Despite radically different cultural norms, consumer preferences, and business structures versus the United States, Japan is definitively a market that P&G should continue to do business in. With a population that is more than half the size of P&G’s largest market (U. S. A) and a per capita income higher than other major markets for P&G (such as West Germany), Japan is simply a market that P&G cannot exit if it hopes to continue to grow internationally. In fact, Japan is the second largest market for consumer-packaged goods in the world behind the United States.

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Despite numerous faulty strategies and a stubborn unwillingness to adapt any form of localization in its products or processes to resonate with the Japanese consumer, P&G proved in its first decade in Japan that it could make a sizable impact in grabbing market share. For example, P&G was able to assume a near 20% market share within just four years in Japan within the detergent market. In addition, P&G proved initially successful in transforming a category and gain a dominant share position in Japan through the launch of disposable diapers.

Overall, within just seven years P&G was able to generate over $217 million in net sales. However, through multiple faulty strategic assumptions, P&G has seen a meteoric decline in share and net sales in less than half the time it took to hit its peak. Despite P&G’s complete ignorance to the political, economic and social norm barriers of the Japan market, there is great potential for P&G to reverse its downward trends in Japan by correcting fundamental flaws in its strategy.

Assuming P&G stays in the Japanese market, it must correct a number of the faulty assumptions it made regarding the positioning of it brands, the supply chain methods it employs to deliver goods to market, and its fundamental innovation processes. Despite a rigid U. S. -based business mentality and a near complete lack of localization, P&G has great potential to turn around their business in Japan if it commits to a few key strategic changes.

First and foremost, P&G must increase the pricing of its products while delivering relevant product benefits to the Japanese consumer. Their key strategic plan upon entering the market and throughout its first decade in Japan was to position its unchanged U. S. brands as the lowest priced offerings in the category. For example, near the peak of their market share in the detergent category, P&G offered their flagship brand Cheer at ? 500 for two boxes versus a suggested retail price of ? 800-850 for one box.

As a comparison, their key competitor Kao was offering their main product at ? 400 for one box. In addition, P&G offered significant promotion activities directly through the retail stores further driving down the pricing structure and to grab share of the market. Although these radical pricing and promotion strategies resulted in a rapid short-term gain in share, P&G failed to acknowledge a consumer perception norm in Japan that a low price or sale on a product often connotes poor quality.

In fact, packaged goods consumers in Japan (primarily stay at home females) define value in terms of product performance, quality, and reliability and not price. Another example of P&Gs faulty pricing strategy was their Pampers disposable diapers. Despite a first mover advantage to the category, a competitor cut P&G’s business nearly in half in only two years despite a 40% price premium. P&G did not understand its target consumer and what relevant benefits they were looking for. They erroneously assumed low price as the key priority of the Japanese consumer.

Therefore, P&G should actually increase pricing while delivering relevant product benefits that consumers will pay for (such as enzymes or 0% phosphates in detergents). A second specific action that P&G should take is to improve their supply chain effectiveness through a dedicated relationship with the wholesaler networks. The large (3000+) wholesaler network in Japan is the critical factor in generating actual sales to the retail outlets as well the physical movement of goods to those retailers.

Similar to their key competition Kao, P&G should form an exclusive rights partnership with wholesalers to ensure maximum product placement in as many of the nearly 1. 6MM small retail outlets as possible to improve execution and increase overall sales. Finally, P&G must overhaul their new product development processes to create products that appeal directly to the Japanese target consumer. This starts by creating a local R&D center within the Japanese market to speed the development process.

Through the development of new products or adapting and then localizing successful brands from other regions, the P&G team must decrease the product development cycle to thwart competition. In addition, P&G must scrap their long held belief of protracted in-market testing of products before launching. The competition has proven very capable of copying and quickly launching P&G’s ideas before they can. By implementing these strategies, P&G can recover their declining market share and lay a strong foundation for future success in the critical Japanese market.