After layoffs and the sale of numerous business units, P&G still struggles to reverse its declining performance. Recently, it was reported that Lin Xiaohai, Vice President of P&G China, has left the company, making him the third sales head to depart in four years. As P&G's second-largest market, China's importance is undeniable, and the frequent leadership changes reflect the immense pressure from declining sales.
Industry insiders say that a "slimmed-down" P&G is gradually shedding its affordable, approachable image and upgrading its strategy with premium products, but the results have been poor. Whether P&G will continue its premiumization strategy or change direction is the biggest question facing the new head of China sales.
Four Years, Three Leadership Changes
Recently, it was reported that Lin Xiaohai, who was responsible for sales at P&G China, left the company in March. Lin had worked in P&G China's marketing and sales for 21 years. Notably, Lin is the third sales head to leave P&G China in four years.
In August 2014, Lin Xiaohai succeeded Li Hong as Vice President of P&G China, primarily responsible for sales in China. Li Hong's predecessor, Zhai Feng, had left at the end of 2012. All three had served P&G China for over 20 years, and both Lin and Li left within two years of reaching the highest positions available to Chinese employees.
Industry insiders say that China is P&G's second-largest market in terms of both sales and profits. Together, China and the U.S. contribute 50% of P&G's sales and profits, so the importance of the Chinese market is undeniable. Declining performance is the main reason for the frequent leadership changes. Coincidentally, P&G's fiscal year ends on June 30, and both Lin and Li left around that time.
Declining Revenue
Due to weak demand for beauty and personal care products, P&G's quarterly revenue has been declining. In the quarter ending December (Q2 of fiscal 2016), organic sales in China fell sharply. In the quarter ending March 31 (Q3 of fiscal 2016), organic sales in China grew only 1% excluding currency effects. Net sales in Q3 fell to $15.8 billion, with profits of $2.7 billion.
According to Euromonitor International, in China's beauty and personal care market from 2009 to 2014, P&G's market share declined from 15.2% to 12.7%, while competitor L'Oréal increased from 7.8% to 9.6%. In China's home care market from 2010 to 2015, P&G's share fell from 7.3% to 6.6%, while local brand Liby's share rose from 14.9% to 16.2%.
In recent years, P&G has faced declining sales globally and in China, prompting various self-rescue measures and reforms, including a $10 billion cost-cutting plan and a $20 billion brand divestiture plan. However, performance has not recovered. Last year, P&G launched cross-border e-commerce in China to win back eroded market share.
Can It Reverse the Downturn?
Lin Xiaohai's successor as head of P&G China is Ke Xinghua, an experienced executive. A P&G spokesperson told Beijing Business Today that Ke Xinghua assumed the role of Senior President of Sales and Operations for P&G China on May 1. Ke has been with P&G for 29 years and, importantly, served in China from 2006 to 2010, where he led the Customer Business Development organization and established the initial model for sales and marketing in China.
Since entering China in 1988, P&G focused on capturing market share in the mass market. After more than 20 years, P&G succeeded in dominating the low-margin, high-volume market, but in the process, it gradually lost the mid-to-high-end market.
P&G has recognized the problem. CFO Jon Moeller has repeatedly emphasized this year that P&G's strategy in China was flawed, positioning the brand too low. Fifty percent of sales in China's daily chemical market are in the premium segment. For example, SK-II, P&G's high-end brand, continues to perform strongly in China, with sales up 20% in Q3.
In this context, in 2015, P&G launched premium products including Pampers high-end diapers, Ariel laundry detergent pods, and Whisper Future Sense sanitary pads, reflecting its strategic transformation. However, from a performance perspective, these premium products have not had a significant impact.
Industry analysts believe that P&G is trying to capture leadership in core markets through precision marketing, but competition in the daily chemical market is fierce. To win, P&G needs time, absolute innovation, and differentiated products. Whether to continue premiumization or find another path is the question facing Ke Xinghua.
Beijing Business Today reporter Qian Yu, intern Lin Shan Source: Beijing Business Today
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