Microeconomic Analysis of Procter and Gamble
They build the company from the ground up blazing the early corporate world and rebranding ever since for a hundred and eighty years. With a range of goods from hygiene products, cleaning agents, human and animal food and even pharmaceuticals, P &G is a marvel in our modern economy. It commands close to sixty-five billion in revenue as per last year's financial reports. The company also controls a wide pool of employees worldwide with their numbers averaging on a hundred thousand. P&G deals in a volatile consumer goods market. The companies supply was somehow inelastic in the past years. This was due to the active downward integration pursued by the founder and subsequent managers. This meant that any changes in the price of the raw materials would do little to affect the level of supplies.
Even with more than a hundred products and its current strategies of outsourcing, P&G is still at a loss as it cannot swiftly change its supplies due to high switch costs and binding contracts. For example, Willmar International provides the company with palm oil that it uses to manufacture its cooking oils and margarine. P&G was accused of using forced and child labor through Willmar palm plantations. This affected its contracts, and it had to switch to temporary suppliers to avert the decline. Another policy issue is when its animal testing came into the spotlight. P&G had to reduce its use of animals which increased costs as it had to look for other alternatives to develop its products (Business Case Studies 2016).
Another thing that affects supply is the increasing trend of dealing with educated customers. This will shift the equilibrium to the right leading to more products being sold at the same price. Price (P0) Quantity Q1 Q0 Q3 An illustration of the shifts in demand at the equilibrium price. The green arrow shows move to the left while the brown shows a shift to the right The same goes for supply. The policies violation led to fewer supplies as P&G recovered. This resulted in a shift of equilibrium to the left where less quantity was acquired at the same price. The company also has factory machines that are used to manufacture and package materials. Also, it has another source of power other than the grid for backup like generators which accounts as part of the fixed costs.
P&G has a lot of variable costs. Its more than one hundred employees require salaries and other allowances. It also pays for utilities like power, fuel, stationeries and factory maintenance. First, it is filled it competitors like Unilever, Kimberly Clack among many others. They also offer similar products which act as close substitutes. For example, Kimberly offers Huggies diapers alongside P&G's pamper. Unilever sells Omo alongside P&Gs tide. The market is also heterogeneous with many products differentiated only by brands. Promoting sustainable development: A Procter and Gamble Case Study. Retrieved May 14, 2017, from http://businesscasestudies. co. uk/procter-gamble/promoting-sustainable-development/environmental-social-responsibility-and-economic-development-issues. html Gurufocus. com/investing/2017/03/06/how-procter-gamble-co-has-changed-in-the-last-3-ye. aspx P&G. Our Brands. Retrieved May 14, 2017, from http://us. pg.
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