Running head: Microeconomic Analysis on The Procter and Gamble Company 1
Microeconomic Analysis on The Procter and Gamble Company 7
AbstractThe Procter and Gamble Company is an American multi-national consumer goods corporation that was found in 1837. The company makes many different products and have been structured into ten different categories. The category that I will be doing my microeconomic analysis on is Family Care because of the product I chose to elaborate on. The analysis will be on Procter and Gamble’s paper products Bounty, Charmin and Puffs. It will show what key factors of supply and demand affect the production of the product of the company.Keywords: Procter and Gamble, demand, supply, analysis, productMilestone One Part OnePulp is one of the main resources used to produce the paper towels and tissue. “Procter & Gamble today announced it’s planning to raise prices on a lot of its products, including Bounty paper towels and Puffs tissues. One reason for those increases? P&G is having to pay a lot for wood pulp, which is basically what paper towels, diapers and toilet paper are made from.” (Kim,2018) The price of pulp is high in demand and the price of it increased. “If the price of the commodity rises, then it is less demanded by the people, because people finds less utility in the product, and at that much price they can buy the other products having more utility for them. In this way, demand decreases while the supply increases.” (Says, 2017) Due to a high demand in pulp, Procter and Gamble had to increase the price of their products. Even though Procter and Gamble had to increase the price of their products the demand for their products did not decrease as much. There products were still in competition with their competitors. “Price elasticity is a measure of how consumers react to the prices of products and services. Normally demand declines when prices rise, but depending on the product/service and the market, how consumers react to a price change can vary.” (What is price elasticity)“In 2014, the average consumer unit in the United States spent approximately 124 U.S. dollars on paper towels. A survey by Harris Interactive, which was conducted online in November 2014, revealed that 44 percent of Americans purchased name-brand paper products. Bounty Select-A-Size was the second leading paper towel brand in the United States (behind private label) in 2015 with a sales share of over 24 percent. Out of the top ten paper towel brands of 2015, Procter & Gamble (P&G) owned four of them; with the vendor generating sales of over 2.15 billion U.S. dollars.”(Sales)
Non-Price Factors: Demand
Procter and Gamble use advertising as one of the non-price factors that affect the demand. “Branding. Sellers can use advertising, product differentiation, product quality, customer service, and so forth to create such strong brand images that buyers have a strong preference for their goods.” (The non-price determinants of demand) Over the years Bounty advertising slogan have been known as the the “Quicker Picker Upper”. In 2000 Charmin launched the “bear” to be the face for its advertising brand. P&G spends a lot of money on advertising their products for consumers to potentially purchase them. “Procter & Gamble is also one of the biggest spenders in the world when it comes to its advertising campaign. In 2016, the company spent approximately 7.24 billion U.S. dollars. In the United States alone, Procter & Gamble spent 121 million U.S. dollars promoting its Cover Girl brand in 2015.” (Duncan) Available income of consumers is the second non-price factor that affect the demand for Procter and Gamble. “Available income. If the amount of available buyer income changes, it alters their propensity to purchase. Thus, if there is an economic boom, someone is more likely to buy, irrespective of price.” (The non-price determinants of demand) As long as consumers have income available to purchase what they want they can spend a little extra. If something affects a consumer income like the recession that can affect the demand for the product.
Non-Price Factors: Supply1
As stated earlier pulp is raw material for the paper products. Input prices is one of the non-price factors that affect the supply for Bounty, Charmin, and Puff.
The Family Care Products at Procter and Gamble. “Input Prices-If the price of raw materials used in the production of a product goes down, then S will increase, i.e., shift to the right. If the price of inputs increase then S will decrease, shift to the left.” “Since 2016, market prices for hardwood pulp have risen 60% and 20% for softwood. P&G sources both types from the United States and Canada and uses them to make tissue papers and diapers. Growing global demand, particularly in China, and tight supply have pushed up prices, said Arnaud Franco, a senior analyst at the Pulp and Paper Products Council.” (Meyersohn, N. 2018) Government Policies is the second non-price factor that affects the supply. “Government policies can have a significant impact on supply. For example: If the government imposes a subsidy on the good, then S increases while a tax on the goodwill has the opposite effect of decreasing S.”( The Law of Supply, 2017) “The Trump administration has placed 10% on tariffs on Canadian paper and Canada responded by enacting 10% levies on several paper products, including toilet paper. But Franco said tariffs were not currently impacting prices. If China, however, decided to put tariffs on market pulp, US producers could get hurt, Franco said.” (Meyersohn, N.,2018)
Industry and Market Equilibrium.
Bounty and Charmin are brands of Procter and Gamble and this company is in the consumer industry. The products are marketed under their family care brand. Paper Towels and Tissue are household products but in actuality they are used in every day life every where you go. Over the last forty years the use of paper towels has grown more popular. Within 24 hours out of your day over 75% people will use a form paper product in that day. This help Procter and Gamble expand its business in their manufacturing plants. “In 2015, the company’s sales amounted to 69.4 billion U.S. dollars worldwide.
This revenue was generated as a result of Procter & Gamble’s numerous billion U.S. dollar brands within the consumer goods industry.” (Duncan) P&G is huge in the advertising industry as well with their products.
Market Equilibrium is “ the point where quantity demanded and quantity supplied is equal at a given time and price. There is no surplus or shortage in this situation and the market would be considered stable. In other words, consumers are willing and able to purchase all of the products that suppliers are willing and able to produce.” (What is Market Equilibrium) This is a win win situation for both parties. Procter and Gamble was happy because the consumer was able to purchase their products and the consumers where happy they where able to purchase the products. Procter and Gamble introduced new products of the Bounty paper towel. Bounty Essential and Bounty Select A. They are different brands of the Bounty paper towels but it is still Bounty and the demand and the supply for the product is at a balance.
Prediction and Decision.
Being at a constant state is all good but as a company like Procter and Gamble they have to make a profit off of their products. When the demand of material hitting the company I predict that will make the price of materials go up and that will make the product go up. I believe that Bounty and Charmin are one Procter and Gamble leading brands for the the company. If the supply of the product was decrease, I believe that would be a problem. If the product was increased by a small percentage, it should not affect their sales drastically.
References Duncan, E. (n.d.). Topic: Procter & Gamble. Retrieved January 13, 2019, from https://www.statista.com/topics/1625/procter-and-gamble/ Kim, J. (2018, July 31). Strong demand for wood pulp driving diaper, paper towel prices higher. Retrieved January 12, 2019, from https://www.marketplace.org/2018/07/31/sustainability/strong-demand-wood-pulp-driving-diaper-paper-towel-prices-higher Meyersohn, N. (2018, July 31). Pampers and Charmin are getting more expensive. Retrieved January 12, 2019, from https://money.cnn.com/2018/07/31/news/companies/pampers-charmin-bounty-puffs-procter-and-gamble/index.html Sales of the leading paper towel brands of the U.S. 2017 | Statistic. (n.d.). Retrieved January 12, 2019, from https://www.statista.com/statistics/188691/top-paper-towel-brands-in-the-united-states/ S, S., Says, P., & Says, M. G. (2017, April 07). Difference Between Demand and Supply (with Comparison Chart). Retrieved January 12, 2019, from https://keydifferences.com/difference-between-demand-and-supply.html The Law of Supply. (2017, November 09). Retrieved January 12, 2019, from https://www.intelligenteconomist.com/supply/ The non-price determinants of demand. (n.d.). Retrieved January 12, 2019, from https://www.accountingtools.com/articles/what-are-the-non-price-determinants-of-demand.html This statistic shows the brands of paper towels used most often in the United States in 2018. The data has been calculated by Statista based on the U.S. Census data and Simmons National Consumer Survey (NHCS). According to this statistic, 153.31 million Americans used Bounty in 2018. What is price elasticity? Definition and meaning. (n.d.). Retrieved January 12, 2019, from https://marketbusinessnews.com/financial-glossary/price-elasticity-definition-meaning/ .