categorized into 4 major assemblies by using the PEST or PESTLE Analysis.
The first letter in the acronym refers to Political factors and they are issues that affect the way of doing business. They can be trading policies imposed by the government or the political stability of the country in which business is conducted. Political issues can also be related to taxes and labour laws imposed by the government and labour unions. They can also be regulations directed to maintain a fair competition on honourable basis between rivals in any industry and prevent abusive actions. Moreover, the political factors can also be regulations put by the government to protect the environment in which the company is operating. This type of regulations can for example be linked to pollution issues or standard quality of their products or services that will be directed to their clients.
The second letter in the acronym refers to Economical factors and they are subjects related to the overall situation and stage of growth of the economy. These factors need to be taken into consideration for the impact they can have on the operations of a business. Managers need to assess the home economy situation and trends. Furthermore, they need also to keep an eye on changes in taxation of products & services. They also need to look at the driving forces of the economy such as the purchasing power of their target market and consumer preferences and also to unemployment and wages levels. If the company is involved in foreign trade, managers have to consider the tariffs and exchange rates as well as the import and export ratios applied in that country.
The third letter of the acronym refers to Socio-Cultural factors that any company has to consider the point of view of the general public. The public’s opinion and attitude toward the company’s products is also important because it plays a core role in building the image within the different constituencies. Companies also have to be in permanent contact with the media by writing press releases or opening its doors to build brand image that is known by everybody. Socio-Cultural factors can relate also to issues raised in advertising campaigns and publicity or by participating in major events to show their part of social responsibility. Social factors also include diversity of their work force employed. Companies hire disabled and elderly people to get them integrated within the society. Finally, companies need to respect and take into account ethical issues no to offend any minority in the society.
The last letter of the acronym refers to Technological factors. These factors have changed the way businesses operate. By introduction of all these technologies, companies are able to conduct their operations much easily with a better performance. Technology participated in the improvement of many aspects since it was introduced at all levels of the business, from selection process to productivity and research and development. (Jana F. Kuzmicki, 2007)
Gaining Power of Suppliers
One of the five forces which Porter formulated for an organization to look into in order to form a competitive advantage is gaining power of suppliers. The global reach and diverse portfolio of assets attract numerous investors. Colgate-Palmolive and other major competitors are both viewed by investors as home and oral care companies which have considerable positive investment strengths. Most often the comparison is always with P&G. Although, Colgate-Palmolive is viewed by many as at par with its competitors, yet, what was lacking in their management is the ‘lack of perceived differentiation’ which somehow impaired the investment decision-making process. Moreover, even though Colgate-Palmolive has ‘no strategy that is unique or differentiating relative to the other companies’, the threat of bargaining power of suppliers is low due to partnership, supply chain management, training, and dependency.
Bargaining Power of Customers
Customers are the lifeblood of the business. The existence and growth of a business company is dependent on customers. CP (Colgate-Palmolive) is serving globally with 25 million customers a day in over 200, 000 plant around the globe. There is a cohesive loyalty among buyers and sellers of energy in Colgate-Palmolive for several reasons like the attractive incentives and value added, partnering and supply chain management. Moreover, investors and stakeholders expressed their satisfaction on the services offered by the company. Again, this can be reflected on the 2001 case study interview which was recorded verbatim, in which two elements emerged fundamental to the satisfaction of customers – technology and its diversified presence. One owns Colgate-Palmolive because of its strong diversified presence and good technology while another one noted that it is because it is cheaper, yet with a high quality of products and high returns over the course of the cycle compared to other major companies. Moreover, significantly noted were two comments. On one hand, the reasons why many were satisfied with the performance because of its huge asset base, financial and political clout that was why they successfully covered operations in places like China, Russia, and the Middle East. On the other hand, CP’s management restructuring that reduced costs focus on profitability, financial discipline and its way for shares repurchase.
Threat of New Entrants
In the home and oral care industry primarily on the soap and natural products and reserves, the companies’ management strategy reduced the friction of threat among its new competitors in the business by increasing minimum efficient scales of operations, its cohesive and good status with suppliers/distributors, retaliation tactics, protection of property and establishing a competitive and trustful image to its customers.
Moreover, the role of advanced technology set them at par with other entrants in the business. In 2001, technology had differentiated CP from its competitors. Leadership in promising toothpaste from solid to gel technology that delivers new brushing sensations. There reputation was leveraged in order to establish a solid foundation against threats of the new entrants. The leverage of their reputation is build solidly on their total strengths both tangible and intangible like technology, products, adherence to business ethics, code of conduct, and corporate social responsibility that encourages consumers to brand loyalty.
Threat of Substitutes
The threats of substitutes in which customers switch product references are primarily caused by several external and internal factors. One of the factors in which customers tend to switch their preferences is the price cost of a product. If a product raises its cost value, customers may have a second thought of sticking into as his/her preference; therefore, the tendency is that the shift and switch of preference occurred. Most often, in this kind of business like marketing an energy reserves, the threat of substitution of customers come in the instability of a price. The price cost of a product if it increases due to social and political factors, it stand to be a threat for the company. However, the Colgate-Palmolive good strategy like increasing switching costs, alliances, customer surveys to learn about their preferences, accentuated differences and the entrance of substitute market, these reduced the threat of substitutes.
Competitive Rivalry between existing players
In any business price competition is significant because it attracts customers, the less you price a product, the more customers you gain, yet, in competitive rivalry, in order to reduce it, avoidance to price competition is necessary in which the Colgate-Palmolive observed. Their competition is not on price but on how to manage strategy that would best leverage a product. CP uses different strategies to market their product and be competitive. Their differentiation and different segmentation of their products set an edge for them, moreover, their healthy communication with competitors contribute positively to the competition. The competition should not be taken personally but a matter of business and professional work.
Colgate-Palmolive has a competitive advantage not only due to the facts mentioned above but on the ability of managing the whole process of the business. Good financial management and diversified course of business bring them enormous customers and stakeholders.
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