Critical Analysis of the Performance of Unilever since 2006
In 1999, Unilever implemented what they considered to be an ambitious strategy named 'Path to Growth' which they believed achieved a lot in terms of 'brand focus, global buying, operating margins and capital efficiency' (Cescau & Rivers, 2007b). However, according to the then Group Chief Executive Patrick Cescau, the 'strategy failed to transform growth performance' (Cescau & Rivers, 2007b, 1). Consequently, adjustments were made to the strategy between 2005 and 2006, aimed at reorganizing and streamlining Unilever's organization and to increase awareness of the Unilever brand (Johnson & Scholes, 2006).
The changes improved Unilever overall between 2006 and 2009 despite the economic downturn which was to occur during the course of the strategy implementation. Between this time period Unilever primarily focused on four areas: innovation, disciplined execution of strategy, focused cost cutting and driving a performance culture (Unilever, 2009a).
In terms of innovation, Unilever delivered 'bigger and better innovations, rolled out faster and to more markets' (Unilever, 2009, 5). The tremendous success in fast and effective rollout of innovations was enhanced greatly by the one organizational structure (One Unilever) introduced into the business as a result of the adjustments made to Path to Growth (Unilever, 2009a). For example, the Dove Minimising Deodorant has been rolled out across 37 markets and Clear Shampoo across 37 markets. The success in this area has also been reward by the business publication Fast Company which 'recently recognized us as the fourth most innovative company in advertising and marketing.
In terms of cost saving, the business focused on discontinuing and cutting out activities that failed to add value. The restructuring was one such activity. In 2009 alone, Unilever, achieved cost savings of 1.4bn, which was better than expected and also improved working capital by 1.9bn (Unilever, 2009a.
Despite these and other successes including mergers and acquisitions, operational and sustainability and corporate responsibility, Unilever also failed to achieve some of their targets. For example, 'in two key markets, India and Spain, we took longer to respond to changing market dynamics and to the intense level of competition especially from low-cost local competitors' (Unilever, 2009a, 6). In the processed and packaged goods industry in which Unilever operates, this is a significant failing as the battle for market share is fierce (Ehlers & Estes, 2007). Companies primarily achieve this primarily by cost leadership strategies, therefore the need for Unilever to continue on their cost cutting drive cannot be overestimated.
Another significant challenge is their inability to develop their brands to top quality status. In their own estimation, 'product quality is getting better, but we need more of our products to show superiority and there is ample scope to sharpen our communications and to set the innovation bar even higher' (Unilever, 2009a, 6).
According to Unilever, 'brands and innovation are at the heart of everything we do. We develop our products to keep pace with changes in consumer lifestyles and to appeal to people at all income levels. Success means getting bigger and better innovations into the market faster, supported by the very best marketing' (Unilever, 2009, 8). These statements are indeed backed up by initiatives undertaken in the last few years in the UK to increase brand awareness. Some of these initiatives will be briefly described.
According to Mathiesen (2009, 19), 'a recent campaign for Lynx for Men, one of Unilever's men's deodorants, resulted in a 56% increase in (prompted) brand awareness in the UK'. This campaign was done through mobile marketing. The campaign sought to achieve the following objectives (Mathiesen, 2009):
- To enhance awareness of the Lynx brand
- To market to the 16-24 year old male who are traditionally hard to reach through traditional advertising methods
- To promote the Lynx brand as attractive to women and modern
The success is not only evidenced by the 56% promoted awareness, according to Mathiesen (2009), 86% could recall the Lynx advert and 44% of people felt more positive about Lynx after seeing the add.
Not only are Unilever working on improving product branding, they have most significantly moved to increase the company brand image. In March 2009, Unilever UK and Ireland began putting the 'corporate branding on its product brand advertising including TV, posters and press (Unilever, 2009b), starting with Flora. This move was influenced by research which showed that 'consumers in the UK and Ireland have relatively low awareness and knowledge of our company, compared to some of our competitors. They are open to the idea of us promoting Unilever more overtly and see this as a sign of honesty and transparency'. For a company as large as Unilever, it is surprising that a lot of people who use a lot of their products on a daily basis do not know the name of the company. The same could not be said of its competitors like Nestle or Kraft, for instance. In an industry as competitive as the processed and packaged goods industry, where the extent of competitive rivalry is very high, brand awareness is a vital source of achieving and sustaining competitive advantage (Porter, 1998b).
Indeed, the importance of Unilever focusing on promoting brand awareness is supported by relevant theory. MacDonald and Sharp (2003, 1), citing Rossiter and Percy (1987) described 'brand awareness as being essential for the communications process to occur as it precedes all other steps in the process. Without brand awareness occurring, no other communication effects can occur'. In other words, a consumer is likely to buy a brand if they are made aware of it. MacDonald and Sharp (2003, 1) also go on to discuss memory theory where 'brand awareness is position as a vital first step in building the 'bundle of associations which are attached to the brand in memory' (citing Stokes, 1985).
Brand awareness is very important when a consumer is making what are usually very quick purchase decisions. According to MacDonald and Sharp (2003), where a customer can identify certain brands, he or she spends very little time looking at unfamiliar brands. Consequently, an unfamiliar brand name or one that is not aggressively promoted risks being ignored, irrespective of the quality of the product.
Even after a consumer has formed a consideration set and chosen the few brands from which she will make her purchasing decision, consumers decide to purchase only familiar, well established brands (Keller, 1993). The decision is usually made very quickly as well. According to Dickson and Sawyer (1986), it takes approximately 12 seconds on average for a consumer to view product alternatives and make a choice from different brands.
MacDonald and Sharp (2003, 2) also explained that brand awareness affects customers' perception of quality. They cited Hoyer and Brown (1990) who found in a consumer choice study that 'over 70% of consumers selected a known brand of peanut butter from among a choice of three, even though another brand was objectively better quality (as determined by blind taste tests) and even though they had neither bought or used the brand before. This result is even more surprising considering the subjects were given the opportunity to taste all of the brands. Just being a brand dramatically affected their evaluation of the brand' (MacDonald and Sharp, 2003, 2). Therefore, Unilever has tremendous opportunities to marry the popularity of their tremendous brand image for most of their products to the corporate brand image. With effective marketing strategies they can generate enough consumer trust and loyalty to dominate entire shopping trolleys of families. This is because in the industry that Unilever operates in and the kind of products it offers, consumers (buyers) have high bargaining powers. There is also low switching costs which means that a consumer may decide to switch from competitors' deodorants to Lynx for the simple reason that the consumer has been used to buying Knorr stock.
Recommended Strategy for Unilever
'We work to create a better future every day. We help people feel good, look good and get more out of life with brands and services that are good for them and good for others. We will inspire people to take small everyday actions that can add up to a big difference for the world. We will develop new ways of doing business that will allow us to double the size of our company while reducing our environmental impact' (Unilever, nd).
Based on an internal analysis of Unilever, their strengths and weaknesses were identified. The opportunities and threats facing Unilever were also determined by undertaking an external analysis. The internal analysis included a review of its financial performance, its marketing function, employees, operations, management, and management information (including technology and R&D) which helped to pinpoint Unilever's strengths and weaknesses (Lynch, 2005). The external analysis used the PESTEL and Co. framework which stands for Political, Economic, Socio-Cultural, Technological, Ethical, Legal and Competition. From this analysis, the opportunities and threats facing the business were identified.
In terms of Unilever's strengths, as was seen from the financial analysis above, they made good profit and their level of gearing is in line with competitors. They maintain a very strong presence in the developing and emerging markets with nearly 50% of their revenues coming from areas such as India and China. However, they need to increase their brand awareness although they are doing it with targeted advertising campaigns.
In terms of opportunities, Unilever are well positioned to exploit the opportunities that result from being seen as a company that takes its environmental responsibilities seriously. For example, to meet their aim of growing their business while reducing their environmental impact, 'our Code of Business Principles and other operational and business polices are designed to ensure that we consistently maintain high social and environmental standards an d we have established processes to track performance in these areas. Our strategy benefits from the insights of the Unilever Sustainable Development Group, comprising five external specialists in corporate responsibility and sustainability that guide and critique the development of our strategy' (Unilever, 2009a)
In terms of threats facing Unilever, the threat of political volatility especially in emerging markets are mitigated by Unilever's already strong presence there. There have experience of operating in these markets for a good number of years, therefore, they can cope with the volatility. However, the economic downturn has proved constraining to not only Unilever but its competitors. This has also adversely affected consumer confidence and consequently consumer spending which companies like Unilever depend on for their success. Competition is fierce due to low profitability, fairly equal market share and undifferentiated products (Ehlers & Estes, 2007).
To be successful in the processed and packaged goods industry, there must exist high brand awareness, effective cost management to be able to charge low prices and the commitment to meet ethical standards. Unilever have the strengths to achieve these and are well on their way to overcome weaknesses relating to brand awareness. Once brand awareness increases and the economic conditions become better then this should impact positively on their business as consumer spending and confidence returns.
Strategic Options and Choice
Based on the SWOT analysis above Unilever are faced with different strategic growth options which are provided below, based on Ansoff's matrix (Johnson & Scholes, 2006):
- Market penetration of existing products into existing markets
- Market development of existing products into new markets
- New product development - introducing new products into new markets
- Diversification - new products into new markets
Strategic Option 1 (Market penetration of existing products) is recommended with details as follows:
- Maintain and sustain competitive advantage in the D&E markets where which is expected to continue to grow
- Focus on enhancing brand awareness in the developed markets like the UK
- Develop cross selling and other initiatives to increase usage by existing customers
The rationale behind this strategy is that with such fierce competition, Unilever's rivals will unsurprisingly be doing all they can to increase their market share and that will include offering products at low prices. Unilever, by employing the market penetration strategy, will effectively be doing business as usual, while employing cost cutting measures designed to bolster profits. This strategy is less risky especially in an environment of a global economic downturn (Johnson & Scholes, 2006).
It is also recommended that the strategy be achieved through organic growth as opposed to other activities like mergers and acquisitions which have high potential for failure. In terms of competitive strategy, it is recommended that a combination of cost leadership and differentiation be employed. Although Porter argues for a single generic strategy (1998b), this is not always the best option because customers will require different thing from the same product. For example, for the success of the Lynx brand is because it combines low price with perceived coolness. This combined generic strategy has great chance of success as it enables Unilever to be price competitive while also using obtained brand loyalty to keep customers from rivals.
Choosing the right strategy is important. However, more important is the successful achievement of the strategy. This will involve effective deployment of Unilever's resources (those used in the internal analysis above) to achieve set objectives. Communication is also key to ensure that those responsible for implementing the strategy buy into it sufficiently to be motivated enough to implement it successfully (Johnson & Scholes, 2006). Finally, it is important that once implemented the strategy should be monitored regularly with a view of making changes or enhancing it as required to achieve set objectives.
References and Bibliography
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- Cescau, P. & Rivers, R. (2007b), Unilever's Growth Strategy (Notes), (online) Available at: http://www.unilever.com/images/ir_1.2_growth_strategy_rivers_speech_tcm13-86705.pdf (Accessed 8 April 2010)
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