SK II Analysis
SKII
SK-II has the potential to be a global brand within P&G’s worldwide operations, but the commercial success of internationalization depends on which specific markets P&G aims to target. When comparing the prospect of entering the Chinese market against the prospect of entering the UK market, we can see that the Chinese market is more favorable due to several qualitative and quantitative factors.
Qualitatively, P&G has already experienced success in China’s premium skin-care market through a non-traditional marketing strategy for the Olay brand. The primary risk of introducing the SK-II brand to a market that is already exposed to Olay is sales cannibalization and an uneven sales/marketing force. However, P&G can minimize cannibalization risk through proper segmentation and niche consumer targeting. While the sophisticated and wealthy Chinese comprise a small percentage of all Chinese, the sheer magnitude of the overall population creates a target market for SK-II that is uncharacteristically large (and therefore attractive) for a developing market.
A quantitative analysis of the net present value of the expansion into China supports our findings that this is a worthwhile project. As seen in exhibit 1, while the project will require approximately $4 million in startup costs and will have a break even period of about 5 years. For this analysis, very conservative assumptions have been made with respect to year 1 sales, the growth rate after 2 years, and the lifetime of the project. Even with these conservative assumptions, the project has a positive NPV of $1.2 million and would therefore be worthwhile for P&G to execute.
When observing the qualitative factors of the proposed UK expansion of SK-II, we can see that there are significantly more uncertainties regarding its commercial success. For example,
P&G would be entering a highly competitive space with a brand that has no real awareness or heritage in Europe. In addition, the O2005 restructuring initiative has
SK-II has the potential to be a global brand within P&G’s worldwide operations, but the commercial success of internationalization depends on which specific markets P&G aims to target. When comparing the prospect of entering the Chinese market against the prospect of entering the UK market, we can see that the Chinese market is more favorable due to several qualitative and quantitative factors.
Qualitatively, P&G has already experienced success in China’s premium skin-care market through a non-traditional marketing strategy for the Olay brand. The primary risk of introducing the SK-II brand to a market that is already exposed to Olay is sales cannibalization and an uneven sales/marketing force. However, P&G can minimize cannibalization risk through proper segmentation and niche consumer targeting. While the sophisticated and wealthy Chinese comprise a small percentage of all Chinese, the sheer magnitude of the overall population creates a target market for SK-II that is uncharacteristically large (and therefore attractive) for a developing market.
A quantitative analysis of the net present value of the expansion into China supports our findings that this is a worthwhile project. As seen in exhibit 1, while the project will require approximately $4 million in startup costs and will have a break even period of about 5 years. For this analysis, very conservative assumptions have been made with respect to year 1 sales, the growth rate after 2 years, and the lifetime of the project. Even with these conservative assumptions, the project has a positive NPV of $1.2 million and would therefore be worthwhile for P&G to execute.
When observing the qualitative factors of the proposed UK expansion of SK-II, we can see that there are significantly more uncertainties regarding its commercial success. For example,
P&G would be entering a highly competitive space with a brand that has no real awareness or heritage in Europe. In addition, the O2005 restructuring initiative has