Strategic Decision Making of Unilever

Introduction

Unilever is one of the famous and old FMCG (Fast Moving Consumer Goods) producer companies in the world. Founded in 1929, this company has successfully extended its business and made its goods popular under different brand names in more than 190 countries. It has been recognized that when it comes to FMCG products, the products made by Unilever are one of the common choices worldwide. Most importantly, as opined by Murphy and Murphy (2018), the main strength of Unilever is its global brands like Sunsilk, Clear, Pond’s, Vaseline, Dove, Lux, Magnum and Rexona; all of these brands helped Unilever to enter the international market. Unilever did not rush to penetrate the global market as earlier it entered only a few foreign countries at a time. Once it successfully spread its products to those countries, it started to compete with other brands globally. Unilever has always preferred to be recognized as a local brand rather than getting recognized as an international brand– this is what made Unilever unify its operations in all the operational countries (Sivakumar, 2021). It means Unilever always focused on having the same brand image in all of its operational countries. The marketing strategy Unilever used to unify its international operations will be discussed in this report.

Unilever’s Generic Strategy (Porter’s Model)

In order to get competitive advantages over other companies, the generic strategy that Unilever has used is broader differentiation (Tien, 2019). The company has always prioritized making the products stand out in the crowd, and that’s why Unilever always emphasized making the consumer aware of the characteristics of its products. It can be explained using an example. Unilever is a proud producer of the Dove soap bar that is known as a cream bar as; the soap bar claims to contain moisturizing elements, which does not make the bar harsh or dry on the skin. The thing that makes the Dove soap bar stand out in the crowd is that other soap bars focus on cleaning, whereas Dove’s main focus is to moisturize peoples’ skin. This type of marketing strategy has made Unilever products more popular even when the products are more expensive than other products available in the market. The focus is to make the customers well aware of the products so that they can feel attracted and purchase such products that are specially designed (Birahim, 2020). This generic strategy of Unilever helps to fulfill its aim, which is to have global sustainability and increase awareness in consumers.

Unilever’s Five Forces Analysis & Recommendations

Using Porter’s Five Force analysis model, the industry environment, consumers, competitions and external factors of Unilver can be explained. If the products and the reach of the products in the global market can be considered, it can be easily guessed that Unilever has to deal with a lot of external factors (Bruijl, 2018). However, not every external factor has the same intensity that can impact the business of Unilever. The five forces that impact the business have different types of intensity when it comes to Unilever. Here is a list of forces mentioned with the intensity.

• Competition or rivalry (Strong force).
• Bargaining power of customers or consumers (Strong force).
• Bargaining power of supplier (Moderate force)
• Threats of substitute (Weak force).
• Threat of new entry (Weak force).

Competition or rivalry (Strong Force)

If the industry environment of Unilever can be checked, it can be easily said that the company has huge competition. Some of the external factors that boost the competitive rivalry against the company are: the number of other firms ( strong force), the aggressiveness of the other firms (strong force) and the cost of switching are low (strong force). Unilever is not the one when it comes to consumer goods or FMCG products producer. There are some more strong firms that can compete against Unilever. Most importantly, as opined by Shi (2021), these firms are not taking Unilever casually as they become really aggressive to get a hold of the market. All of the factors intensify the competitive rivalry against Unilever. Apart from that, Unilever also has to face major competition because of the factor “low switching cost”. It means consumers can always switch to another company if they prefer a certain product. Hence, competition or competitive rivalry against Unilever has always been considered a strong force in the five force analysis segment.

Bargaining power of the consumers (strong force)

All of the FMCG producer companies are highly dependent on the behavior of the consumers, and Unilever is no exception in such cases. Therefore, how the customer responds to a particular product is always a priority for the company. That is why the bargaining power or the influence of the consumers has to be considered when a five forces analysis of Unilever is being done. Some of the factors that impact the bargaining power of the consumers are the low cost of switching (strong force), information quality (strong force), individual buyers’ small purchases.

(weak force). Apart from increasing the intensity of the competitive rivalry, the low switching costs also boost the intensity of the influence of the bargaining power of the buyers. Consumers will never think twice about switching from Unilever to other firms if they get good products at an affordable rate. On the other hand, when consumers get information about other brands and their goods, it can make the process of switching to other firms easy. It means when a buyer can compare a product with Unilever’s product online, they can get a clear view of both the products; hence it makes it easy to choose the best (Zhang and Fan, 2020). However, the third factor, i.e., small size purchase of an individual buyer, does not really make any difference to Unilever.

Bargaining Power of the Supplier (Moderate force)

The external factors that are responsible for the moderate intensity of the bargaining power of the suppliers of Unilever are- the size of the individual suppliers (moderate force), suppliers population (moderate force) and overall supply (moderate force). Unilever has a moderate size of suppliers, including the foreign ones that supply paper and oil, which impacts a moderate level of force on Unilever. On the other hand, the number of suppliers forces a moderate but significant level of impact on the supply mechanisms of Unilever. Additionally, the supply quantity of Unilever also depends on the increasing or decreasing demand of the supplier (As, 2020). All of these make the bargaining power of the supplier a moderate force for Unilever and its industry environment.

The threat of substitution (weak force)

A good substitute can have the capacity to decrease the revenue of a brand and its strengths. The external factors that work for the threat of substitution force in the case of Unilever are low switching cost (strong), availability of the substitute products (weak) and performance and price ratio of the substitute products (weak force). As already it has been mentioned earlier that the low switching cost of a company can always make its consumers shift to other brands, so this is always a strong force. However, on the other hand, other substitute products available in the market, their performance and price are weak forces because those products yet have not matched the performance of Unilever products. That is why Unilever products are more commonly used in the global market.

The threat of New Entry (weak force)

Like any other FMCG company, Unilever also has to face competition from the already established companies as well as the companies that are newly evolving. External factors that are responsible for creating a weak impact on Unilever’s industry environment are low switching cost (strong), brand development cost (weak) and high scale economy (weak). The low switching cost can also make consumers switch to new entrants, so this will always be a strong force. However, not every brand can have the same impression that Unilever already has; most importantly, in order to develop a brand, a new firm need to invest a lot of time, energy and money. Apart from that, Unilever always will have a competitive advantage because of its high economy. All of these make Unilever strong against new entrants.

Critical evaluation of Porter’s generic competitive strategies framework

Advantages

The five forces analysis done in the earlier segment helps the company identify all the relevant factors that affect its profitability. This also helps Unilever to make decisions on whether it should enter any specific industry, develop any more competitive strategy or increase its production capacity. Here is a list of Do’s and Don’ts of the company:

Actions that the company can take or Do’s

• In case the company has a minimum of three competitors in the market, the company can use this generic strategy.
• The company always has to consider the impact of the governments of different countries where Unilever is operational.
• The technological evolution, digital evolution and most importantly, the outbreak of Covid-19 has left its impact on every industry. That is why Unilever has to consider the changes and act accordingly.

Actions that the company should avoid or Don’ts

Unilever cannot continue using this Porter’s generic model for an individual brand or firm of its. The framework is designed to use on the whole industry environment of Unilever.

Limitations of Porter’s Five Forces Model

There are some limitations of applying Porter’s five forces model, those are:

• A classic and perfect market along with a static structure gets considered when Porter’s framework gets applied. This makes the industrial environment of the company not so clear (Anastasiu, Gavris and Maier, 2020). As Unilever has different brands making different products, not every brand cannot come under the same industry. Hence, Porter’s five forces model can only focus on the external factors and ignore other significant factors that will be relevant to different brands or firms under the same company, i.e., Unilever. Apart from that, Porter’s framework also doesn’t consider other important factors such as globalization, newly changed dynamics of the market and relatively new business models.
• Porter’s five forces only focus on factors like suppliers’ power, consumers’ power, new competition in the market and substitutes. However, it does not focus on other important factors such as technology and the business strategy of Unilever. As technological evolution is one of the biggest issues for any industry, ignoring the same can be deceptive. On the other hand, some of the other external forces such as policies created by the government of different countries, taxation, the environmental impact also get unnoticed in case of Porter’s framework.

Recommendations

The recommendations for Unilever are:

• It can be observed that Porter’s model for Unilever suggests that the competitive rivalry against Unilever and the bargaining power of the consumers has a high or strong force that can affect the business of Unilever. On the other hand, the bargaining power of the suppliers have moderate, and new entrants and substitutes of the company have weak forces on the business of the company. Evaluating all of these, the first recommendation for Unilever will be to get a more competitive advantage by introducing more varieties of new products. The company needs to invest in developing better versions of home care and personal care goods (Dmitrievna, 2021).
• In order to make Unilever strong, the second recommendation for the company is to be transparent to its stakeholders. This way when the stakeholders can connect themselves with the company and can understand the problem as well as the solutions to the problems. This way, the company can focus on increasing its profitability or the market share by 20%-25% (Chernobay, Yasinska and Malibroda, 2020).
• The final recommendation is to go through all the major details from the past and incorporate them to make future decisions. Moreover, the stakeholders of the company have to be aware of all the findings of the past so that they can have more interest in the company. Additionally, this will help the company to ignore any challenges that it has faced in the past (Sari, 2019).

Conclusion

Porter’s five forces model analysis of Unilever’s marketing and business strategy helps the company to identify all the relevant factors that can be blocking the chances to earn more profit or revenue for the company. Although certain factors like government policies, taxation policies, technological evolution and environmental factors get ignored in case of Porter’s five forces framework, it can be said that the framework has some limitations. However, implementing the recommendations mentioned in this report will eventually benefit the company.

References

Anastasiu, L., Gavriş, O. and Maier, D., 2020. Is human capital ready for change? A strategic approach adapting Porter’s five forces to human resources. Sustainability, 12(6), p.2300.

As, A.J., 2020. An Organization Study Report Of Hindustan Unilever Ltd.

Birahim, S.A., 2020. Internal and external factors of Nestle and comparison with Unilever.

Bruijl, G.H.T., 2018. The relevance of Porter’s five forces in today’s innovative and changing business environment. Available at SSRN 3192207.

Chernobay, L., Yasinska, T. and Malibroda, S., 2020. APPLIED ASPECT OF CORPORATE SOCIAL RESPONSIBILITY IMPACT ON COMPANY COMPETITIVENESS (UNILEVER EXAMPLE). Entrepreneurship, 8(1), pp.32-44.

Dmitrievna, K.K., 2021. Transformation of Business Sustainability Strategies of FMCG Companies in the 21st Century on the Examples of Unilever and L’Oréal.

Murphy, P.E. and Murphy, C.E., 2018. Sustainable living: Unilever. In Progressive Business Models (pp. 263-286). Palgrave Macmillan, Cham.

Sari, A.P., 2019. The Effect of Product Quality, Price, and Brand Image Toward Customer Loyalty with the Mediation of Customer Satisfaction on Personal Care Product of Unilever Indonesia in Surakarta (Doctoral dissertation, Universitas Muhammadiyah Surakarta).

Shi, X., 2021. P & G Product Strategic Analysis. International Journal of Frontiers in Sociology, 3(17).

Sivakumar, S., 2021. Study of Internationalization Process of Unilever. Available at SSRN 3939738.

Tien, N.H., 2019. Comparative Analysis of Multidomestic Strategy of P&G and Unilever Corporation. International Journal of Foreign Trade and International Business, 1(1), pp.5-8.

Zhang, L. and Fan, Z., 2020, November. Analysis of Unilever’s Branding and Marketing Strategy in China. In 2020 International Conference on Management, Economy and Law (ICMEL 2020) (pp. 288-291). Atlantis Press.