Church & Dwight: Time to Rethink the Portfolio?
A. EXECUTIVE SUMMARY
Church & Dwight is a major manufacturer of household and personal products, including the popular Arm & Hammer brand along with well-known labels like Aim, Brillo, Nair, Oxi-Clean, and much more. Their trusted A & H trademark appears on a broad range of consumer and specialty products sold around the world. In 2011, the Company achieved a total sales revenue of 35%. Over the past decade, the Company delivered an annual TSR of approximately 19% to its shareholders, significantly better than the 1% TSR of the S & P 500 stock index during the same period, (Wheelen & Hunger, 2012, p. 35-2). However with the entrance of other companies wanting the same market share, Church & Dwight is facing some market competition issues. The biggest challenge, which the company is facing is maintaining constant growth. The company expanded consumer products portfolio over 70 brands into the existing corporate structure while continuing to scout for new avenues for growth. This is no easy task as it competes for market share with such formidable consumer products powerhouses as Colgate-Palmolive, Clorox, and Procter & Gamble, commanding combined sales revenue of over $100 billion. As the world's largest producer and marketer of sodium bicarbonate-based products, Church & Dwight had, until recently, achieved consistent growth in sales and earnings. The core business of the company being the production of sodium bicarbonate.
The company tried to expand its other products lines, which is not an easy task. Despite the challenging business environment, the company envisioned that in 2012 they will deliver 9-10% earnings per share growth through continued relentless focus on the 10 key areas that contributed to their outstanding TSR results over the past 10 years. In order to achieve their goal, they targeted, organic sales growth of 3-4%, 25-50 basis points of gross margin expansion, maintaining strong marketing spending at approximately 13% of net revenue, and continued tight management overhead costs. The company believes that organic sales growth will be driven by the outstanding pipeline of new products and continued strong market support of Power Brands.
John Dwight founded Church & Dwight Inc. Co. and now is one of the most successful companies that produces and manufactures personal care products. When the company was formed, it was not as big as it is now; however, the growth of the company has been slow and steady. The product line of Church & Dwight is diversified and consists of the personal care products. This has helped it to compete with companies like Unilever and P & G. Although the growth of the company has been slow and steady, the company has faced a few problems to succeed and this is the reason that the competition by the company has not been up to par (Wheelen & Hunger, 2012, p. 35-2). The competitors of Church & Dwight are Unilever and P&G. These two are the giants in the industry and in order to compete with them; Church & Dwight will have to gear up and ensure that the reputation and awareness of the company is created. The company can attribute much of its success to the fact that it had concentrated on the production and sales of sodium bicarbonate. Strong family control has shielded management from the problems of defending the company from takeover attempts. The company has successfully taken a commodity chemical, branded it, and marketed it to the point where it dominates the market. It has subsequently capitalized on consumer recognition and loyalty to the ARM & HAMMER brand by introducing multiple consumer products under this logo. As the dominant producer and marketer of sodium bicarbonate products, Church & Dwight has faced limited competition in its primary markets and successfully entered the markets with other consumer products using a low price strategy with limited advertising expenditures. The company has gained a steady growth over the years and have to expand several consumer products. They have several company acquisitions due to its huge revenues over the years. But Church and Dwight just like other companies face several challenges along the way. A challenge against leveraged buy-outs and hostile takeovers is eminent. It is also experiencing head on collision with giant competitors such as Procter & Gamble and Colgate-Palmolive. In spite of all of these challenges it transformed into much larger competitor not only across a broader range of products but also in geographic territory. As a result, in order to maintain its continuous growth in both domestic and international arena the company needs to have the best strategy in place. Author: Cook, Roy A. pp, 35-1-12:
A. Analysis of the situation
Management – Church & Dwight Company has continued a tradition of slow and steady leadership with a solid focus on long-term goals. The stability of the company's leadership can be attributed to the fact that 25 percent of outstanding common stock is owned by descendants of the company's original cofounders, a tradition that continues even today. In addition, the management of the company over the past 160 years has been handed down from generation-to-generation until recently when Dwight C. Minton passed on the position of Chief Executive Officer in 1995 to an outsider, Mr. Robert A. Davies, III (Wheelen & Hunger, 2012, p. 35-2). Being focused on their leadership style has enabled Church & Dwight to overcome potential leveraged buy-outs and hostile takeovers with a series of calculated actions and savvy business decisions. These actions allowed the board of directors and management to amend the company's charter and allowed shareholders four votes per share. The board of directors was also re-structured into classes, in which each class serves staggered three-year terms (Wheelen & Hunger, 2012, p. 35-3). In addition to staggering the tenure of the directors, the company initiated employee severance agreements with key officials, providing a severance package agreement to provide some type of security in the event a board member position is terminated by a hostile takeover or leveraged buy-out by an unwanted owner. By providing these lucrative packages for senior management, many were able to stay with Church & Dwight. In applying the The Boston Consulting Group Growth Share Matrix, the company can be classified as a "Cash Cow" (wordpress.com) because according to the financial statements of Church & Dwight's from 2007 to 2009, net sales and profits continued to grow relative to the many acquisitions made by of the company. In October 2004, Church & Dwight purchased four brands from Unilever, it completed the acquisition of Carter-Wallace's consumer brands. While SPINBRUSH was purchased from Procter & Gamble in 2005. Furthermore, when compared to its major competitors, the company realized higher sales growth rates from 2003 to 2005. 2. Operations – Church & Dwight's growth strategy relied on finding new uses for sodium bicarbonate. Prior to the acquisition spree, the company's profits were derived from this product. The company soon began using an overall family branding strategy to penetrate the consumer markets place in the United States and Canada. Also, 85% of the baking soda market was controlled by the Arm and Hammer brand, “By capitalizing on its easily recognizable brand name, logo, and established marketing channels, Church & Dwight moved into such related products as laundry detergent, carpet cleaners and deodorizers, air deodorizers, toothpaste, and deodorant/antiperspirants.” (Wheelen & Hunger, 2012, p. 35-6). Rivalry among existing firms (competitors), is inevitable as competitors try to achieve greater market shares to grow potential profit shares. To reduce industry competition, Church & Dwight “also have a very solid core of specialty products” (Wheelen & Hunger, 2012, p 35-9). The Growth of an analyzer normally occurs through market penetration. Church & Dwight Inc. can be classified as an analyzer organization because according to Miles and Snow's Cellular Organization model the company operates in two types of product-market domains, one relatively stable, the other changing, (referenceforbusiness.com).This strategy worked very well in allowing the company to promote a variety of products using only one brand name. 3. Marketing - With established US and western European markets reaching saturation, manufacturers are actively pursuing growth overseas. Church & Dwight Inc. sales are concentrated in United States and Canada where funnel it through mass merchandisers such as Walt-Mart, supermarkets, wholesale clubs and drugstores (Wheelen & Hunger, 2102, pp.35-7). Even-though the company's marketing expenses for 2009 were $353.6 million, an increase of $59.5 million or 20% as compared to 2008, Church & Dwight are bent on reaching a wide range of people. This wide range of customers allows them to develop more and more organic products and services with large scale agreements to satisfy those demographics. As the company expands globally, markets for one region could also be satisfied by other regions as production opportunities allowed greater cost-effectiveness. Having new stable consumer products and expanded detergent offerings they found themselves in direct competition with the big players in the market. Church & Dwight wants to move into the international market but have been met with limited success. Two possible reasons for this are 1) lack of name recognition, and 2) recognition problem. The GE Business Screen - used to perform business portfolio analysis on the strategic business units can be of great use in order to boost the company's market share, (marketingmixhub.com). Therefore, as the company expands and acquires more product lines bearing the Arm & Hammer brand, the potential for substandard quality or customer dissatisfaction could cause negative impact on sales. Therefore, product marketing is essential to reinforce brand name recognition so consumers never forget the value and quality of a company's name and its product lines. Finance - The financial health of Church & Dwight can be characterized as being a mixed picture. Investors earnings in the report increased to 23%” and dividends on investments increased by 35%. It is highlighted by the strong upward trend in net profit margins and return on equity. However,when attention is turned to other key ratios, the picture becomes cloudy. Both the current and quick ratios have drifted downward. In addition, the inventory turnover ratio, after showing some improvement, has also drifted downward. Overall, a brief review of the financial ratios listed indicates that there continues to be room for improvement. However, the “five domestic and international consumer product brands acquired during the 2008 Del Laboratories transaction” (Wheelen & Hunger, 2012, p. 35-5).According to the BCG Growth-Share Matrix, the characteristics of Stars are high-share, high-growth, but limited cash flow due to investment required to maintain growth, however, successful Stars go on to become Cash Cows - business/product that have a high share but slow growth. They tend to generate a very positive cash flow, most of which can be used to develop other businesses/products, (strategicmanagementinsight.com), which will be beneficial for a company like Church & Dwight. Being the world's largest producer and marketer of sodium bicarbonate-based products, Church & Dwight Co. Inc was able to maintain a steady growth in both sales and earnings. For the past 30 years, the average company sales have increased by 10-15% annually (Wheelen & Hunger, 2012, pp.35-3 - 5). It is safe to conclude that since the CEO remains focused on “building a portfolio of strong brands with sustainable competitive advantages” and the “long-term objective is to maintain the company's track record of delivering outstanding TSR (Total Shareholder Return) relative to that of the S&P 500” (Wheelen & Hunger, 2012, p. 35-2), the financial status of Church & Dwight continues to grow as it has historically achieved modest gains from year to year, with hopes of even greater revenue and sales. 5. Administration, especially Human Resources - The Company's leadership at the top has remained a significant hallmark of the company. The Boards of directors are structured into three classes with four directors in each class serving staggered period of three year term (Wheelen & Hunger, pp.35-2). This strategy has given the board the needed control to maximize the its output to benefit the shareholders. Because of its continuous exposure to would-be suitors the company has entered into an employee severance agreement with key officials. It provides pay up to two times the individual's highest salary and bonus plus benefits for two years. As the company widens its coverage into the consumer products in early 2000s, the changes in its key personnel was noticeable by injected a pool of executives with wide range of experience in marketing and international background from known organizations such as Spalding Sports World wide, Johnson & Johnson, FMC and Carter-Wallace (Wheelen Hunger, pp.35-3). The composition of its board of directors did not escape the changes that the company has implemented on its management. On the 10-member board, four have served for 10 years or more and six members served for five years or less. Two women served on the board with age ranging from 50 to 74 and the other six members are younger than 60 (Wheelen & Hunger, 2012, pp.35-3). 6. SWOT
a. Strengths -
Church & Dwight Company has many strengths with brand recognition being the top of the list. It is also the only producer of ammonium bicarbonate and potassium carbonate in the US. Another strength is that it has an in-house marketing strategy which very effective in marketing majority of its consumer products. Almost 25 percent of the outstanding shares of common stock are owned by descendants of the company's cofounders. The company controls approximately 75 percent of the sodium bicarbonate production in the US. They control 85% of the baking soda market. Extensive consumer brand name recognition and loyalty (in 95 percent of U.S. households) which allows the company to promote multiple products using a single brand name. C & D has an awesome anti-takeover defenses including board of directors with staggered terms of office and voting rights that are weighted in favor of long-term shareholders. The Controlling of the production of raw materials, the manufacturing and processing facilities, and the primary marketing functions allows the company to price its products below those of competitors - thus creating a barrier to entry. And last but not the least they have the ability to build value by effectively implementing cost savings strategies when acquiring other company's consumer brands. b. Weaknesses -
Church & Dwight's major weakness is overextended in their branding of the Arm and Hammer products. Even-though the company enjoyed success domestically, “in the international arena where growth was more product driven and less marking sensitive, the company was less experienced,” (Wheelen & Hunger, 2012, p. 35-7), showing a slight lack of financial strength in their balance sheet, hindered expansions internationally. The primary focus on the Arm & Hammer brand name has left the company with a void in product promotion experience that may be needed in a highly competitive consumer products field or international expansion. Also, their inability to determine the strategic fit for Specialty Products Division into overall company operations is hurting the company. Top management turnover was also a problem for the company. C. Opportunities – The potential expansion into international markets is of great importance. If stricter laws are enacted it will favor the company as expanded uses of company's basic raw materials for pollution control and potable water applications will be closely monitored. In addition, there is the possibilities of using paint as a stripping compound and an industrial cleaner based on the low abrasion qualities and environmental safety of sodium bicarbonate. The diversification of product line to include other related consumer products using both the Arm & Hammer brand as well as other brand names similar to The Dial Corp. acquisitions can also be explored. The company should expand the use of sodium bicarbonate-based products to meet demands for environmental safety. The acquisitions of consumer product brands and/or companies. Expand use of sodium bicarbonate for automotive parts cleaning systems to replace current solvent based systems. d. Threats – Some threats includes competitors with greater marketing and financial strength entering the company's traditional markets. Operating in many mature markets with limited growth potential. New or increased domestic production of the company's basic raw materials by other potential producers. The issue of potential consumer confusion through overuse of the family branding line extension strategy which could eventually weaken the Arm & Hammer brand name. Also, retaliatory competitor reactions as the company enters into new consumer product markets that have been dominated by major players such as Procter & Gamble, Colgate-Palmolive, Unilever, etc. And the substitutes for current product constitutes threats for Church & Dwight company. e. Products or Services - Church & Dwight consists of several acquisitions that cater to almost 95% of all US Households. It has types of products the household and personal care products. The company has several Brand names, Arm & Hammer, Trojan, Oxiclean, SPINBRUSH, First Response, Nair, ORAJEL, XTRA, to name a few. These products range from dentifrice, chemical agent to absorb or neutralize odors and acidity, a kidney dialysis element, a blast media, an environmentally friendly cleaning agent, a swimming pool pH stabilizer, and pollution control agent (Wheelen & Hunger, 2012, pp.35-7/9). B. Problem Definition
The problems presented in this case study is evident that Church & Dwight really needs to make changes especially in the area of its expanded consumer products. The acquisition of several companies may have brought huge revenues but having several line of product might have a huge negative impact. Potential marketing problem may arise when company own products will be placed along with its well-known brand name and confuse consumers. This situation can also lead to a loss of marketing pull. The company's overall corporate objectives were: (1) to maintain a steady growth by staying focus on long term goals; (2) to provide best result to shareholders; (3) to continue seeking new uses of its core products (4) to maintain and keep cost under control; (5) to enter the international market and continually seeking for opportunity for growth. If the goals cannot be met then Church and Dwight Co. Inc. may be always vulnerable buyouts and takeovers. It can also lead to loss of market share both from domestic and international market. 2. If the problems are corrected and done properly then the leadership in the market will be maintained and possible loss of revenue will be prevented. The objective of entering the international market may offer a better opportunity for continuous growth. 3. There are several reasons that this problem is eminent. First is that every market has its saturation point where products matures after reaching its peak. The company must always be ready on adapting to this continuous cycle of change. The search for new uses of its products must never stops. It should always explore better ways of improving the life of the consumers while maintaining and protecting the environment. Second, new product and competitor will always emerge and will not be taken down easily without a good fight. The company should always maintain their effective marketing strategy to be able to survive the continued battle for market share. Third is that limitless opportunity for growth in international market will not come easy as battle there would be unpredictable. The focus for long-term goals should always be on the mind of its key executives for this will be the foundation of their success. III. SYNTHESIS
A. ALTERNATIVE SOLUTIONS
The alternative solutions are that the company should tow the family branding line extension strategy in order to introduce new products (especially sodium bicarbonate-based products) such as skin care, soaps, mouthwashes, lotions, and antacids in order to gain increased market exposure and economies of scale. Recent launches of products such as chewing gum with baking soda are testing this strategy. Expand the limited advertising program for current niche market products to retain and gain market share. Promote products carrying the Arm & Hammer logo as being environmentally safe. Resources should be directed to testing and developing new brands to lessen dependence on the Arm & Hammer brand due to the possibility of loss of its present customer appeal. Since the company's consumer products are competing in mature markets with limited growth potential, the opportunities available although the environmental safety of its chemical products should be tapped. For example, pollution control, water purification, circuit board cleaning, and industrial paint stripping. Generate new chemical product applications requiring minimal promotional support while offering opportunities for rapid sales growth. Explore the opportunity of forming joint ventures with foreign companies to gain access to the necessary experience and capital to succeed in international markets. Select targeted international locations to successfully penetrate and use as a laboratory for refining international growth opportunities. Continue to lower costs of production and distribution to counter competitive threats from new entries in the low-cost end of product offerings such as detergents. Acquire company consumer products/brands in order to gain access to international markets and the marketing expertise. B. RECOMMENDATIONS AND SOLUTIONS
The best solution for C & D company is to retain the best products within its umbrella while considering the best projection of revenue that it can generate. Time factor for the company should also be considered for them to know when to retain or let go of a non-core asset. Timely decision making of its top management will be a factor in maintaining its annual revenue at steady growth. The key decision makers would play a vital role in this area. The continuous seeking of new uses sodium bicarbonate will still be very effective for the company in years to come that is why the focus on this should never be lost. The present global market is offering a much bigger area to be explored especially in Asian countries. Therefore, further recommendations for Church & Dwight for would be to implement the first alternative, delving into new product lines both in domestic markets and even greater exploration of international markets.The injection of key decision makers with extensive marketing experience abroad would be important in penetrating the global market. This option would be advantageous because of the limited financial investment required to grow already established footholds in foreign countries to manufacture and transport new product lines. Church & Dwight will be continuously challenged due to new entrants. To minimize this they should always be ahead all the time. Environmental issues will also be a major factor for them. Therefore complying with existing environmental rules and regulations while promoting its products is a very good strategy. In conclusion the ultimate goal of achieving huge revenue while maintaining cost of operation as low as possible has always foremost with Church and Dwight Co. Inc. This company, backed with 160 years of marketing and production experience will have a much clear brighter path of success as long as they continue to focus on their long term goals. Understanding various cultures and overcoming societal barriers will help satisfy any shortcomings in this solution, it is further recommended that Church & Dwight initiate an aggressive marketing strategy incorporating foreign experts in business and marketing development to identify focus groups to better understand cultural differences and expectations in product innovations. And finally, this recommendation provides a potential solution to increase sales while growing market share and staying ahead of the competition.
GE-McKinsey Matrix. (2013). Retrieved from http://marketingmixhub.com/ge-mckinsey-http://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.htm Lindblad, M. (2013). What Is the Importance of the Strategic Audit? Retrieved from http://smallbusiness.chron.com/importance-strategic-audit-13057.html"http://smallbusiness.chron.com/importance-strategic-audit-13057.html Management Innovations. (2010). Strategic Formulation: BCG Growth-Share Matrix Model. Retrieved from "http://managementinnovations.wordpress.com/2010/06/10/strategy-formulation-bcg-"http://managementinnovations.wordpress.com/
2010/06/10/strategy-formulation-bcg- "http://managementinnovations.wordpress.com/2010/06/10/strategy-formulation-bcg-growth-share-matrix-model/"growth-share-matrix-model/ Miles, R. E., & Snow, C. C. (1978). Organizational Strategy, Structure, and Process. New
...(download the rest of the essay above)