WORD COUNT: 5979 excluding Table of Contents, Executive Summary and Reference List

WORD COUNT: 5979 excluding Table of Contents, Executive Summary and Reference List
WORD COUNT: 5979 excluding Table of Contents, Executive Summary and Reference List
SC Johnson (SCJ) is a family-owned, non-listed fast-moving consumer goods company operating in in more than 76 countries with headquarters in the USA. In Africa, SCJ has three main operations in South Africa, Nigeria and Kenya. The South Africa business, this assignment’s focus, houses four business units namely, shoe care, home cleaning, air care and pest control, manufacturing and marketing. The author is the South Africa customer manager.
Sense making
Rumelt (2011) states that, crafting a good strategy entails a diagnosis of the external environment to identify critical obstacles, a guiding policy to overcome those obstacles and coherent actions to support the policy. The value proposition framework that entails, an analysis of SCJ’s external environment, its aspirations and values, its value offering, and its resources and capabilities is applied to analyse the company’s ability to sense and understand changes in the external environment and the resilience and longevity of its resources and capabilities.
SCJ’s value proposition
Figure 1. SCJ’s value proposition, adapted from (Henley Business School, 2020)
The home-care industry offers mass market products that have become commoditised due to external environmental factors of consumer affordability in a saturated market. SCJ offers environmentally-friendly products backed by research and specialised resources which make its product prices high. SCJ has applied promotion strategies to respond to the lack of consumer affordability and market saturation which has resulted in its value declines, rather than a costleadership strategy that drives profitability. Its deep strategic partnerships with retailers are questionable as retailers’ main aim is to drive volume and value from competitor companies and its dealer-owned products. SCJ’s research and development (R&D), technological and financial strength position the company to continue to create differentiated environmentallysafe products.
The strategic challenge
SCJ’s business in South Africa competes with three major players, Unilever, Rekitte Benkiser and local giant, Tiger Brands, its number one competitor. SCJ’s brands have been market leaders with 71% share in shoe care and 30% share in air care and strong number 2s in pest control and home cleaning, however for the past 3 years, has been faced with declining share and sales year on year.
In 2020, SCJ lost 7% of its sales versus industry growth of 6% (graph 1). This is a strategic challenge for SCJ South Africa because the home-care industry is showing double-digit growth and is predicted to grow even more in the long term driven by external factors such as population growth and urbanisation. Whilst its competitors are growing, SCJ is declining in both share and value.
South Africa experienced a technical recession in the second quarter of 2018. This external economic factor has put pressure on consumer affordability, driving consumers to trade down to cheaper alternatives. Competitor industry players have developed strategies focusing on consumer needs such as affordability and product efficacy which have allowed them to thrive in this challenging environment. This has led to increase in consumer demand for quality at a low price. Due to this industry being in a maturity phase, the market is characterised by market saturation that drives low margins, resulting in the need for high volumes to drive profitability as products are not differentiated. Although brand heritage and recognition continue to portend well for leading players, consumer need for affordability remains a significant factor for purchase within the mass market.
Graph 1: SCJ’s South African unit gross sales in rands millions. Source: (Finance SC Johnson, 2021)
The challenge triggers originating in the external context are an increase in price competition as competitors lower their margins to drive volumes, through increased value offerings, and increased promotional activities. There are new market entrants offering entry-level home-care products and an increase in major-retailer private-label brands that offer passport efficacy factors at a lower price. SCJ has failed to respond to this low-price strategy because of the component quality it uses that result in costs being passed down to the consumer.
SCJ is dedicated to manufacturing innovative high-quality products and has a long-term commitment to the environment. SC Johnson prides itself as “a family company at work for a better world” (SCJohnson, 2021). Its focus is to create a more sustainable world through its innovative product-ingredient selection programme, choosing product ingredients and packaging components that better protect human health and the environment. This makes the ingredients and components costly as it goes well beyond what is legally required, taking each product through the “GreenList” programme to ensure they do not contain human health hazards, long term environmental hazards, allergens or mammalian or aquatic toxicity.
A value chain issue is that some imported SCJ products are priced higher than those manufactured by competitors in South Africa. The high-cost quality raw materials used by the South African business unit result in its products having a base cost much higher than the competition. In line with the global company’s strategy of centralised procurement to achieve scale, this becomes unfavourable to the South African business unit as these products and raw materials result in multiple shipping costs from the United States of America, Indonesia and Brazil, and unfavourable forex costs driven by the recession. The business’s raw materials contribute to 4% of global procurement of 76 countries, making it a relevant contributor to the organisation’s cost reduction.
To increase profitability in this FMCG industry, SCJ needs to differentiate itself from the market or improve its profitability. SCJ will unlock competitive advantage by exploring new opportunities such as value addition strategies in the form of cost reductions, revenue migration strategies such as seeking more profitable markets outside of South Africa, and revenue generation strategies such as differentiation.
Structure of the assignment
In this assignment, reasons for the sales and market share decline are identified through an analysis of SCJ’s external environment, assessing industry opportunities and threats, and its internal environment, to establish the organisation’s resources and capability that can combat the threats or capitalise on the opportunities. A selection of possible strategies is identified leading to the recommendation and implications for implementation of a suitable strategy for SCJ to deliver shareholder value through increased profitability and return on investment.
A PESTEL analysis of the South African home-care industry is conducted to assess individual factors that have significant impact on the industry’s sales growth, costs, and profit potential. Only relevant and impact-bearing factors are considered.
Figure 2: PESTEL analysis of the home-care industry in South Africa. Source: Adapted PESTEL Framework (Porter, 1997)
Table 1: PESTEL analysis implications and probability of change
External factor
Positive value implication
Negative value implication
Probability of change
Stable government with low political risk (Fitch Solutions Group, 2020) (Medium Impact)
Low probability of change due to consistency of ruling government prevailing policies.
Inflation at 3,3% (Statssa, 2020) (High Impact)
Decrease in interest rate by 0.25 to 7% (Resbank, 2020). (High Impact)
Fluctuating exchange rates of +10% result in an increase in costs of raw materials and finished goods imported. (KPMG, 2020). (High Impact)
GDP growth of 3% in 2021 is very low and is projected to only grow by 2,5% by 2025. (Worldbank, 2020). (High Impact)
High probability of change due to volatility and unpredictability of external factors such as the current Covid pandemic
Urbanisation of 63% and is expected to rise to 71% by 2030 (PMG, 2020) (High Impact)
Growing trend of environmentally friendly products and packaging (Euromonitor , 2020b). (High Impact)
Rising unemployment rate at 32,5% (Reuters, 2020) (High Impact)
Growing Gini coefficient index of 63,4 (Statssa, 2019)
Increase in consumerism (Euromonitor , 2020b). (High Impact)
High probability of change
Growth of e-commerce by 66% (Businessinsider, 2020). (High Impact)
5% increase in investment on technological and infrastructure (ITA, 2020). (Hight Impact)
Low probability of change
Regulations that drive sustainable economies (High Impact)
Covid pandemic driving the needs to stay home more and use home care more to protect against the virus. (High Impact)
Good rail and road infrastructure provide easy route to market. (Hight Impact)
Low probability of change in regulations and infrastructure, however, a high probability of change of the end of the Covid pandemic as more people get vaccinated.
Regulation of the Home care industry with long lead times of product approval of up to 2 years. (High Impact)
Low probability of change as laws are long standing with long processes to change them.
Political factors
South Africa is a politically-stable country having had the same ruling party since its democracy. Having not displayed any political instability since its democracy, this factor has a low probability of change. This political stability is one of the reasons SCJ chose to invest in a subsidiary in South Africa. The political stability has a positive effect on SCJ, as its impact is medium and limited to standard laws and regulations.
Economic factors
Economic factors are highly unpredictable and volatile driven by the country’s state of technical recession and the covid pandemic. This has a high impact on organisations positively and negatively with a low probability of change. Exchange rate fluctuations of up to 10%, have had a negative impact on SCJ as the cost of imported raw material and finished goods further drive the already high base costs. The low gross domestic product (GDP) of 3% which is predicted to remain low (Worldbank, 2020), means that South Africa will stay in recession, which has a ripple effect of further loss of jobs putting pressure on consumer affordability and price wars. Engaging in these price wars will further erode SCJ’s profits. The low interest rates at 7% (Worldbank, 2020), have a positive impact on SCJ which has high liabilities, as the decrease in repayments increase the business’s liquidity and cash flow.
Social factors
The rise in urbanisation at 63%, predicted to increase by 8% in 2030 (PMG, 2020), has a positive impact on the industry’s sales growth and profit potential as more people live in modern homes and use home-cleaning products more. South African consumers have caught on to a growing global trend of environmentally-friendly products. SCJ is ahead of its competitors having products and packing that exceed the legal requirement. As this trend continues to prevail, SCJ will be at a competitive advantage even though competitors would soon catch up to this. The increase in employment has impacted consumer affordability. With the reduction in consumer affordability, and increase in consumerism, industry players compete on price due to lack of differentiation of home cleaning products as they all provide “99% germ kill” as a passport factor. This puts pressure on SCJ to engage in price wars with its competitors eroding the company’s profits due to its high base costs. Companies with cost leadership advantages are favoured.
Technological factors
The rise in urbanisation has led to the increase in demand in infrastructure for housing, schooling, and hospitals, driving the growth of technology infrastructure in South Africa. (ITA, 2020) states that “South Africa has one of the largest information and communications technology (ICT) markets in Africa.” This increase in technological infrastructure, exacerbated by lock downs during the covid pandemic have led to a 66% growth in ecommerce (Businessinsider, 2020). Although e-commerce growth may reduce in the future, this trend is predicted to continue, causing a prevailing impact of reduced sales by brick-and-mortar retailers which are the industry’s main route to market. This presents an opportunity for SCJ to participate in this growing route to market.
Environmental factors
The good road, rail and airport and port infrastructure has a positive impact on the industry providing accessibility to the market. This reduces costs and increases profitability of a business. This infrastructure provides SCJ with a variety of opportunities of a route to market to reach its preferred market. The covid pandemic has driven growth in the industry as people stayed home more, cleaned more and disinfected more with home cleaning products. The adverse impact was seen in SCJ as its home-cleaning products are unaffordable to the cash strapped consumer. SCJ’s shoe care category that declined due to the decline in consumer demand, as people and school going children stayed home; this trend is expected to change in the future as schools re open and children go back to wearing the mandated school uniform that requires shoe care.
The industry is highly regulated with regulations that control the types of chemicals that can be used. Product registration for new products can take more than two years. Whilst SCJ’s overcompliance in respect of home-care ingredients and packaging slows its rate of innovation. All industry players are equally affected and impacted by this.
South Africa’s unfavourable economic and social factors of a low GDP growth, and high unemployment puts pressure on consumer affordability. The increase in consumerism drives the demand of affective home-care products at a low price.
An analysis of the home care industry is conducted to assess market factors to determine the nature of competition between industry players.
Industry maturity curve
The home-care industry is characterised by large players, competing on price with undifferentiated products, putting a strain on margins and profits. Purchase behaviours of increased frequency are seen in end-month grocery shopping with mid-month purchases for top ups. There are fewer new users in comparison to current users, hence the plateau in growth of 6% versus double-digit growths seen in new industries. This classifies the home-care industry in the maturity phase.
Figure 3: Home-care industry life cycle Source: Adapted Pestel Framework (Porter, 1997)
SCJ is declining below the industry. Brand-building activities were deprioritised to fund consumer promotions whilst low-cost competitors could afford to drive advertising that communicates product efficacy and relevant pricing based on the low consumer affordability. They harness efficiencies through economies of scale and varied sourcing opportunities that drive down costs. Other industry players are agile and flexible enough to drive growth through R&D and innovation. SCJ, due to its centralised sourcing structure and its specialised environmentally-friendly ingredients and packaging, which is not readily available nor affordable, is not able to respond faster than its competitors.
Porter’s five forces
Figure 3: Porter’s 5 forces analysis of the home-care industry in South Africa. Source: (Porter, 2008)
Threat of new entrants
The threat of new entrants mainly from diversification by large organisations from other industries such as personal care and pharmaceutical. These companies have resources that allow them to achieve economies of scales. They have regulatory compliance competencies and established retail distribution channels. They bring increased know-how, driving an increase in product quality and efficacy. Due to home-care products being undifferentiated with low consumer-switching costs, price levels are driven down by their low-cost strategies, decreasing the profitability of existing players.
Bargaining power of buyers
The increase in consumerism has resulted in buyers being well educated about the home care industry. Consumers exert power on industry players to provide high-quality home-care products at lower prices. Due to home care being undifferentiated with low switching costs, the consumer has become very price sensitive. The covid pandemic lockdown, and increased urbanisation have increased demand for home-care products versus the supply, which has increased the profitability of the market. This is evidenced by the 6% growth in the industry and can be expected to grow due to the heightened sense of hygiene and the increase in urbanisation, 8% by 2020.
Threats of substitutes
Substitute home remedies are cheaper and offer similar benefits to home-care packaged products. Professional cleaning services offer higher quality.
Rivalry among existing competitors
Home care industry players compete against each other to steal profit and market share from one another. They do this by targeting the same markets, in the same retail channels, utilising aggressive pricing strategies. This rivalry is intensified by the industry’s insignificant brand loyalty driven by undifferentiated products and low consumer switching costs.
Bargaining power of suppliers
There are many suppliers in the home-care industry with low switching costs. This results in a high bargaining power of the buyers who purchase large volumes of these standardised products. SCJ has attained increased buyer power from its centralised procurement strategy that affords it larger volumes at lower costs.
Rivalry among existing competitors
Competitive rivalry is high due to low brand loyalty, undifferentiated products and low consumer switching costs.
Key success factors
Key industry success factors (KSFs) are categorised as home-care customers’ minimum purchase criteria (order qualifiers) and competitive criteria (order winners) (table 2).
A comparison between SCJ and its number one competitor Tiger Brands is conducted utilising some qualitative consumer research from a sample of 15 consumers.
Table 2: Home-care industry key success factors
Q denotes an order qualifier, QQ denotes an order losing sensitive qualifier.
Performance is a 10-point score per KSF (higher points equals better performance to customers expectation).
R/C denotes whether a resource (R) or capability (C) is required to achieve the KSF.
SCJ does not have order losing sensitive qualifiers which would result in immediate switching of their consumers. Although SCJ has a great value offering for consumers, it does not have one of the critical bases that it must compete in, being price. SCJ has been able to give frequent deep discounts to meet this low-price criterion, however this is not sustainable as it is the source of the company’s value declines. Most recently, due external factors that resulted in the decline of consumer affordability, price has increased in importance in consumers lives. One of the factors that have also increased due to the external environment is the need for innovation as consumers wanted products that would kill the Corona Virus. SCJ innovates in all aspects of global sociological trends, packing and raw materials. Its competitors also innovate, however, based on key local market relevance of affordable efficacious products. SCJ therefor has more order winners that drive preference over order qualifiers. This driven primarily by price as SCJ products are priced at a premium.
From the above, SCJ differentiates itself relative to its competitors as a premium brand, with a variety of differentiated product portfolios that targets specific consumer groups. SCJ also has the most environmentally friendly products. Based on this, it would be of value for SCJ to utilise its existing resources and capabilities to focus on a niche consumer group or explore another market that has higher consumer affordability.
(Day, 2019g) states that competitive advantage is gained through the deliberate and purposeful management of the organisation’s capabilities and resources in relation to customers’ expectations, to create value. SCJ faces a decline in consumer affordability, aggressive competitors competing on price and high base costs.
Organisational resources and capabilities
SCJ’s resources and capabilities are derived from interviews with SCJ’s leadership team.
R1- Financial capital: SCJ is financially stable.
R2- Physical capital: Established ISO-compliant manufacturing plant and equipment. Capacity utilisation at 60%.
R3- Human capital: Access to global and local expertise in different disciplines located in varied regions giving the business integral path dependencies.
R4- Social capital: SCJ’s 50-year-old brand has a reputation as a home-care manufacturer with the most environmentally-friendly products. This is entrenched in SCJ’s STEM education investment in schools in local communities.
R5- Relational capital: SCJ had developed supplier networks offering exclusivity to specialised and trademarked ingredients and components. Customer networks allow for good listing of goods in key retail and traditional trade. Ranked top three in customer centricity in South Africa.
C1- RD&E: A global R&D centre of excellence that is leveraged for innovation based on global trends.
C2- Sales, marketing: Experienced team with qualifications of at least a post-graduate degree.
C3- Operations: Operations team with excellent logistic and distribution network.
C4- Management: An experienced team that includes expatriates with critical skills and managerial capabilities.
VRIO framework
The VRIO framework (table 3) is applied to assess which resources or capabilities can give SCJ sustained competitive advantage. These resources and capabilities are analysed in terms of their value, rareness, imitability and the organisation’s ability to exploit the source of competitive advantage.
Table 3. VRIO analysis of Kiwi’s resources and capabilities. Source: Adapted (Henley Business School, 2020)
For SCJ to be successful, its resources and capabilities need to relate to the industry KSF. Table 4 depicts SCJ’s resources and capabilities as to how well its assets, resources and capabilities are positioned with respect to these KSFs.
Table 4 Mapping assets, resources and capabilities. Source: (Grant, 2005)
Strengths of the resources and capabilities
SCJ has three resources and capabilities that give it sustained competitive advantage.
Its financial asset displays a positive balance sheet despite the recent declines. It also has potential increased investment from its global company. This valuable as an entry barrier and rare as it is not easily attainable.
The second and third resources are a positive brand and reputation in environmentally-friendly products, and its R&D capabilities to create specialised products that are environmentally friendly, utilising patented materials. This equity is driven from 50 years of consistently driving products that are aligned to the company values of being “a family company at work for a better word.” SCJ has earned its consumers’ trust over the years with critical path dependencies, making it very difficult for competitors to imitate the same position in the consumers’ mind.
These keys strengths are critical to the consumers’ KSF of ease of use and innovation when it comes to external factors such as the need for home care products that kill covid.
Weaknesses of the resources and capabilities
The key weakness SCJ has is that does not have resources or capability to deliver on order losing sensitive qualifier of price due to its global centralised procurement system. The management/leadership of the business has endorsed deep price discounts resulting in profit decline. The marketing and sales team have failed to focus SCJ’s order winners on markets or segments that consider them as order qualifiers. Although supplier relationships with exclusivity are rare, customer relationships can be imitated as competitors consistently deliver more value as SCJ continues to prove unprofitable.
Organisational inertia and path dependency
SCJ has enjoyed market leadership and profitability in South most of its categories for a long time.
SCJ has been first to market to supply innovative products with patented components that improved efficacy and ensured superior product quality. SCJ’s packaging is innovative driving ease of use and convenience in an industry that is not inspiring to its users. This is enabled by the centralised global-procurement strategy that allows for exclusivity with specialised niche suppliers. The company drives a cost-plus pricing strategy that has allowed it to absorb the high base costs of this innovation and make sufficient profit. During this market leadership time, the industry was not yet commoditised, and consumer affordability was very high. This growth trajectory was further driven by the rise in middle class economy.
As competitors saw the profitability on this industry, new players entered the market causing product surplus. Product quality was maintained; however, prices became increasingly aggressive. South Africa went into a technical recession and more recently was hit by a pandemic that further drove down consumer affordability. The industry is now commoditised; SCJ has not reacted to this change. SCJ is increasing its efforts in costly environmentally-friendly innovations and centralised buying strategy, but still targeting mass-market consumers in massmarket retail channels. Short-term pricing strategies have proven detrimental to the company’s profitability and market share.
A summary of findings will be concluded below to reveal strategy options SCJ can execute to create a value proposition that delivers sustained competitive advantage based on the organisation’s current resources and capabilities.
Integrated assessment table
Analytical areas
Key findings
Trigger to the strategic challenge is the negative change in the market of increased price wars as competitors drive deep discounts and increases value resulting in price wars.
SCJ’s participation in these price wars have resulted in the loss of profit and market share over the past 3 years.
High level
Value proposition is eroded as consumer demand of specialised branded products shifting to demand quality as an affordable price. SCJ’s global centralised procurement strategy drives high based costs passed on to the consumer.
External analysis
Macro environment deeply impacting the organisation. External economic factors driving down consumer affordability. Technology and digitalisation impacting consumer purchasing habits. Sociological factors driving the need for environmentally products.
High rivalry due to low barriers to entry, lack of consumer switching costs and a threat of substitute cleaning industry that in have better efficacy. Competitors all play in the mass market, utilising the same retail channels, with undifferentiated products. They made up of large organisation that has similar market share increasing aggressiveness to steal share.
Industry in a maturity stage turning home care into commodity good. Consumers are knowledge about the industry and demand good quality at low prices.
The need for branded goods shifted to the need for low prices, with high efficacy. Consumers require ease of use of products and purchasing.
SCJ has failed to respond to the external factors of low consumer affordability and new retail channels and continued driving innovation and premium products due to their past success.
Internal supporting analysis
Resources and capability analysis and VRIO show that the only competitive advantage SCJ has is its reputation for environmentally products, positive financial standing and is innovation RD&E capabilities. Weaknesses lie in the inability for SCJ South Africa’s management team’s inability to train and develop the sales and marketing team. SCJ has unused competitive advantage from its skilled and experienced global team who can guide the sales and marketing team to respond to changing external environments and build increased brand equity.
Strategic options
Porter (2008) offers three strategic options of differentiation, cost leadership and a focus strategy to position an organisation within its competitive context.
Option 1 – Cost leadership strategy
Due to SCJ being in a mature industry that is not differentiated, the main element to compete on is with price. It is recommended that SCJ retract from the global strategy of centralised procurement. This will allow SCJ to source raw materials from the abundant local suppliers at a cheaper price and eliminate forex fluctuation costs from importing materials as well. With SCJ’s base costs being reduced, it will be able to price competitively in the market and retain more profits.
Option 2 – Focus strategy
SCJ’s brand equity has been routed in being the best supplier of environmentally friendly products. SCJ should shift its focus from the unprofitable mass market and target a consumer profile that is rooted in caring for the environment. This consumer segment is sizable, growing and shows projected future growth based on local and international trends. The shift from the mass market also employs the shift from the mass retail channel to a direct to consumer route to market. The buying patterns of this environmentally consumers are responsible for the exponential growth of e-commerce. Price is not a KSF for this target market but an order winner. The increased affordability of this target market, and reduction in costs, taking out the retail channel that demands excessive margins, allows for increased profitability for SCJ. KSF of this target market are product efficacy, environmentally friendly products, and convenience in the use and acquisition of products. This strategy is in line with SCJ’s values, brand proposition, and innovative sustainable competitive advantage.
Option 3 – Differentiation strategy
SCJ can differentiate itself by re positioning itself as a premium brand that offers safer efficacy. This is in alignment with its values as a company at work for a better world. Increased efforts would be built around brand building marketing efforts that entrench this positioning. The implication of this would mean, deterring from price discounting strategies and increased marketing spend to entrench this positioning. This would allow SCJ to capture a larger market of mothers that care for safer products around their children and the growing environmentally savvy consumer. This segment of consumers would not consider switching or using substitute products. This highlight in the company’s position would increase the brand’s equity and substantiate the higher price of products. No competitor plays in this position.
Evaluation of strategic options
Table 5 summary evaluation comparing three strategic options. Source: Adapted from (Henley Business School, 2020)
Weighting: Importance of the of the strategic domain, where 1 = lower weighting, and 5 = highly weighting.
Score: 1 to 5, to signify the impact or likelihood of occurrence, where 1 = highly unlikely, and 5 = highly likely.
Option 2, of a focus strategy, gives us the highest score, meaning it is the most suitable to adopt. This strategy is most in alignment with SCJ’s resources and capabilities. With this strategy, SCJ can differentiate and drive cost down simultaneously. In addition, the focus on this niche segment, promises increased profitability, moving away from price competitive rivalry. SCJ has the financial equity to implement an e-commerce channel. This will be very quick to implement as SCJ can engage its unutilised global team that is much more advanced and know ledged in planning and execution of e-commerce strategies. A new value proposition to be created as per below.
Figure 4: SCJ’s New value proposition. Source: Adapted (Henley Business School, 2020)
Table of contents