Unilever Brands among Most Recognized in Brazil - Case Study Example

1. Unilever is one of the world’s leading FMCG offering products in different categories such as food, home and personal care (Datamonitor, 2009). It operates through subsidiaries in different continents and has a strong portfolio of over 400 brands. As competition has intensified, Unilever needs to ascertain its competitive position specially in view of the fact that the company had been stagnating since 2005 (Anonymous, 2006). Unilever has not been able to match the position of its nearest rivals P&G and Nestle (Strategic Direction, 2009). However certain changes have been introduced in the company to restore its lost position. A SWOT analysis would reveal where they need to focus upon. Strengths – launched newer range of products and entered new geographic markets with innovative strategy (Anonymous, 2006). Diversified and a wide range of categories and brands, different revenue streams, global presence and invests in research and development. Focus on CSR and attends to all stakeholders including the consumers, the society, the suppliers and the employees. Weakness – They have a bureaucratic culture unlike P&G which has an external focus. Unilever focuses on low-growth HPC products like laundry detergents, bar soap and fabric softeners. They do not focus on brands and their reporting is confusing. They have three different product categories – food, home and personal care which divide the attention. For the FY 2009 the group registered less amount of resource to cover its short-term liabilities (Wood, 2007). The current assets of the group are tied up in inventories and current receivables which imply that the liquidity position is weak. Oppurtunities – emerging economies, organizational restructuring since the prevalent form of management is bureaucratic. It can think of divesting non-core activities because this divides the attention. Launch of deodorants has fetched them success in Brazil and Argentina and this product could also in Russia and other countries of Asia. The processed foods market in India is estimated to be $300 billion but Unilever has only a tiny market share (Strategic Direction, 2009). It has the advantage in India because Hindustan Unilever is the country’s largest consumer goods company and the biggest advertiser. Threats – the group’s sales are based on increasing consumer demand but due to the economic slowdown there has been a reduction in sales because consumers have been looking for cheaper alternatives. Consumers are hence being attracted to the discount retailers at the supermarkets. This has affected the FMCG companies such as Unilever. Moreover, the retailers are now promoting their own labels and such activities have intensified competition. In certain markets the competitors are very active and have even taken over Unilever. Government regulations in some region are also creating a block to growth. The SWOT analysis reveals that they have a weak structure including a weak liquidity condition but oppurtunities in front of Unilever are so strong that they could over the time and find stability in the three division. Five Forces analysis Threat of entry The chances of new entrants to the market place are remote because the sector is capital-intensive and it is difficult to achieve economies of scale. It also requires an extensive distribution network and very high advertising budget to sustain in the market place. Buyer’s power Buyer power in the sector is very high as there are several companies in the same categories offering product with same attributes and characteristics. Product differentiation is no more the criterion that consumers seek. Suppliers’ power The supplier power in the FMCG sector is high as there are too many contenders in the sector. Nevertheless, several ancillary units have been set up by the FMCG companies as captive units. Moreover, some even have several layers of suppliers and hence the supplier power is low. Threat from substitutes Threat from substitutes is very high as there are several companies with interests in the categories that Unilever has interest. Food companies like Nestle and Cadbury’s are strong competitors while in the home care category, P&G is very strong. So consumers have a choice of switching brands as the prices too are competitive. Competitive rivalry Competitive rivalry is very high which leads to competitors trying to use different innovative techniques to score over the rivals. However, competition from private labels is only 9% which suggests that it is not under severe pressure from private labels. Unilever dominates the markets in the categories where it has severe competition. It is ahead of Nestle at 38% and just slightly below Danone which has 51% of the market share (Charles, 2008). In mature markets their hair care sales are suffering due to heavy competition. Analysis of Five forces An analysis of the five forces suggests that threat from new entrants is low because of the investments. The buyer’s power has increased as there are several companies offering similar products where Nestle in the food sector and P&G in the personal products categories offer intense competition. Hence, to retain the existing buyers and to generate new buyers, Unilever has to find some differentiating factor in terms of service or through CSR. The supplier power is low because many entrepreneurs are keen to set up business. Substitutes’ threat exists because if the consumers do not get the brand what they look for at the shelf, they immediately opt for another product, they would not stretch themselves for that product. Competition is intense in the developing economies, especially when Unilever tries to reach the rural consumers, they do face competition from the local manufacturers. 2. Through innovation and marketing Unilever has tried to tide over the tough times. They focused on the brands Flora, Persil, Surf and PG Tips and because of their innovation they managed to extend their market share in six of the seven categories (Charles, 2008). They have very strategically focused on the emerging markets and have attained immense success in Brazil. In the personal care segment in Brazil they achieved an 11% growth (Bonifacio, 2010). They sensed the change in the market due to rise in the income levels in Brazil and hence stepped up the promotional activities. With changes in the lifestyle, Unilever has also launched men’s personal care products such as deodorants. This demonstrates that they have a customer focused approach and are aware of the changing needs. They invest in media and point-of-sale promotions. However, they cut down on their advertising budgets and because of their attention of such diverse products, it is difficult to ascertain which is the core or the non-core sector. They also need to be cognizant of the strategy followed by competitors. In the food sector they have not so far been focusing on healthy food segment which has become essential as consumers are health conscious. They have introduced some yoghurt-based ice cream and vegetable and fruit juices so they could consider introducing such healthier foods (Strategic Direction, 2009). Unilever had reduced the advertising budget which was not a long-term strategy. Their main competitors, P&G, has several product categories but this has not impacted their performance, which suggests that the operations at Unilever need improvement. P&G is a performance driven company and has a strong external focus (Strategic Direction, 2009). They have a select few handling the top management and they follow a clearly-defined approach. Unilever is in-ward looking and is concerned about consensus. It has a cumbersome management structure. Since 2005, they have restructured the organization and now do not have three separate companies but one individual heads all the divisions. The increase in the profits is evident enough of the success of this change. It introduced deodorants in Brazil and Argentina and achieved success. They engage in superfluous complications in trying to adapt the packaging to the local requirements. Too localized an approach can have risks and being a global company, it should have a global outlook. They need to adopt a global focus. To promote their body fragrance and anti-perspirant brand Impulse, Unilever has entered into a marketing partnership with Yahoo! UK & Ireland (Precision Marketing, 2007). This is a unique integrated marketing strategy where a select band of Yahoo users will receive an Impulse branded bag containing an Impulse product, popcorn and water when they book for movie tickets for the pre-release viewings. For this an Impulse Premiere Club has been created within Yahoo! Movies and the idea is to create romantic possibilities. They are using TV campaigns with celebrity endorsements. They are focusing on the household family brands. They have very strategically focused on the emerging markets and have attained immense success in Brazil. In the personal care segment in Brazil they achieved an 11% growth (Bonifacio, 2010). Unilever enters into unwanted complications in differing its packaging and product attributes even for similar regions (Structure Direction 2009). For instance, it made sense to sell their shampoos in single-use sachets for the Indian market because Indians cannot afford to spend on big bottles at one time. However, using the same principle in China Hong Kong is a waste of resources because hair washing habits in China and Hong Kong are essentially the same. Too localized an approach has an inherent risk because globalization is also impacting the marketing strategies of FMCG companies. A more global outlook could help Unilever improve its sales and reduce the efforts in designing and packaging to suit different markets that are similar. Even in the food category, slight differences arise in the local flavourings but these can be added at the end of the manufacturing process, thereby keeping the main process at the global level. Unilever should strive to reduce the regional varieties. They could even consider introducing food that promote healthier eating or else wind up the food division altogether. However, they demonstrated their local sensitiveness by using ingredients suitable to the local culture for personal products such as Dove. They need to have a mix of global and international approach depending upon the category and the market they operate in. 3. CSR has been defined as a business commitment to contribute to sustainable economic development, as per the World Business Council for Sustainable Development (Kim, 2006). CSR should be a coherent strategy based on integrity and it should be a long-term approach which contributes to the well-being of the company as well as the society. All the stakeholders are more knowledgeable today and they expect certain benefits. These expectations have to be met but the CSR discharged should also be communicated in the right manner. CSR is no more limited to donations given to charitable institutions. Unilever claims to be a socially responsible company and also communicates about its CSR whenever it gets an oppurtunity (Boogard, 2002). However this is not the right strategy because the expectations of the stakeholders increase and it attracts a lot of attention which can detrimental in the long run. Communication is necessary and it must be embedded in such a way that communicating about CSR does not stand alone or amount to intentional or cheap publicity. Attention to sustainability factors are good indicators of management quality (Strategic Direction, 2007). For Unilever, CSR is beyond philanthropy as they take into account the socio-economic impact that their company makes on the communities where it reaches its products. In Africa it is trying to understand the reasons for the bottlenecks that hold back trade in Africa while in India they have started a program to help women set up small business. They even teach the rural children about the existence of germs and the importance of hand washing with soap. All these efforts ultimately help the company to accelerate growth. Social responsibility is good for business. In their advertisements and promos they have demonstrated social as well as consumer needs. For instance, in the washing detergent promos, they use catch-lines like “dirt is good” (Strategic Direction, 2009). This advertisement shows the parental concerns and the values that need to be given to children in today’s environment. In developing economies such as South Africa they attend to CSR like training, medical care and environmental standards. Unilever adheres to international standards for employee health and safety. In the Indian villages they have partnered with NGOs and government and private organizations for educating the rural consumers. Unilever believes in product innovation and process innovation. They invest in R&D to translate science into products – products that meet consumer needs and demand. They have more than 6000 people in their global research centres. They believe that their products contribute to the well being of the people and the communities in which they live (Company website). However, to retain its position in the international and global markets, Unilever would have to connect itself with the customers. It is no more sufficient to focus on product attributes and quality. The distinguishing factor has to be responsibility towards the society in some form. The image of the company behind the brand is becoming important (Boogard, 2002). As Unilever has the oppurtunity and is focusing on the emerging markets, they should maintain a string emotional connection with the customers. Unilever can achieve its mission statement by supporting a social issue as they are doing in India, they are trying to educate the rural communities of the importance of washing hands with soap. This in turn is fetching the company sales for their washing soap. However, Unilever should devote attention to factor conditions which according to Porter are natural resources like water and agricultural goods (Strategic Direction, 2009). Other factor conditions like well-trained employees and a wide distribution of products – Unilever has made a great headway. But since water, agricultural products and fish are the main ingredients Unilever should contribute to the environment by contributing towards sustaining the ecological balance. They can help the suppliers to grow and procure the vegetables in a sustainable way. They do recognize that global challenges such as climate changes affect every one (Company website). Thus, they have expressed keenness to contribute to ecological balance in whatever way possible. Consumers today expect businesses not only to be socially responsible but also to be informed what firms are doing. In the UK, 74% of the respondents have stated that they would be keener to purchase the products if they are aware of the company’s ethical and social behaviour (Pomering & Dolnicar, 2008). Consumer awareness is low and this needs to be enhanced. Communication should not be through traditional advertising because it may convey the wrong message. The consumers must have faith in the source of communication. Communicating through traditional media can be a form of paid advertisement. If the firm contributes a certain portion of the sales to a non-profit partner organization, this would be the best way of communicating its socially responsible activities. Thus, Unilever would have to change its strategy for CSR. While they have the right attitude that to them CSR is beyond philanthropy, they need to alter their strategy of communicating widely through traditional media. This has to be done in a subtle manner so that people are aware and at the same time it does not appear to be a publicity gimmick. They must work towards sustainable CSR which means enabling people to live independently and not on charity and donations. Through training and education in partnerships with the local people, Unilever can achieve its mission of sustainable CSR. Conclusion Unilever has now set the four pillars of vision which provides them the direction on where to go and how to reach there (Company website). They have believed in the power of brands to improve the quality of life. Unilever has certain very good assets such as exposure in the emerging markets and Personal Care business but they are considered to be low-quality Food Company as it has been experiencing weak organic growth for some years. It has performed much lower than its competitors in the last few years. Unilever, with its new management structure should now focus on reducing the number of manufacturing units and place emphasis on global expansion. Markets are not as diverse as they used to be and some amount of global marketing theories can be applied. Firms have been showing interests in a global marketing approach which implies an integrated and global marketing approach which has become necessary to survive amidst the price wars and demand for high quality product/services (Guerini, 2006). To meet the challenges requires certain strategic decisions. Unilever would have to offer value-added attributes in the nature markets. In the developing economies, they have competition from regional manufactures, private labels as well as MNCs – all trying to be the first movers and take the largest market share. Unilever has a slow and bureaucratic culture and they have always believed in internal promotions. For the first time they have a CEO taken from external sources and who has experience in the FMCG sector. Since the top management continued to comprise of the same group of people with the same culture and work environment, no innovation and creativity was infused in the organization. Their focus on the developing economies and the personal care products suggests that they are moving in the right direction. Focusing on the developing economies, they need to change the mindset of the people towards product usage. This cannot be done by merely selling the product; they need to sell the concept. They need to have a global approach and try to minimize production units and product range. There are similar markets and they should go into transnational segmentation which would help them reduce inventories. This is turn would increase their liquidity as less capital would be blocked in inventories. Within the Asian countries they could club together India-Pakistan and China-Hong Kong, for instance. Their advertising budget needs to be enhanced and the CSR should be sustainable. It should make a difference on the economic and the social life of the people. it is not meant to just narrate the good they have done. The good done should be perceivable even without having to write or advertise about it. This is sustainable and enhances the corporate image. Thus, Unilever does appear to be on the right track and with certain changes in its operations, and with new talent infused into the company, it is expected that Unilever would be able to meet the challenges. Reference: Anonymous. (2006). Unilever Group 2006 company profile edition 2: Prospects. Just-Food. Oct 2006, 20 Bonifacio, F. (2010). Unilever Brands Among Most Recognized in Brazil. Inside Brazil. Global Cosmetic Industry. 178 (1), 22-23 Boogard, L. (2002). Corporate Social Responsibility in the Food Industry. Corporate Communication Centre. Retrieved online 21 April 2010 from http://www.mcca-alumni.nl/files/abstracts2002/Liesbeth%20van%20den%20Boogaard.pdf Charles, G. (2008). Unilever to push core brands. Marketing. 13 (2), 2 Datamonitor. (2010). Unilever. Company Profile. www.datamonitor.com Guerini, C. (2006). CENTRALIZATION VERSUS DECENTRALIZATION OF MARKETING ACTIVITIES OF LEADING ITALIAN FIRMS: TOWARDS AN INTEGRATED GLOBAL APPROACH? Retrieved online 21 April 2010 from http://www.biblio.liuc.it/liucpap/pdf/194.pdf Kim, H. (2006). Theory and Evidence Corporate Social Responsibility: Opening Doors for Consumer Packaged Goods Companies. Retrieved online 21 April 2010 from http://w4.stern.nyu.edu/emplibrary/Heejin_Kim_honors_2006.pdf Pomering, A., & Dolnicar, S. (2008). Assessing the Prerequisite of Successful CSR Implementation: Are Consumers Aware of CSR Initiatives? Journal of Business Ethics. 85, 285-301 Precision Marketing. (2007). Yahoo! signs movie deal with Unilever. 19 (8), 2 Strategic Direction. (2009). The changing face of Unilever. Strategic Direction. 25 (5), 24-27 Strategic Direction. (2007). Unilever washes its hands of ‘‘philanthropy’’ motive while General Electric profits by saving the world’s resources.23 (9), 21-24 Wood, A. (2007). A "Provocative View" on Unilever and How Market Perceptions and Valuations Could Be Improved. Sep2007, p1-100 Company Website: http://www.unilever.com/aboutus/ourmission/?WT.GNAV=Our_vision Read More