Introduction

Unilever started out as a soap and margarine business in UK in 1930 but has now grown to become a leading FMCG business company in the world. It operates in above 100 countries and has a presence in most of the product categories across consumer segments with over 400 products.

The reason that Unilever could grow to such a big scale, and still its each product remain as attractive to consumer and brings value to consumer each day and competitive is its focus on innovative product development and strategic product portfolio extension while always keeping stakeholder interest on top and not only focusing on stockholders.

The Mission of the company has been: “Our mission is to add Vitality to life. We meet everyday needs for nutrition; hygiene and personal care with brands that help people looks good, feel and get more out of life.”

Portfolio Analysis

Unilever has a vast portfolio of products that are in their different Product life cycle (PLC) stages. At the same time, each PLC stage can be matched to a certain quadrant in a BCG matrix.

Figure 1: BCG Matrix

BCG STARS (high growth, high market share)

- Stars are defined by having high market share in a growing market.- Stars are the leaders in the business but still need a lot of support for promotion a

placement.- If market share is kept, Stars are likely to grow into cash cows.

BCG QUESTION MARKS (high growth, low market share)

- These products are in growing markets but have low market share.- Question marks are essentially new products where buyers have yet to discover

them.- The marketing strategy is to get markets to adopt these products.- Question marks have high demands and low returns due to low market share.- These products need to increase their market share quickly or they become dogs.- The best way to handle Question marks is to either invest heavily in them to gain

market share or to sell them.

BCG CASH COWS (low growth, high market share)

- Cash cows are in a position of high market share in a mature market.

- If competitive advantage has been achieved, cash cows have high profit margins and generate a lot of cash flow.

- Because of the low growth, promotion and placement investments are low.- Investments into supporting infrastructure can improve efficiency and increase cash

flow more.- Cash cows are the products that businesses strive for.

BCG DOGS (low growth, low market share)

- Dogs are in low growth markets and have low market share.- Dogs should be avoided and minimized.- Expensive turn-around plans usually do not help.

Now we can map each quadrant of the BCG matrix to different stages of a PLC for different products of Unilever.

- Introductory – Question Mark- Growth – Stars- Maturity – Cash Cows- Decline – Dogs

The following diagram categorizes different Unilever products based on the above framework.

Figure 2: Stage of Brands in PLC – Unilever

Above PLC exhibits the Unilever position in relation to brand and its maturity in its lifecycle. It presents an idea of Unilever.

Figure 3: GE/Mckinsey Matrix

Let’s try to study the Unilever Products according to GE/Mckinsey Matrix. Our Reason for choosing the GE frameworks are many but some main points for us to distinguish it from other

The GE Matrix is a more sophisticated form of the BCG Matrix.

1) Market (Industry) attractiveness replaces market growth as the dimension of industry attractiveness. It includes a broader range of factors other than just the market growth rate that can determine the attractiveness of an industry/market.

2) Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes broader range of factors other than just the market share than can determine the competitive strength of a SBU.

Typical (external) factors that affect Market Attractiveness

- Market size- Market growth rate- Demand variability- Industry profitability- Industry Rivalry- Global opportunities- Macro-environmental factors

Typical (internal) factors that affect Competitive Strength of SBU

- Market Share- Growth in market share- Brand equity- Distribution channel access- Production capacity- Profit margins relative to competitors- Quality- Management strength

Caution:

Strategic Business Units (SBUs) are portrayed as a circle plotted in the GE Matrix. The size of the circle represents market size.

Strategic Implications of GE Matrix (McKinsey Matrix)

Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on its position on the matrix as follows:

Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in average industries.

Hold average businesses in average industries, strong businesses in weak industries, and weak business in attractive industries.

Harvest weak business units in unattractive industries, average business units in unattractive industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvest group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it might perform a phased harvest of an average business unit in the same industry.

While the GE business screen represents an improvement over the simpler BCG growth-share matrix, it still presents a somewhat limited view by not considering interactions among the business units and by neglecting to address the core competencies leading to value creation.

Rather than serving as the primary tool for resource allocation, portfolio matrices are better suited to displaying a quick synopsis of the strategic business units.

Based on the above explanation of the GE Matrix, we have plotted the various Unilever products in that matrix.

Figure 4: GE Matrix for Unilever

Need for change in Unilever Product PortfolioBut one final question remain why were all these changes made. And the answer lies within the financial history of the company. A company’s strategy (whether product portfolio or

otherwise) is judged through its financial and brand performance basis as compared to its competitors.

We observe that Unilever was enduring severe competition by its main competitor P&G through price war in laundry and personal care sector in India and Europe. Unilever chose to not let its market share fall through introduction of promotion on its products.

Thus profitability reduced drastically and inevitably by about 16%. Yet through continued promotion market share was won back by 2004.

Advertising and Promotion Expenditure Group turnover of Unilever

And although there was a drop in sales but the operating profit was decreasing very drastically

Sales growth for Unilever Operating Margin for Unilever

The following Trend analysis exhibit the increment of ratios in 2003. However all these figures present unfavorable figures in 2004 with the downturn of Unilever

So, the promotion clearly wasn’t working as a strategy. Even though it was able to claim market shares yet the financial ratios which were expected to show betterment plummeted in 2004. Clearly Unilever was holding to o many assets and was not managing its portfolio well.

This becomes apparent when we see the following figure on shareholder returns and share prices of Unilever.

Shareholder return Share prices

This picture made Unilever to decide the cut from its portfolio and maintain only 400 brands and focusing its efforts on top 200 of those.

Changes over a time by Unilever

This company had an extensive portfolio of about 1600 brands which is a very mix to handle and become profitable. Managing these brands was a very costly affair and it was also observed that the consumer targets of these brands were spread too thinly. So to reduce the operating costs and effectively target its products towards a set of target consumers, the number of brands was reduced to 400.

To do this job, the products and brands were dropped in the following basis - The brands were analyzed and framed according to the BCG matrix as follows:

The cash cow brands are of importance for the identification of the brands by customers. These also make money for the company. However cash-cows consume some additional cost and reducing profit margins due to not-expanding. This was one of the main causes for the downturn in 2004.

Moreover, by that time Unilever possessed about 1200 dogs. Those were also a burden to company which made its numbers to drop during the 2004 downturn.

Also the dog brands were some brands which have less attractiveness and less business strengths. Continuing those brands with less return is completely burden to Unilever. (e.g.: Cif). All such brands were identified for elimination (low market attractiveness and low business strength) according to the following fundamental that we have explained earlier in this document.

Portfolio analysis and strategic market plans:

Since Unilever experienced downturn in 2004, company took measures for gaining its position back. After going through evaluation process, Unilever has revolutionized many of its strategies.

Offensive strategies:

Invest to grow:

Unilever invested in market resources to grow market or market share in a very strategic way. It didn’t go for product or category extensions but invested in acquisitions, however the morale behind the acquisitions was completely different. Unilever acquired this company to strengthen its brands and to balance its brands base. :

Acquisition of “BestFoods”: Unilever's Main focus was to narrow down its brands, at a glance, the acquisition of Bestfoods seems like expanding. However motive behind this actuation is not to expand but to welcome some well-known brands such as Hellmann’s and Ragu. The acquisition maintains the narrow focus of Unilever and strengthen brand portfolio. This merger did not open markets to Unilever as these markets were the markets that were Unilever operating in. but many tax advantages could be gained through this.

Defensive strategies:

Protect position:

Unilever took following steps to protect and maintain its competitive advantage:

Merger of two parent companies: Even though both parent companies act alike, those were two different companies. Thus issues arise. Strategies were also hampered in delivering as the structure was improper. Thus this merger would reduce structural issues.

Replacement of dual chairmanship: Dual chairmanship is also an issue as decision makings is somewhat difficult. Moreover it’s costly to Unilever. Thus it will be replaced by a chief chairman and a non-executive chairman who would be more convenient for decision making.

Optimize position:

Unilever tried optimizing price-volume and marketing resources to maximize profits by focusing on limited products which accounted for major sales and hence revenues. It followed following steps:

Refocusing on Main 200 Brands: When realized that being too broad is costly, Unilever decides to focus on the core brands which accounted for 90% of its sales. This is wise as the expenditure on other 1000 brands is a waste due to

fewer returns. However due to this change more advertising could be done on main brands and could be gain high profits and margins.

Dropping 1000 poor performing brands: This is a decision of vast importance that a company would rarely take. The decision leads to save a lot of money that were spent on gaining 10% of total revenue. However this may bring in some black point to Unilever.

Monetize:

Unilever tried managing market position for maximum cash flow with limited marketing resources by taking following measures:

Closing down North American factory: Using the money gained from closing down these factories, plant facilities of Asia and Latin America could be increased where sales were maximum. This was very effective as it is identified earlier Unilever had less assets and reduced liquidity at this time.

Competitor Strategic Analysis

In response, its biggest competitor P&G too followed some strategies which are explained below:

Offensive strategies:

Invest to grow:

P&G invested in market resources to grow market or market share in following way:

Expanding by Acquisition: Acquisition of Gillette was a major strategic movement as it opened many foreign markets for P&G. additionally this could save millions for P&G and that money could be diverted for more product development. P&G expands to wide its brands and product portfolio. Thus risk will be minimized. Since they have a good management and leadership, handling wide brands will not be a big deal. Even P&G experienced high bargaining power over powerful retailers like Wal-Mart.

New market entry:

P&G entered new market in following way:

Moving in to Pet care and Pet Insurance: This novel idea has a high stake of being success. Pet insurance is a blue ocean where P&G is the first mover. Thus P&G can gain a lot from this market.

Defensive strategies:

Protect position:

P&G used following means to protect its market share;

Heavy Advertiser: As it is wide known fact, P&G is already the nation's largest TV advertiser. Thus its product is well-known by the market and Unilever has a comparative disadvantage here.

According to GE Matrix

Portfolio change with respect to BCG Matrix

Additionally, to complement these changes in product portfolio, the processes within the value chain were also reinvented to perform better post 2004. These processes included right from firm infrastructure down to logistics and procurement to drive ahead the profit margins. Various components can be seen as below.