Unilever's Business Level Strategy example essay topic

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 Slim Fast. Slim Fast 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 Slim Fast'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, Campbell 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 Slim Fast, 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 - Slim Fast, Ben & Jerry's, and Bestfoods. Although the Slim Fast 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 EUR 790 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 EUR 50 billion in revenues. Also, as stated earlier, by 2003 Unilever had successfully acquired 20 new companies or brand name products while divesting in 27 business that were either unsuccessful or did not fit with Unilever's core business. The core competencies do not lead to a sustainable competitive advantage in this case. Although its business and brand portfolio management are valuable, it is not rare because all of Unilever's major competitors also focus on portfolio management.

The strategy is costly to imitate because acquiring different firms or products requires lots of assets, but again, Unilever's competitors are already following this strategy. Lastly, it is not non-substitutable because other companies have the same knowledge and are able to duplicate this strategy. This will likely lead Unilever to earn average returns in the market. A major weakness of Unilever is that it is competing in a slow growing market with no solid signs of improvement. According to Unilever's financial performance by business segment the revenues of the foods segment decreased by 2 percent from 2002 to 2003 and the home care segment had a negative 8 percent change in the same years.

Another weakness is that it consistently pays large premiums for acquisitions. Unilever paid 44 percent above the market value for Bestfoods and 23 percent premium for Ben and Jerry's, which forced them to take on extremely large levels of debt. From 1992 through 2002 Unilever's sales increased from EUR 34,746 million to EUR 48,760 million, or 40 percent, while operating profits increased from EUR 3,099 million to EUR 7,260 million or 134 percent. By the third quarter of 2003, Unilever was closing in on EUR 50 billion in revenues, while reducing net debt from EUR 26.5 billion at the end of 2000 to EUR 16 billion. Annual free cash flow of EUR 4 billion was also up EUR 1 billion since 1999. Unfortunately for Unilever though, revenues were only up 1.7 percent by the end of the third quarter in 2003 and were projected to stay below 3 percent for the year, missing the 5-6 percent goal of the Path to Growth strategy.

Unilever's business level strategy involves using its business and brand portfolio management competencies to serve in the consumer products industry, and specifically focusing on the foods and household / personal care segments. It will serve mainly individual consumers by providing high quality, brand name products at reasonable prices through distribution channels such as supermarkets. Unilever has moved from a differentiated strategy in a broad market to an integrated / low cost differentiation strategy over the years. Unilever provides differentiated, brand name products with superior quality at premium prices. It has become a low cost producer through economies of scale and scope by successfully integrating acquisitions and consolidating operations into two major product markets, thus finding ways to continually reduce costs. Unilever's corporate level strategy is rather unique because the company reorganized itself into two different global divisions.

It creates synergistic value by focusing mainly on two different mixes of business, foods and home / personal care, which can be broken down into 14 different product categories. Unilever would most likely be considered as having a related constrained diversification level because in 2002 it received approximately 56 percent of its revenues from foods and 43 percent from home / personal care. The two businesses are linked through the consumer product industry, as well as Unilever's distribution channel. Unilever typically adds value through diversification by economies of scope and horizontal integration of newly acquired firms. Analysis & Recommendation A possible solution to Unilever's slumping growth within its current industry and segment would be to expand its product line by investing a significant amount of money in R&D to focus only on producing products in new markets that it is not currently a part of. For example, Unilever could try and penetrate the pharmaceuticals industry or electronics industry.

This could be a successful solution because Unilever would maintain its consumer products focus and simply add more products through its already strong distribution chains. Implementation could be as simple as distributing a couple new products to its larger buyers. The firm functions would include the R&D, finance, sales and marketing, and logistics departments. The project could be evaluated through sales revenues and then surveys to consumers that purchased the new products.

This is a risky project because Unilever would have to step away from its core businesses of foods and home / personal care while at the same time accepting the possibility of losing millions of dollars / euros in the presence of failure, but considering the slow growth of its current industry segments and poor future outlook Unilever would be foolish not to embark on some different business mixes. Unilever should also take action in further penetrating the global market. In 2003 Unilever was present in only 88 different countries, whereas its major competitors had global reach in almost double that amount. Unilever's philosophy of giving managers product mix authority in different global markets could turn into a huge strength if Unilever is able to penetrate new global economies. Unilever could implement this strategy by setting a goal of entering 7-10 new countries each year until it catches up to its competitors. This project would involve mainly the finance and marketing departments.

The success of this could simply be measured by how many new countries Unilever enters each year. It could also be measured by percentage of sales increase. There are some possible disadvantages to this strategy such as capital investment costs. Unilever would likely have to spend millions just to enter a new country.

It would have to deal with different governments and laws and regulations as well. If such investments were to go sour, Unilever could find itself with millions or even billions of dollars / euros of fixed costs in an unprofitable country. Lastly, Unilever should focus on restructuring Slim Fast and turning it into a profitable part of the company. One of Unilever's major strengths is its ability to acquire and then integrate new firms. Unilever should focus its marketing and R&D departments towards finding products that will satisfy consumer needs.

It needs to focus on healthy, low carbohydrate drinks and diet bars to get it back atop the market. At first, success could be measured in terms of whether or not Slim Fast once again becomes profitable. If it achieves profitability, then it can measure success based upon market share. Some possible disadvantages would be compromising Slim Fast's values and principals. Slim Fast is a company that used only natural ingredients in its products. If the company does not buy in to the new strategy, then the whole restructuring could be a disaster.