P&G has been operating in China since the early 1990s and knows the local market trends very well. However, in one of the business segments - disposable diapers – the company has failed to react to the changed buying habits of the Chinese customers. In China many markets, including the markets in which P&G operates, have been “premiumizing” (Ng & Burkitt, 2015). Premiumization means “borrowing characteristics associated with upper class consumerism and lifestyle” (Dimitropoulos, 2015). That means that many Chinese customers prefer to spend large amounts of money even if their incomes are not very high.
P&G’s mistake was that it had been focusing on sales to as many people as possible. The affordable low-end disposable diapers were of good quality and brought over $1 billion in sales in China (Ng & Burkitt, 2015). However, the customers switched to the Japanese diapers that are believed to be of better quality. The families spend large sums of money on their children in China, especially if there is only one child in the family (Ng & Burkitt, 2015). So the quality-price balance is no longer of great importance for the customers. P&G noticed the changed buying habits too late, even though the company has another type of diapers – diaper pants – that would satisfy the needs of the customers.
As the result, P&G needs to catch up with the competitors and “premiumize” some of the products. In terms of the diapers, the company now sells the diaper pants and on the package it is written that the diapers were made in Japan. The company will focus on increasing the market share in the Chinese diaper market from 24.3% in 2013 to the level it used to have in the past. P&G hopes to earn $2-3 billion if the new strategy is effective. The main idea of the strategy is to understand what the Chinese customers would like to pay and not to concentrate too much on the low-end products (Ng & Burkitt, 2015). P&G’s new strategy is similar to the strategies applied by the other American companies such as Apple. The Chinese customers are able to buy costly products and the factor that the brand is American is not as impactful as before.
References
Ng, S., Burkitt, L. (13 August 2014). P&G Tripped Up by Its Assumptions about Diapers
in China. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/p-g-
tripped-up-by-its-assumptions-about-diapers-in-china-1439445897
Dimitropolous, P. (8 January 2016). How to win at premiumization in China? Kantar China
Insights. Retrieved from http://cn-en.kantar.com/business/brands/2016/how-to-win-at-
premiumization-in-china/
