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9-698-017 r \' A. 11

Unilever's Butter-Beater: Innovation for Global Diversity

In the spring of 1997, Willem ("Bill") Bordewijk, member of Unilever's management committee, sat in his Rotterdam office reconsidering the new international approach for new product development he had been promoting. Unilever was one of the world's largest foods manufacturers, offering a huge variety of branded products in nearly every country in the world. Unilever was comprised of literally hundreds of organizationally distinct operating companies, most of which had been acquired at various points in its history. Whereas these businesses historically had pursued product development and branding strategies independently, Bordewijk and his colleagues in "the center" -- Unilever's corporate offices -- were anxioLls to move to a more centralized management model. Their goal was to better leverage the company's fixed investments in brands, new product development and manufacturing capability across multiple even global -- markets, while not sacrificing the local responsiveness that they deemed to be a core Unilever strength.

Unilever Foods' first attempt to follow this approach, with "Krona," a new cream-spread product, had initially seemed promising. The concept originated in the newly formed international committee for "yellow fats" - Unilever's umbrella term for margarines and spreads. A team had then developed and launched the product in Germany, using that country as a test market: the intent was that if the prod LIct was successful, it would be rolled out internationally. Krona was a success in Germany: within its first year on the market, 3,700 tons had been sold, exceeding sales forecasts. Now, hov\"ever, after two successful years in the German market, Krona had still not been launched in other European countries because of disappointing test results in those venues. Bordewijk was concerned about the apparent lack of cooperation by the managers in Unilever subsidiaries, and worried that Germany had possibly played too dominant a role during Krona's development, ignoring the input of managers in other countries. Thus, despite a which managers across

had deemed to be whether Krona would become an international SLlccess.

Company Background

698-017 Unilever's Butter-Beater: lnnuvation for Global Diversity

company marketed over thousand brands, well-known names which

cosmetics, and Vaseline-brand skin lotions, The foods tea, ice cream,

induded such

and Six

constituted 70u,;, of food sales, UniJever was manufacturer, Its

European brands included Rama, Blue Band, North American brands included Imperial, Promise, Country and I-Can't-Believe-It's-Not-ButteL The

North American its Van den Bergh Foods unit, had been particularly successful, In the rapidly grovving low-fat health-oriented product segment, for example, Unilever brands, all of which had been introduced to the market vyithin the last occupied nearly 80% of the space allocated to that in most supermarkets.

Historical Growth by Acquisition

The foods market in Europe was mature, and total growth was definitionally limited to the rate of population growth. Unilever's goal to illcrease profits by increasing sales and reducing costs in this low-growth environment had led to an aggressive acquisition effort in recent years. Within the past two years alone it had acquired 65 companies (see Exhibit 1). The result of this strategy was a diverse portfolio of mostly local brands in different categories. In comparison with Nestle, its main competitor in foods, most of Unilever's brands had no corporate identity, sllch as a common "umbrella" nan1e.

Unilever often described itself as "international" rather than "global," because it did not attempt to enter all markets with the same product. Since half of the company's business was in food, a local view was often necessary. The belief of most UniJever executives was that only a few food products­like tea and olive oil- could successfully cross national or regional borders. There might be a world standard in high fashion, but not in the daily diet. They saw Unilever's deep local knowledge of local consumers as a strongly positive heritage of its acquisitions strategy.

Unilever's local operating companies had a high degree of independence in day-tn-day operations. The people closest to each market had power to make decisions and could therefore respond quickly to local trends and needs. Hence, UniJever could be more responsive to local differences than many of its more centralized competitors such as Procter & Gamble, Nestle, Kraft/General and Kao.

Despite this local , Unilever nonetheless had a around the to them the and npr"f1PC

a of environments. Bill but had served stints in the On

2

the

of its managers come from in

Unilever in his native Holland, Canada and the Netherlands.

a before

Unilever's Buller-Beater: Innovation for Global Diversity 698-017

in local economies in could Unilcyer had

added two ne"\' institutions to its organizational structure. Business had been set LIp in 1996. These business groups were to support the collaboration of

dealing with similar food in the same For European Unilever whose business was ice cream or frozen to the Ice Cream and

Frozen Foods which acted as a coordinative and information-sharing In addition, Boards" were established to support central coordination and global knowledge transfer

across different countries. Unilever's executives identified 13 significant product categories that they felt would benefit from central coordination in new product development. These included ice cream, yellow fats & spreads (e.g., margarine, butter, peanut butter) and frozen foods. The Category Boards worked with Business Croups on common issues of international relevance. These institutions created additional pathways for communication and coordination across geographic markets and product categories.

To complement the Category Boards, Unilever had created Innovation Centers (ICs) for its foods business in 1995 to concentrate resources for innovation and to support global development. In this new structure of innovation centers, each country was aSSigned to specialize on a particular category for new product development. In yellow fats, for example, three such centers were established in Europe: The "IC Taste" in Hamburg was charged to develop new spreads that were innovatiye along the taste dimension; the "IC Kitchen" in Rotterdam focused on spreads that ~\i\'ould be more convenient in cooking, and the "IC Health" in Crawley, England was to develop innovative spreads targeted at health-conscious consumers. The development teams at each IC were to collect and synthesize inputs from each European country, so that the products they developed could be sold with minimal local customization in each market. A central research organization in Vlaardingen, near Rotterdam, supported the advanced technology needs of the innovation centers.

These new organizational structures forced country managers to consider both international strategy and the diverse needs of other countries in developing and commercializing new products, and contrasted sharply to the previous locally autonomous structure.

The arguments in favor of international coordination rested in the company's economics particularly in manufacturing (see Exhibits 2 and 3). I30rdewijk believed that with so many local companies and brands, Unilever's factories were sub-scale and competitively inefficient. He and other champions for centralization of product development, manufacturing and marketing felt that costs could be lowered by h,wing global products and higher volumes per brand. Investments in brands and manufacturing assets were indeed substantial, and in the absence of significant grmvth in foods markets, saw better central coordination as a to continued improvement.

3

698-017 Unilever'g Butter-Bealer: Innovation for Global Diversity

Innovation Center.

One of the tenets of the rPM was "Less Is More" -- a belief that if Unilever did not overload its development teams with too many projects, they would become much more productive. Some development managers were frustrated that as they attempted to implement the ]PM mandate to "v,'eed out" the excess number of development projects that were clogging their development funnels, mandates from regional management to harmonize de\'eJopment initiatives across country borders were to the project workload. "We've cut way back on the number of new products we're trying to develop," noted one manager in the company's Swedish subsidiary. But we have more projects consuming the time of our people because of requests from the Innovation Centres that vve harmonise our products with others in the region. As a result, [ think we've become slower, not faster, in product development."

The New International COllcept for Food Products

Unilever had fewer international foods brands in its portfolio than detergents or personal care products. This was partially due to the company's heritage, of having acquired a vast array of companies, brands and products. There were also some genuine differences in the attitudes of consumers towards particular types of foods, which were deeply rooted in the cultures of different European countries (see Exhibit 4). While coping with this diversity was particularly vexing for foods makers, even manufacturers of seemingly "standard" products such as laundry detergents had to cope with significant habitual differences across countries (see Exhibit 5). In the past, Unilever had addressed this diversity through local companies which had independently developed products tailored to local traditions. The result was not only local brands but managers who had considerable freedom in selecting which product lines to pursue and what targets to set. Occasionally this meant that similar products were developed in parallel in different countries, however.

There seemed to be conflicting evidence about whether a globally or regionally managed foods company would be more successful than a locally organized one. There were some food products (mostly produced by competing firms) whose manufacturers seemed to have been able to overcome the power of local taste and tradition in order to create relatively uniform regional or global products and brands. Exhibit 6). Unilever's main Nestle, Procter & Gamble, Jacobs-Kraft-Suchard and !\1ars, indeed were all more centralized in manufacturing and had strong global

such as Nescafe and Even Unilever had introduced some food for

4

Butter-Beater: Innovation for Global Diversity

The Development of "Krona"

the

worse j Unilever market To renew its the company faced two broad

which would have to grow LV11,,...,<t;;t

<:pcrrr""nr as POi5SllJle. ny"''',,hilc. in the short term, not

that would fats market seemed obvious.

Market surveys conducted in ugg;estE~d that fat sales were because health consciousness was pf<Jmptjin fat. were eaten without

Although many new less fat, attitudes towards these were rather it was deemed not enjoyablej not essential for nourishment, and (in Germany) not "natural" -- findings that implied an opportunity for a healthy, more natural but good-tasting product. The management established a "Novel task force to develop internationally feasible alternative Peter Brohmeyer, marketing director in Germany, oversaw this team, which included marketing, market research and development managers from six different countries. This group synthesized inputs from each of Unilever's European foods subsidiaries.

The task force developed several novel spread concepts and presented these to the category board j which selected five as international possibilities. One was a "butter-beater" product, called

which held the of the cornerstone of a new product ""torn",""

at Union Deutsche Lebensmittelwerke the to

The Krona from focus group research in were uncertain about the benefits both butter and

5

698-017 Unilever's Butter-Beater: Innovation for Global Diversity

made from cream rather than a and better than low-fat butter alternatives. Yet it contained

The team An international

meet monthly to excited about the butter and fit with the international

from the

to be UDL

the shortest possible time, as requested from the r;!,-pUl)n

Positioning Krona in the German Spreads Market

and tasted 80':~) in and

this

a real alternative to and to do so within

In Germany, 95(h) of the population of 80 million people used butter or margarine (including low­fat margarines) as a spread on bread; about 60% of these consumers also used alternative such as cream cheese. Of the total spreads volume of 830,000 tons, butter represented 44(yo and margarines 55%. While the trend for margarines and butter was declining, the smaller market for alternative spreads, especially for "spreadable cream products" (6,600 tons in 1994) was growing fast.

In 1994, Krona was tested with different positioning approaches in existing product segments: as ne\v alternative close to butter, to margarine, to cream-cheese, to curd, to creme fraiche, and to sweet spreads. To test these positioning alternatives, the same product was given to different focus groups with packaging and explanations that caused consumers to associate the product as an alternative or derivative product within existing categories or as a new category. From this research, the approach that attacked butter directly-the "butter beater"-was chosen. The idea was to offer an attractive alternative to butter rather than to imitate butter. Team members referred to this as "benchbreaking" rather than "benchmarking".

Next, a plastic tub package that emphasized the product's difference from existing butter­alternatives was designed (see Exhibit 7); a purchase price 30% higher than butter was set; and an advertising campaign was created. An extensive market research program followed, including concept-product tests (quantitative), advertising previews, and a microtestJ for consumer acceptance and volume estimation. The result looked very promising. Nevertheless, results also showed that the product's perceived uniqueness was rather low: consumers could not reallv say what was so special about Krona. The project team felt that this could be improved the right ad\'ertising, however.

As a result of this research, the German team also decided not to position Krona as a low-fat As Peter Brohmeyer pointed out, "Excellent taste and Imv-fat content are believed in

and manv countries to be . If we had the low~fat benefit of people would not have believed that it tastes much better than low-fat v\'hich \vere attacked the media because of their lack of taste and their

6

Vnilever's Butter-Beater: Innovation for Global Diversity 698-017

In October and the and Before it in the German

had to be coordinated across to ensure a smooth roll-out across the continent.

As a first the team had to reconsider the brand name. The trademark "Krona" had been tested in but other held trademarks for that name in several other

European countries. For the first time, the team had to with the European several names were tested but many were not internationally feasible. ";Vlorgen" was a known Unilever brand in several countries, but tests showed that it in it was perceived to be a cheese. In the end, the team decided that the product would have to have different local brand names. "If there was no best solution for Europe then we should take the best solution for Germany as the test market" recalled one member. The product would be introduced in Germanv as Krona. Later, the name \vould be adapted in other countries as needed.

The struggle with international diversity continued in devising a common advertising concept. The bread types on which to spread Krona were as different in each of the countries as were spreading behaviors (the French preferred to dip their baguettes, the English liked toast, and so on). The German team together with the advertising coordinator from the center and an international team from an advertising agency finally created a commercial that emphasized Krona's unique taste. The concept, "Krona changes history" \vas selected from a pool of 25 ideas because it was perceived as a good campaign for Germany and was internationally viable as well.

The German Launch

fn September 1995, Krona was introduced in Germany \vith great fanfare and a substantial marketing budget. The response was even more positive than forecast. "The supply could hardly meet the demand, and commercials had to be delayed as supermarkets temporarily ran out of stock," a member of the German team recalled. By the end of 1995, 700 tons of Krona had been sold, and the product was stocked in 78'/" of retail outlets. Even discounters (with their strong limits on product line breadth) carried Krona because of its good turnover. By the end of 1996, 3,700 tons had been sold, and sales of 7000 tons were expected in 1997 -- in line with the microtest forecast. In the small segment of "spreadable cream products" Krona had achieved a market share of 53%. According to market research, 46% of Krona volume came from butter, 22% had been drawn from margarine, and 11°", from cream cheese. Only 1 '\, of customers had been users of other novel spreads. Even

a small share of the Krona volume seemed to have cannibalized other UDL N",,,j',,,,,rn was reflected in a rate of 50'\,.

Krona won Unilever's Internal Innovation and the Cerman ;:'W,c.t:::,,,,. The first of the

an international . the international roll-out

The Tortuous Transfer of Success

Members of the Cerman team, the Unilever center, felt that a launch in several the launch of Krona in

Nederland

of lead

Now the

7

698-017 Unilever's Butter-Be,,!er: Innovation for Global Diversity

managers in those

Van den N noted Britta

the

"The

mix unattractive sales and and

unenthusiastic about the

The market structure and consumer attitudes toward in the Netherlands were different from those in Germany. Butter had a market share of only 13'~) v\'hereas margarine had 87% of the total yellow fats annual \'olume of 196,000 tons ]994), Butter 'was also perceived as very unhealthy and full of fat: the Dutch did not share the Germans' perception that butter was more natural and therefore more healthful. Because of these factors, VdBN's Yellow Fats development and marketing staffs, located in Unilever's colorful, art-filled Center for Product Innovation in Rotterdam, initially had been very enthusiastic about the Krona concept. As the formal co-development center for Krona, they had formed their own team to shape the concept for the Dutch consumer.

It soon became clear, however, that their ideas were diverging from those of the German team, One manager recalled, "We really believed in the project but were frustrated, But it wasn't long before people on our team were coming into my office pulling out their hair saying, 'The Germans are not listening to us, It 'will never work unless ~we get Germany to change it.'" Increasingly, it appeared that because Krona had been developed in Germany, the Netherlands team would have to adapt not only the product formulation, but the entire marketing mix to the unique tastes and competitive characteristics of its market.

This rocky beginning led to even greater obstacles to launch, when microtest results conducted by VdBN were decidedly negative, Opinions were mixed about why the concept. which initially generated such excitement, novv seemed to have fallen so flat in the Netherlands.

"It is important to determine up front what the criteria for success and roll-out are," said Neil Braams, general manager for VdBN's Yellow Fats business, "Some people here question whether Krona really is a success. Based on Germany's microtest of 4,000 tonnes, I would not have launched n totally new brand here in the Netherlands, The high investment in advertising would not make an attractive business case, I am not sure what sort of trading contribution! the brand makes in Germany," Because the volumes projected by the microtest were too low to justify establishing a new brand in the Netherlands, opinions within VdBNL management began to align around integrating the Krona concept into an brand as a line extension,

Another reason for the poor microtest results was that in the German market there was already a reference point in butter alternatives for consumers, such as the brand which had been in the albeit in small for some time, In the Netherlands there was not e\en a nascent white creamy have to be educated about \vhat Krona is and what the of sllch a new are money/' another team clear ,vhether this volume or vvill niche, Is the risk of

the hdd taken to establish had been

in the most recent three years that sales had grown to meet

8

Unilever's Butter-Beater: Innovation for Global Diversity

Braams

different consumers' needs. This

enthusiasm for Krona innovation but f,ovn,,,,c

which then divided

698-017

been

and several seemed verv volume was

declining and its managers felt pressure to near term incremental sales from v\ Il1 " I'd sum it up this way," noted a team member in Rotterdam. "The Krona concept just does not promise to be a big success in the short run, and there are better options available."

"vVhen the microtest was carried out, I think we probably wanted to prove that it would not work," another team member concluded.

Despite these concerns, VdBNL marketers wzmted to continue to explore the Krona concept with a low level of resource investment, to finalize their views about vvhether the had any chance for sllccess in the Netherlands. If positive evidence emerged, they planned to adapt Krona to their own situation and learn from the Germans' experience.

The British Perspective

As in the Netherlands, there was no alternative segment for cream spreads yet established in the UK. The total market for all spreads was 480,000 tons -- with butter representing 24%, and margarine and other spreads 76(7. .. Van den Bergh Foods' margarine brands, whose market share was 45(/:, of the margarine category, included Flora, r Can't Believe It's Not Butter!, Stork and Olivio. Although the use of butter and margarine was declining, UK marketers were not sure whether a significant new product category could be establisht'Ci. As marketing manager Gillian Herrera-Heys worried, "The trend might develop, but at the moment only 6% of consumers use alternative spreads. You haye to get on retailers' shelves quickly, and if YOll don't succeed from the beginning they will kick YOLl out. You need to have a strong proposition from the outset. There's little time to educate consumers about what Krona is." Indeed, the dynamics of the UK foods market were dominated by its two massive retail chains, Sainsbury's and Tesco. Both were devoting increasing amounts of shelf space to their own store brands, in which they could generally earn greater margins than they could on sales of high priced, more heavily advertised branded products.S They consequently applied significant pricing pressure on their suppliers of branded products, and dropped SKUs which did not meet their for profit margin per meter of shelf space.

recalled his involvement with Krona: "The IC taste idea to have a new rx~po'(>r\! for the UK. An alternative

and

The VdBF

9

698-017 Unilever's Buller-Beater: Innovation for Global Diversity

tn local conditions: the

that additional salt \vas added to and

taken as been in for international markets, the UK team did no further of these concepts in focus groups; the first evaluation was the microtest, and the results were very disappointing. The number of people attracted to buy Vive la Vie was below average, and after a test the percentage of people who liked the product was low. The main dislikes were the tlavor, the short refrigerator life product had to be consumed within five after being opened), and the texture. Based on this test, sales volume was forecast to be 590 tons in the first year, declining to 430 in ongoing vears.

Research International, which had conducted the microtest, concluded, "The product was specifically assessed on each of the main usage factors and none of these generated a satisfactory performance rating. \Ne feel it is therefore reasonable to conclude that, ,,>'hilst trial could be increased via positioning/ inducement, the product would still fail to generate satisfactory adoption."

Gillian Herrera-Heys offered her interpretation: "Customers perceived no clear advantage of Krona; they didn't understand the product's difference. It wasn't matching their expectations: they were expecting a multi-purpose spread. Krona has to be used additionally to other spreads in the kitchen. They already have to stock margarine in the refrigerator. :vIany also stock butter. What reason is there for them to stock yet another product? Either it must be a multi-use product, or people need to see a clear, particular occasion on which to use it."

"As long as we are uncertain about what kind of product Krona is, how should we expect consumers to understand it?" noted another team member, Manfred (Fred) Dudley. But Dudley also saw a caveat in the microtest results: "In the test you can't separate the product from the marketing mix, or the marketing mix from the market. Maybe the results were attributable to Krona's marketing concept being insufficiently adapted to our situation."

There was, in fact, some sentiment within Unilever that the results of a microtest could be influenced by the energy and enthusiasm of a product's champion de\'oted to finding a flavor variant and marketing mix that could appeal to consumers in a particular market. vVhile more effort could have been made to find something that could work in the UK, given that the product was such a success in Germany! the poor initial test results reduced the team's incentive to invest additional time in Krona. Moreover, they had other priorities. It was their mission to develop internationally usable spreads targeted at the health-conscious consumers, and they developing new healthful margarines that would be tested first in the UK market and later rolled out internationallv.

'The lesson we have learned from which we will trv to is to have more international im'olvement up-front in

on the and before we one team member. "For some reason, the international the Krona team collected in the made little difference results."

Krona vI/as launched in Austria Unilever's Austrian was

its resources were the Krona launch with an in-store

program. The television ads broadcast on German television stations that could be received in Austria. sales volumes

10

Unilever's Butter-Beater: Innovation for Global Diversity 698-017

countries' cultures are Unilever's the little momentum in Unilever's

French and Swedish subsidiaries.

The

Although Krona was a success in the German team felt that the to a multinational product had not been met. the new with an international team that had on the Krona concept in the beginning, the results after the development of Krona were as national as ever before. A new nationally successful brand had been created that probably would not gain high volumes across Europe.

Opinions about how Unilever ought to respond to these developments differed significantly. Peter Brohmeyer, the German team leader, noted, "We realize even more now, that the diverse cultures in the European countries lead to enormous differences in consumers' preferences. You can't assume that if you have good results in Germany, the European potential is similar. It is still different and we have to take this into consideration for our strategies."

Some, however, were convinced that Krona was interniltionally adaptable and could be successful in the other countries. It was just that local managers had not wanted to cooperate: "It's the not­invented-here syndrome, plain and simple" another posited. "The negative test results were an excuse for not having to support a product from another country. Another German team member was more forgiving: "It's not bad will on the part of these managers. They just have other priorities."

Another interpretation that had considerable support in Hamburg was that Unilever's budgeting system impeded international roll-out. There was no international budget for market introductions in the various countries. The German team had been given a higher budget for international product development and advertising, but the financial risks of market introduction were carried by each country on its own. High costs for advertising in the first year of launching a new brand, for example, could significantly lower the year's profit of the local company, if sales of the product were lackluster.

There was more unanimity about whether more intense involvement of other countries during the development phase would have been a good idea. or would do it the same way again," concluded one team member. "It is not a good idea to develop for multinational needs in the first " said another. "Make it successful for your mvn country and then roll it out to Europe. Don't compromise in the beginning. The is to fail in your own because then you could not motivate other countries to follow. The that will create excitement in other countries is success in the of first launch." concurred: "You would lose resources, and it would more than double the time of to to the

needs in the " One also realized that some of the members of the international team, who had to the and had meanwhile left company had been

within Unilever.

Another "'Jovv

don't can love it or lec1Ve it."

11

698-017 Unilever's Butter-Beater: Innovation for Global Diversity

The Future

For the first time in the Onilever Yellow for other on local

countries a multinational and different countries had of it. had learned about the cultural differences

it was clear to all members that the process of if Onilever wanted to

branding and manufacturing. and But something was wrong

more time was needed for with the entire process. As Bill

Bordewijk pondered the Krona he puzzled over a series of

12

• Was the of a Europe-wide alternative product not feasible? It had been supported by market studies showing a common opportunity gap and e\'eryone had agreed on that in the beginning. Was successful implementation just a matter of getting the details of the process for local adaptation right?

• Was Unilever's organizational structure the main problem? Did the different countries, each with a different focus, have no incentives to cooperate? Did the local freedom that had been part of Unilever's history not work with an international How should the company evolve to become a global player?

• Should there have been more integration between the lead-country developing the product and the other countries? While the general steps that Germany took were agreed in the international team, there was no international commitment for coordination of details. Was it a good idea to set the first milestone (microtest) at the end of the whole process? Would it make sense to have earlier milestones where managers of the different countries have a chance to approve issues beyond the general concept before it goes too far forward?

• Is there a compelling rationale for attempting to regionalize or globalize product de\'elopment? Would global products and brands really lower the costs of local introduction? What was the financial leverage for developing such products?

Unilever's Butler-Beater: Innovation for Global Diversity

Exhibit 1 ,",pl:prlrpcl Unilever 1496

Unilever made

Helene Curtis

Diversey

Malloa

Lyons Ireland

Compaceites

Biopa!

Van Lieshout

Pittihela/Helados Unidos

Polka

Hefei

Capsa

Wilco

in 1996, These included:

Hair Care and Deodorants

Industrial and Institutional Cleaning Products and Services

Tomatoes, Fruits and Vegetables in Chile

Tea in Ireland

Detergents and Yellow Fats in Panama

Frozen Bakery in France

Meat snacks in the Netherlands

Ice Cream in Ecuador

Ice Cream in Pakistan

Fabrics in China

Detergents and Yellow Fats in Paraguay

Detergents in Israel

Unilever made 38 acquisitions in 1995, The most important were:

Colman's

Gorton's

Hazeline

Auto-Chlor

British Arkady

Vivere

Glidat Strauss

Industries Pacocha

Den

Mustard, condiments and dry sauces in UK

Frozen fish in USA

Skin care and soap in China and South East Asia

Institutional detergents in USA

Bakery materials primarily in UK and Germany

Fabric softener in Argentina

Ice cream in Israel

Tea in Chile

Yellow fats, soaps and toiletries in Peru

the Netherlands

69.9-017

13

698-017 Vnilever's Butter-Beater: Innovation for Global Diversity

Exhibit 2 Cost Structure of Unilever in

Turnover 100 Cost of goods sold 55

Raw materials 33 Direct conversion (manufacturing) costs 8 Packaging costs 8 Indirect (manufacturing overhead) costs -.2

Total cost of goods sold 55 Selling expenses 13 Advertising & promotion 11

Cost of producing advertisements 2 Costs of media buys and promotions -.J!

Total cost of advertising and promotion 11 Research and product development 2 General & Administrative ~ Total costs 92

Operating profit 8 Net profit after tax 5

Note: Unilever officials felt that harmonizing its products sold throughout Europe would improve manufacturing costs. They noted, for example. that whereas the company's comparably-sized yellow fats operation in the United States sourced product and packaging materials from three suppliers, its combined European operations utilized 118 suppliers. ,"'Ollrce (.nilel'et' {JllIllw/jinIJncia/ reports.

Exhibit 3 Introduction Costs for Food Products (During time period from idea market launch, in millions of dollars)

R&D

manufacturing (fixed

14

& promotion

be a.::commodated lines. the

New Category Product

$3 SOA $7 S 0.2

$13 $3

2-3 years months

through

$ 0.05

$0

$ 0.5

6 months

Unilever's Butter-Beater: Innuvation fur Global Diversity 698-017

Exhibit 4 Differences in Attitudes on Issues about Butter and in Selected Countries

15

698-017 Unilever's Butter-Beater: Innovation for Global Diversity

Exhibit 5 about Procter & Gamble's Launch of its New in

the of Procter & Gamble had to decide about the launch of "Vizir", a new as a standardized product in At that time the market for

and "Vizir" would therefore have to establish a new the management team, whether to launch the product as a standardized different were diverse, Advocates of the Eurobrand cited numerous There were nine different Dash (another detergent of P&G) formulas in Europe, Another product was sold in nine sizes throughout Europe, To go to a single formula, standard-size and multilingual labels could save the company millions of dollars in mold costs, line downtime for changeovers, sourcing flexibility, and reduced inventory levels,

Country general managers, in contrast, pointed out that the could easily be offset by the problems that standardization would create, Some of their comments were:

We hm'e to listen to the consumer, In hlind tests in my market, thaI peljiltlle cannot even aehiel'e break-el'en

The whole detergent market is in 2-kilo packs in Holland. To go to European standard of 3-kg and 5 -kg si::es ll'ould be a disaster/or liS,

We hare ilf'O phosphate laws in Italy thai constrain 0111' prodlletformula, Alld lrejlls/ don't hare hypermarkets, like France or Germany, 1l'here YOII can drop of pallet loadl',

There is no slieh thing as a ElirOclistomer, so it makes no sense to talk about Eurohrandl', We hare an l:'nglish hOllselrife whose needs are different ji'om a German hau!JFall, filf'l! /1Im'e to a system that allOlrs liS to blllr our thinking. Ire will hare hig problems,

Product stalldardi::ation sets lip pressures to meet evelybody 's l1eed~ (in If'hich casc, )'011 huild a Rolls Royce that nobody can (dford) and c(}unterrailing pressures tojind the IOlrest-common-del1omill(JlOr product (in which case you make a prodllct that sati,ljies Ilobody and that canNot compele ill allY market), These pressures

result in thej(ml middle compromise that is so ojfen the olilcollle ofcolllmitlee decision.

" J illS

16

Unilevers Butter-Beater: Innuvatiun fur Glubal

cheese 2 2.34

5,3 2.08

yogurt 2 6.6 2.00

cream cheese 2,04

1.78

2,09

butter 1.38

"Philadelphia" brand cream cheese 5 8 8 8.8 1.11

"Nutella" brand chocolate spread 7 3 13 9.0 1.15

desserts 1,77

cookies 2,65

2.08

7 2 7.4 1.75

10 3 7.8 1.87

6 13 9.1 1 ,21

6 18 9.5 0.92

17

698-017 Unilever's Bulter-Beater: Innovation for Global Diversity

Product Std. Dev.

mustard 4 9 4 6.0 2.01

mayonnaise 7 5 7.0 1.58

5 8.0 1.35

oil 2 2 8.5 1.57

Worcester sauce 2 8.9 1.60

sausages 2 2 3.6 2.09

salami 2 5.3

canned meat 3 6.0 2.38

fresh fish 6 6.6 2.33

frozen fish 5 3 7.4 2.06

frozen dinners and entrees 4 3 5 7 3 2

sauces 7 2 5 7

canned soups 4 6 5 4

soups (dry mixes) 6 2 4 5

pasta sauces 2 5 4

frozen pizza 4 5

oriental (e.g. Ramen) noodles 4 3

pasta noodles 2

canned vegetables 2 5 6 2 4 3 6.6 2.74

frozen green beans 2 3 5 9 5 8.2 1.61

bread 5 3 5 4 4 3 2 3.9 2.32

jams/preserves (specialty) 2 5 3 10 3 3 6.0 2.17

jams/preserves (basic 3 5 4 4 6 6.9 2.00

2 2 2 4 7 6 4 7.6 2.02

18

Un;J ever s Butter-Beater: Innovation for C loba l Dive rsity 698-01 7

Exhibit 7 Top View of the Krona Package Designed for the German Market

19