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Unilever Case Analysis

Essay by review  •  November 7, 2010  •  Case Study  •  2,206 Words (9 Pages)  •  2,577 Views

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External Assessment

Although Unilever's Path to Growth strategy involves all components of the general environment, two segments that are especially relevant are the global and sociocultural segments. A major strength of the company's global environment is its geographic diversification of its major product markets. In 2003, Unilever had sales and marketing efforts in 88 different countries. The key is that it gave decision-making power to its managers in different countries so that they could tailor their products to the market's specific preferences and consumers' local tastes. Thus, it was the cross-country preferences of consumers that determined what products Unilever would carry. The global segment provides an enormous opportunity for Unilever. The case states that emerging country markets show the greatest potential for sales growth. Major competitors such as Procter & Gamble and Kraft Foods had sales in roughly 140 to 150 different countries in 2003, and Nestle, Unilever's main rival, had market penetration in almost every country in the world. If Unilever is able to expand its operations into 50 or more new countries and concentrate its advertising campaign on consumer preferences, it could significantly increase its market share in the global economy.

Another important piece of Unilever's general environment is the sociocultural segment. One of the company's founding values is understanding and improving consumers' lives. A major strength of Unilever lies in its ability to anticipate consumer trends and demands and then cater to their needs. For example, market research indicated that nutrition was the number one concern in the United States, Germany, and the United Kingdom, and that weight was the number three concern. The focus of peoples' attitudes became living healthier lifestyles. To move with the trend Unilever acquired SlimFast. SlimFast was the U.S. market leader in the weight management and nutritional supplement industry, with a 45% market share. The acquisition seemed promising in the beginning. Approximately 94% of SlimFast's sales were in North America, which presented a huge opportunity to diversify into foreign markets such as Germany and the United Kingdom. Unfortunately the healthy lifestyle that people pursued became a threat to the future success of the company when Dr. Atkins came out with his low carbohydrate craze. The case presents no information about Unilever's response to this issue.

Unilever's industry performance is determined by all of Porter's Five Forces of competition, however it is especially sensitive to the rivalry among competing firms and the bargaining power of buyers. Unilever's main competitors are Nestle, Procter & Gamble, Kraft, Groupe Danone, Cambell Soup, and General Mills. As there are many more that could be added to this list it is obvious that there are numerous equally balanced firms in the consumer goods industry that are all fighting for market share. Another reason for cutthroat competition is the slow growth of the industry. The sales of food and household products in the United States are only growing at about 1-2 percent annually, a trend that is expected to continue. In the industrialized countries of Europe the growth rate is also in the 2 percent range. Developing countries are slightly more promising, but they only expect growth of 3-4 percent. Yet another reason for the serious competition is low switching costs. Consumers can just as easily pick up a bar of soap from Proctor & Gamble as they can from Unilever. The increased competition led all of these companies to pursue growth through acquisitions in an attempt to jockey for strategic market position. Three of Unilever's top acquisitions are SlimFast, Ben & Jerry's, and Bestfoods.

In 2000, there was a rapid consolidation among retail grocery stores. This increased the bargaining power of major supermarkets in terms of charging higher fees for shelf space. Since supermarkets enjoy a much higher profit margin for private-label brands they were able to play the major firms off of each other to find out which companies would be willing to pay the highest fees. Since many of the products were standardized (only differentiated through brand name) the supermarkets enjoyed low switching costs to substitutes that were provided by the private-labels. With the use of scanners and computerized inventory systems, retailers knew what price differentials it took to induce shoppers one way or the other and used this advantage against Unilever and its competitors.

Internal Assessment

Unilever's main resource is the value of its brand names. A key piece of the Path to Growth strategy was to decrease the number of brands from 1,600 to 400 core brands. In 2001, the company was down to 970 brands and the numbers were rapidly falling. By eliminating weaker brands Unilever's objective was to focus on advertising and marketing its core products with high margins, such as Dove and Lipton, to build brand value and regain pricing power with buyers. A key capability of Unilever is its ability to acquire firms to increase its market power and competitive position. New acquisitions were also a goal of the Path to Growth strategy. By 2001, Unilever had made 20 new acquisitions worldwide, including the major three - SlimFast, Ben & Jerry's, and Bestfoods. Although the SlimFast acquisition has not been as successful as expected, Unilever is exceptional at integrating companies into their systems and product markets. For example, since the Ben & Jerry's acquisition Unilever has grown to be the largest and most profitable ice cream business in the world as of late 2003. The Bestfoods acquisition led to approximately Ђ790 million in cost savings and increased operating margins of 15.7 percent in the first nine months.

The value of Unilever's brands and its ability to acquire and integrate firms lead to its core competency of business and brand portfolio management. The company eventually reorganized itself into a foods group and a household/personal care group. The formation of these two global divisions allowed each company to focus on its particular segment of the industry as well as accelerate decision making and execution of brand strategy. Each division was approximately equal with the foods division accounting for slightly more in terms of revenues. In 2003, Unilever had decreased the number of brands in its portfolio down to 500-600 different products. The strategy was working as Unilever's leading brands account for almost 92 percent of the companies Ђ50 billion in revenues. Also, as stated earlier, by 2003 Unilever had successfully acquired 20 new



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