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Critical Evaluation of Unilever’s Strategy

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Type of Academic Paper – Essay

Academic Subject – Management

Word Count – 5000 words

1.0 Introduction

The company selected to critically analyse the organisation’s strategy is Unilever. It is a multi-national company established by the parent company of Anglo-Dutch that owns and operates many of the brands in consumer products around the world in the category of cleaning agents, beverages, foods, and personal care (Unilever, 2017). Also, Unilever has greater than four hundred brands that are sold in 190 regions. The organization was established in 1896 which is based in the UK. Hence, Unilever UK Limited is operated as a subsidiary of Unilever Plc.

The major rationale to select Unilever to discuss its strategies as the company has a wide network of operations all over the world. In addition to this, the company has one of the largest consumer bases for its consumer goods products and holds a strong market position among its competitors such as P&G and Reckitt Benckiser. Because of its wide network of operations and larger consumer base of more than 1 billion customers, studying the company’s strategy will be of interest as it can give an understanding of Unilever’s strategic direction for its business operations.

Therefore, the focus of this report is on evaluating the business level strategies as the report discusses how Unilever position itself against its rivals and how it stays up-to-date on technological changes and market trends. The emphasis of business-level strategy is on how the company satisfies and attains its customers and how it provides goods and services to meet the needs of its customers in a way that increases profit margins (Hill, Jones, and Schilling, 2014). Hence, the report argues the differentiation strategy as a successful business-level strategy of Unilever and the adoption of product development strategy to successfully meet and cater to the needs of consumers by providing a wide range of new products to attract global consumers.

2.0 Theoretical Model – Handoff’s Matrix for Product Development

2.1 Strategy as Position from Mintzberg 5Ps Model

According to Mintzberg, the term ‘strategy’ can be described from five key aspects. These include plan, ploy, pattern, position, and perspective (Pryor et al, 2007).  To analyse the strategy of Unilever, the fourth P ‘Strategy as a position is inferred from the Mintzberg framework of 5 P’s. Accordingly, Mintzberg stated that the company’s strategy to locate or fit the business with its environment and decide which position is suitable for it to adopt, for instance, product portfolio, brand position, market position, etc. (Pryor et al, 2007).

Looking at how Unilever adopted the strategy of position, Melton, Damron, and Vernon (2017) argued that the company has many strong, healthy, and successful brands around the world where it has also expanded into the foreign markets where it currently does not operate. This strategy was based on its need to reach global customers for consumer goods products. The four major international brands of Unilever are Sunsilk, Dove, Lux, and Rexona, which helped the company to enter the international marketplace successfully.

In order to enter and compete in the global market for its consumer products, the company currently follows a global market strategy known as ‘Think Global Act Local Strategy‘. Through this strategy, the company uses a similar competitive approach in all international markets where it currently operates by selling many similar products everywhere while undergoing few changes to product adoption based on local market needs. The company positions its brands by striving to develop global branding while coordinating its actions around the world.

2.2 Unilever’s Actual Strategy based on Porter’s Generic Strategy and New Product Strategy

Porter’s Generic Strategies Framework

Figure 1 – Porter’s Generic Strategies Framework

Source: Tansey, Spillane and Meng (2014)

Based on Porter’s Generic Strategy Framework, the company’s ‘good’ strategy is based on selecting a generic strategy, ‘Differentiation,’ which allowed it to become profitable within the industry. In this strategy, the company currently aims at building a competitive advantage as it satisfies the specific preferences and needs of consumers. Currently, the company uses broad differentiation where the focus of the company is to build on characteristics and features which make its products stand out from its rivals.

For instance, the company makes changes in its personal care product Dove Cream Bars, to satisfy the consumer’s need for soaps that are not drying or harsh (Patton and Holstius, 2015). In spite of having high prices comparatively, these products are competitive as Dove stands out from competitors, which emphasize more on cleaning instead of moisturizing. Therefore, Unilever, through this strategy, effectively attracts customers to its specially designed consumer products. This generic strategy of differentiation also matches with the mission and vision statement of the company, where the aim is to support sustainability globally while increasing vitality in the lives of consumers.

2.3 ‘Good’ Strategy based on Handoff’s Matrix

Strategy as a position – Ansoff Matrix as model of an effective strategic position

Figure 2 -Strategy as a position – Ansoff Matrix as a model of an effective strategic position

Source: Ansoff and McDonnell (1990)

Unilever’s strategic objective based on the product differentiation strategy (Porter’s Generic Strategy) is to grow the company by means of concentrated efforts in its product development. Product development is one of the core strategies of Handoff’s Matrix, where the company develops new products in existing markets (Thijsen et al, 2014). Other strategies depicted in Handoff’s Matrix are market penetration (existing products in the present market), market development (existing products in a new market), and market or product diversification (new products in new markets) (Thijsen et al, 2014).

Researchers also argued that a company’s developing new products to existing markets could give them a competitive advantage over competitors (Tajvidi and Karami, 2015; Kiss and Barr, 2017). Hence, based on the model of Ansoff Matrix, the ‘good’ strategy for Unilever is product development, where the company can develop products that stay ahead of the competition and can attract more customers globally. This can also lead to an increase in the company’s revenue in those regions where it currently operates but has low-profit margins. For instance, Unilever can introduce new versions of its personal care products from time to time to maintain its market share.

After determining the ‘good’ strategy of product development, Unilever can follow the new product strategy steps based on the model of Booz et al (1982). Following this can allow Unilever to remain competitive and to increase profits through new product revenues.

 

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3.0 Critical Evaluation of Unilever’s Strategy

3.1 State of the Global Consumer Goods Market

The FMCG market around the world is faced with increased competition where consumers have become more aware of and less branded loyal and where there is diminishing product life expectancy and increasingly powerful retailers (Unilever global company website, 2017a).  This means that most FMCG products fall by the edge despite the important nature of the product grouping process.

On the other hand, the research conducted by Anselmsson and Bondesson (2015) argued that the habits and needs of consumers are changing where firms in consumer goods could no longer make similar assumptions about the shopping activities of the mass market. Hence, they can depend on a large group of homogenous middle-class consumers which is comparatively large, and those who can purchase both luxury and staples at mid-price stores (Sakellariou, Karantinou, and Poulis, 2013).

Based on this finding, focusing on the product development strategy by Unilever can give these middle-class consumer groups a wide range of products from which they can make their choices and that can ultimately meet the shifting needs and preferences of these consumers. On the other hand, as consumers increasingly demand more sophisticated personal care products, growth in the personal care market in Europe is rising at new heights. In a recent study Frost & Sullivan, an international marketing consultant, emphasizes the need for more product development in the European market (Frost & Sullivan, 2017). New products will be necessary to try to take advantage of new opportunities for consumers.

3.2 Comparing Product Differentiation versus Product Development

Comparing the actual strategy of Unilever that is a product differentiation strategy with the model of product development strategy, it is analysed that product differentiation allowed the company to capitalize on its internal resources while attaining a competitive advantage in the market. The research of Bremmer (2014) stated that globalization leads to increased competition between consumer goods companies where customer demands have been increasing.

Due to this, FMCG companies search to get a competitive advantage with the help of developing products that have more valued features, such as product flexibility, product quality, or reliable delivery. Based on these notions, it is argued that the adoption of the product differentiation strategy has allowed Unilever to gain increased scope to produce differentiated products that have more desirable features and more value to handle consumer demands.

It is believed, for instance, that Unilever has done a good job by differentiating its ‘Axe’ brand where the commercials and advertisements of the Axe brand grab the attention of consumers (Santos, 2013). Keiser, Garner, and Vandermar (2017) stated that product development strategy does act as a secondary business-level strategy that can be used for company growth.

Based on the need of Unilever to increase its revenues and profits while achieving company growth, the company can effectively use product development strategy with the help of developing and introducing new products to existing markets which can better address the needs of those consumers who seek those products. This could be done by introducing a new version or entirely new product range, under its Dove or Lux category for instance, that the company could release over time to time that could help to increase its market share as well.

Hence, the adoption of the new product development strategy will become in line with the product differentiation strategy of Unilever to achieve a competitive advantage in the global consumer goods industry. With the use of a product differentiation strategy, Unilever offers its customers product uniqueness that could be implemented in the company’s processes of product development. As compared to the differentiation strategy, the use of a product development strategy could help Unilever to achieve the strategic objective of company growth by means of continuous product innovation (Baker, 2014). Also, this strategy would improve the product mix in the marketing mix of Unilever.

3.3 Effectiveness of Product Development Strategy

For Unilever, adoption of the product development strategy by following the new product development model can offer to achieve a competitive advantage in the FMCG market. Mital et al (2014) also opined that companies could only develop a long-term sustained competitive advantage with the help of developing a continuous stream of new and innovative products in the market.

This holds true to a greater extent because those companies who have adopted successful product development such as P&G have already achieved a competitive position in the market consumer packaged goods industry.  Hence, there is an increased pressure on Unilever as well to accelerate with the speed of change to overcome the process of product obsolescence while increasing the pressure on new product development.

On the other hand, Unilever also recognizes that the increased and specialized demands of customers have caused the consumer goods market to become more segmented into smaller segments (Laursen and Andersen, 2015). So, for gaining and sustaining the market share, the company has been continuously tailoring and developing new products for diverse market segments.

Laursen and Andersen (2015) stated that companies’ drive towards meeting the needs of the global consumers has led to mass customization where the introduction and explosion of new products have experienced an increased share of new current products in the market. As result companies, such as Unilever, are being heavily investing in its competencies and capabilities of product development (Unilever global company website, 2017b). Therefore, it is critically analysed that the cycle of product development, ranging from concept or idea to market, has become short from years to just months.

3.4 Successful New Product Development Model

Based on the new product development model of Booz, Allen & Hamilton (1982), Unilever can experience success by adopting a product development strategy. However, the company has already been using a product development strategy which can be illustrated by the example of process improvement in one of its laundry detergent formulas Persil Powergems which allowed for less packaging and more concentration that fits the need of today’s eco-friendly customers (Unilever UK & Ireland, 2017).

Good Strategy for Unilever – Model of New Product Strategy based on Booz, Allen & Hamilton (1982)

Figure 3 -Good Strategy for Unilever – Model of New Product Strategy based on Booz, Allen & Hamilton (1982)

Therefore, based on the new product development model, it is critically analysed that the company can effectively identify opportunities and generate ideas. The company tends to highly leverage partnerships with retailers for improved feedback of customers (Unilever global company website, 2017c).

More specifically, it is engaged with Tesco in UK and Walmart in the US as important partners to understand their consumer behaviour for various consumer packaged goods. Similar to the importance of receiving feedback for the company was the notion that its retailers became significantly engaged partners in the processes for new product development which helps in leveraging the relationship at later stages of new product testing and launching.

For new product design, the company already consists of many centres of excellence having specialized capabilities for each of its existing products (Unilever, 2008). Through the use of these excellence centres, the company can develop new products to position itself in the less trapped market. An existing example could be the detergent of Unilever that has provided with the benefit of the real environment instead of a flawed strategy to re-position its existing products (Unilever UK & Ireland, 2017).

The final stage is testing and launching where the company could test its new product through retailer partnerships (Unilever global company website, 2017c).   Sun and Debo (2014) argued that maintaining stronger partnerships with retailers is one of the best ways to test whether a new product will be successful in the market. Hence, it is critically analysed that the model of new product development by Unilever will also be successful if it strongly maintains partnerships with retailers in the regions where it operates.

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4.0 Reflection

The strategic evaluation of Unilever discussed above is limited because only a single P among the five P’s of Mintzberg framework is focused that is a strategy as a position. Therefore, the analysis discussed how the company has currently positioned itself for its current product and how the adoption of the new product strategy could help in further positioning itself among the target market and that best support the company based on internal and external competitive environment.

4.1 ‘Strategy as a Plan’ from Mintzberg 5 Ps

The thing which is missing from the above presented critical evaluation and that should be included to discuss Unilever’s strategy is ‘Strategy as a Plan’ from the Mintzberg framework. According to Mintzberg’s Strategy as a Plan’, he argued that strategy is followed consciously or is the intended course of action (Gulbrandsen, 2015).

Organizations tend to make strategies in advance before their actual implementation which is followed by actual development and implementation. In order to reflect on Unilever’s strategy as a plan, there are several tools that can be used to plan strategies, such as SWOT analysis, PEST analysis, as well as brainstorming. The use of these tools can allow Unilever to effectively think about which strategy it must adapt based on the identified opportunities.

4.2 SWOT for Unilever’s Planning Strategy

A Framework for SWOT Analysis

Figure 4 – A Framework for SWOT Analysis

Source: Hollensen (2015

Based on an analysis of Unilever’s strengths, weaknesses, opportunities, and threats, the major strengths of the company is its broad portfolio and diversified product range, which makes it significantly easier for the business to tap into the continually changing preferences of consumers across the globe (Hasan, 2015). However, the weakness of Unilever is limited business diversification and dependency on retailers.

The opportunities for Unilever present in the consumer goods market include business diversification, product innovation, market development, and business enhancement. However, the major threat for the company is from competitors (Hasan, 2015). Therefore, based on SWOT, Unilever can plan to grab market opportunities such as product innovation and business diversification. The product innovation strategy relates to the product development strategy as a good strategy based on Handoff’s Matrix.

4.3 PEST for Unilever’s Planning Strategy

A Framework for PEST Analysis

A Framework for PEST Analysis

Source: Peng and Nunes (2007)

The political aspect of the countries in which Unilever operates has a significant impact on its performance. However, the company has strategically selected countries for its operations based on political stability, which has presented the business with an opportunity to grow in the markets (Visagie, 2013); however, the recent decision of Britain leave the European Union has presented a series of challenges for the business and its growth.

Considering this, Unilever has focused on increasing its global growth by leveraging and expanding on the free trade relations in both developed and developing nations. For Unilever, the continually increasing wages in the developing and developed nations can be regarded as an opportunity as well as a threat; meanwhile, the higher growth rate of developing countries is also amongst the opportunities in the economic factor (Gospel and Sako, 2010).

With respect to the socio-cultural factors, it can be argued that the rising health consciousness has presented Unilever with an opportunity to direct its products to address the continually increasing interest in healthcare products (Ramli, 2015). FMCG companies like Unilever have remained dependent upon the available technologies for supporting their business in enhancing its inventory monitoring and management, which ultimately helped in supporting the supply chain and efficiencies in the distribution channel management (Devine and Williams, 2016). Therefore, based on the PEST factors, the good strategies for Unilever will be market development and product development.

4.4 Market Opportunity for Unilever

Based on the above-mentioned discussion of opportunities, the most prominent opportunity that Unilever can plan for future development relates to market development. The idea is part of the Ansoff Matrix, a strategic tool used by companies to determine the appropriate policy to consider in terms of expansion (Hussain et al., 2013). When it comes to Unilever, market development with regard to consumer goods could help the business to target new markets. For instance, the company can sell its existing products to new markets.

An example of its Dove brand is most suitable based on the scenario as the company currently targets only women for its Dove brand. By adopting market development, the company should encourage men to use the product to achieve further cleanliness, but make them more attractive to women. Because men are as worried about their skin as their counterparts, this could help the company achieve the desired market share and profitability in comparison with other competitors while achieving a competitive advantage at the same time.

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