1. P&G has increased its marketing expenditure significantly in the last few years. Has it been worth it? Justify your answer with appropriate quantitative analysis.

While the marketing has not been profitable, it has allowed P&G to successfully increase sales volume, thus increasing market share. This increased marketing keeps the products fresh in the consumer minds. Since 2001 P&G has been breaking even on incremental increases in marketing, except for 2006 in which it seems they did not increase their marketing as much as prior years and will take a loss.

2. How to respond to Unilever’s increased marketing expenditure and the consequent share loss suffered by P&G?

Every year P&G has increased its marketing expense and slowly gained market share. This industry is a mature market with slow growth, so the changes are mostly due to competitive market share dynamics. In 2006, they did not increase their marketing budget as much as previous years while simultaneously the competition markedly increased their marketing expenses. Thus P&G saw a big decline in sales volume, inversely Unilever saw 12% increases in sales volume. Aggressive marketing has been key to P&G’s success in the past, so to regain market share, P&G must continue to market aggressively in response to Unilever. According to Michael Porter’s model of forces that determine market attractiveness, intense segment rivalry causes profitability to suffer. In this case, each manufacturer will have to increase its marketing budget every year just to maintain the status quo due to the intense rivalry.

3. Can you make any “intelligent guesses” about why Unilever suddenly increased their marketing expenditure?

Unilever and P&G are locked into a tit for tat long term scenario. P&G increased marketing and made gains on the market share, so Unilever responded in kind.

4. Can you use the principle of Game Theory to look at the situation?

Due to the long term static relationship of the two companies, much of game theory does not apply. Both companies seem to be nearing the Nash equilibrium. The market isn’t growing and they are slowly approaching the point at which contributing more money to advertising isn’t returning much in the way of gains. P&G had been gaining market share, but it is still not profitable for the company. The increases in sales volume has merely covered the increases in the marketing expenses. It has become a game of inches. Eventually they will be content where they are and spend enough to maintain the status quo.

5. In light of your analysis, what budget would be most appropriate for marketing in 2007? Would you like to go with the proposed $38 million, or does a higher or lower number make more sense?

$38 million seems enough. If estimates on GRP are correct, increasing to