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Unilever in Brazil 1997-2007: Marketing Strategies for Low-Income Consumers – Case Solution

Unilever has an 81% market share in the Brazilian detergent powder market and has well established its name in the industry. It is looking into whether it is time to move away from its premium brands to target low-income consumers in Brazil. It is also considering product repositioning of its existing brands to forego launching a new brand. In either decision, Unilever is faced with challenges in pricing, promotion, and distribution strategies.

​Pedro Pacheco Guimaraes and Pierre Chandon Harvard Business Review ( INS615-PDF-ENG ) February 01, 2004

Case questions answered:

Case study questions answered in the first solution:

• Conduct a Five Cs analysis for Unilever Brazil.
• Should Unilever target the North East Brazil Market?
• Evaluate the various marketing strategies for low-income segments in NE Brazil for Unilever.
• What marketing mix strategy would you recommend? Address the following issues in the recommendation. Back up your recommendations using financial analysis.

Case study questions answered in the second solution:

• Should Unilever target the low-income segment of consumers in the Northeast of Brazil?
• Evaluate Unilever’s current brand portfolio. Is a new brand necessary to serve the low-income segment, or could Unilever reposition or extend one of its existing brands?
• If you were to introduce a new brand to serve the low-income segment, what would its positioning statement be?
• How would you design the marketing mix (product, price, promotion, and distribution) so that Unilever can create value for low-income consumers in the Northeast of Brazil?

Case study questions answered in the third solution:

• Should Unilever divert money from its premium brands to invest in a lower-margin segment of the market?
• Unilever already has three detergent brands with distinct positioning. Does it need to develop a new brand with a new value proposition, reposition its existing brands, or use a brand extension?
• What price, product, promotion, and distribution strategy would allow Unilever to deliver value to low-income consumers without cannibalizing its own premium brands too heavily?

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Unilever in Brazil 1997-2007: Marketing Strategies for Low-Income Consumers Case Answers

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PART 1: Five C Analysis for Unilever in Brazil

Unilever aims to target customers coming from low-income households living in North East (NE) Brazil, earning at most two times the minimum monthly wage. Most of the families living in the region do not own a washing machine and thus engage in hand washing the clothes.

The women in these families attach a symbolic value to cleanliness & take great pride in making sure the family wears clean clothes daily. Hailing mostly from working-class families, their fabric cleaner requirements are quite different from the other mid-income and high-income families.

They work in tough environments and wash their clothes regularly(almost five times a week). Hence, there is a need for a powerful laundry soap to remove stains from the collar and sleeves.

The process of washing clothes in the region involves handwashing using laundry soap, followed by bleach and detergents, to add a pleasant smell.

Keeping in mind the needs and washing habits of this customer segment, a product that delivers high on the following mentioned factors would give them a desirable return on their investment.

• Low price point
• Cleaning and whitening effectiveness
• Pleasant perfume
• Ability to remove hard stains

Unilever is a USD 56 billion company headquartered in London and the Netherlands. The firm is a pioneer in Home Care products and started its operations in 1929. Unilever has firmly established itself as a leader in the detergent market and launched the first detergent powder OMO in Brazil.

The detergent category is the cash cow for Unilever in Brazil, providing fuel for growth in the food and personal care categories. Unilever has currently captured 81% market share in the detergent segment through its three brands: OMO, Minerva, and Camperio.

The firm is also an established player in the laundry soap segment, with a 19.1% market share through its Minerva brand.

Competition:

The cloth washing market in Brazil can be divided into two product categories:

1. Detergent Powder:

In the $106 million market (annual growth rate of 17%), Unilever’s OMO (priced at $3 per kg) is a market leader with an overall market share of 52%. It is followed by its second-largest brand, Minerva (priced at $2.4 per kg), with a 17% market share. P&G’s Ace and other detergent powders, priced similar to Minerva, own a 17% market share.

Both Ace and Bold, acquired by P&G in 1996, are perceived as superior quality products than Minerva by their customers. While Ace differentiates itself by offering superior whiteness, it is Bold that competes directly with Minerva- both in terms of pricing and positioning in the market.

In the low-cost segment, Unilever’s Campeiro has the biggest share of the overall market. It is closely followed by Invicto, which owns 5% of the detergent powder market and is a key competitor to Campeiro. P&G’s Pop is also an entry-level detergent powder with less than 1% market share. However, it is perceived to be a better product than Invicto.

2. Laundry Soap

The laundry soap in Northeast Brazil is valued at $102 million and is growing at an annual rate of 6% every year. Priced at $1.7 per kg, Unilever’s Minerva is the only single big player in this market and owns 19% of the overall market.

Bem-te-vi and Flora, priced at $1.2 per kg, own 11.3% and 6%, respectively, of the overall laundry soap market in the NE. The remaining 63.6% of the market is co-owned by multiple small and local players.

In terms of big competition, P&G is the single biggest player after Unilever in Brazil. Entering the market in 1988, it acquired the detergent businesses of Bombril and its three brands in the year 1996.

Currently, P&G owns a 17% market share in this category but is a real threat to Unilever because of its global expertise in marketing and R&D. It also has a better brand perception in both the mid and low-cost categories of detergent powder in the NortheastNortheast, which is a growing cause of concern for Unilever.

Brazil, with its population size of 170 million, is the second-largest country in Latin America. Its population is spread across two clusters: one group- 73 million, concentrated in the Southeast, and the other group- 48 million living in the Northeast.

65% of the population in the NE is a mix of African and European origins. Lifestyle, culture, and religion are all influenced by African culture. Music and humor are key elements of their culture and history.

In the last three decades, Brazil has experienced cycles of deep recession and strong economic recovery. The GDP grew by 8.1% per year during the “economic miracle” of the 70s but only by 2.6% per year during the 80s. During Fernando’s term as finance minister in 1995, initiatives like Plano Real led to strong economic recovery during the ”95-96 period.

As of 1996, per capita income in Brazil is $4420. Given the huge differences in employment generation and regional growth between the Northeast and Southeast, the per capita income in Brazil’s Southeast cluster is $6600 and $2250 in the Northeast.

Because modern Brazil’s economic and political power is firmly rooted in the Southeast, only 21% of the population lives on less than two minimum wages vs. 51% of the population in the Northeast.

The NE Brazil region, in general, lags behind its SE counterpart in most development indicators, including per capita income (2250 USD as against the SE average of 4420 USD) and illiteracy (40% as against the SE average of 15%).

Collaborators:

The sale of detergent and laundry soap products by Unilever is conducted via a wide network of generalist wholesalers, which primarily serve supermarkets and rely on secondary wholesalers to reach the smallest retail shops.

Since the target customer is most likely to buy the low-cost detergent through these small retail shops, Unilever could expand its reach by partnering with specialized distributors and exchanging information to incentivize them through assurances or extended benefits.

Unilever would also reap considerable benefits from building strong ties with small retailers as the consumers look them up for advice and financing.

PART 2: Should it target the NE Brazil market?

Unilever has been operating in the detergent segment in Brazil since 1957 and has become a leader in the industry. The company now seeks to expand its market share in the detergent business, for which exploring growth opportunities in NE Brazil is advisable. Unilever’s market share in the NE Brazil detergent segment, currently at 75%, is below their national average of 81%.

The region provides the immense potential to uncover value and gain market share, given the fast-growing consumption rates and the soap market’s fragmented nature. The NE Brazil region, if left untouched by Unilever, could be captured by its competitors, and therefore, it is imperative to achieve the country-specific targets.

Specifically, Unilever should focus its marketing efforts on low-income consumers in the NE Brazil region. The “Everyman” project conducted by the marketing team suggested that low-income consumers are keen to buy Unilever’s premium detergent brands but are restricted due to budget constraints.

Detergent soaps, which provide a relatively inexpensive alternative, are therefore used by most households for washing purposes. The cleaning process using soaps requires intense and sustained efforts and tends to leave a yellow tinge on the clothes. Also, the customers buy bleach to remove hard stains and a small amount of detergent to make clothes smell good.

With the overall positive perception of its premium brands among low-income consumers, Unilever should leverage its expertise in detergent production capabilities and market knowledge. It is to create a product that is deemed an effective cleanser and fits the customers’ budget constraints in the segment. The demand for such a product in the market is expected to be high. It should be capitalized upon by the firm.

Secondly, the detergent business line tailored for low-income consumers is expected to be profitable even though the margins on the associated products are low. Currently, Unilever markets three detergent products with different price points.

Unilever can redesign its cost structure with correct marketing efforts to achieve the margins necessary for earning profits. Also, the market for a low-cost detergent is set to grow considerably in the coming years, which further incentivizes the firm to pursue it.

The table below provides the market projections for non-premium detergents in NE Brazil. The analysis considers the following assumptions:

• The detergent market is expected to grow by 17%, while the laundry soap market is expected to grow by 6% annually. We are also assuming that these growth rates remain constant over the period of the next four years.
• The proportion of non-premium detergents in the overall segment remains the same.
• The firm would increase its market share in the non-premium market from 48% currently to 60% in 4 years.
• Low-cost detergent products would trigger a transition from the laundry soap market to the detergent market, leading to additional sales.
• The $ conversion factor from soap to detergent transition is assumed at 0.7, considering the increase in price points and a decrease in consumption, given the cleaning effectiveness of detergent over laundry soap.

Market size projections

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Unilever in Brazil Case Study

solution to case study: Unilever in Brazil Group project during Marketing course

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Unilever in Brazil 1997-200: Marketing Strategies Case Study

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Introduction

Targeting low-income segment in the northeast, unilever’s brand portfolio, marketing mix, final thoughts and recommendations, works cited.

Unilever is one of the most significant consumer goods companies offering cleaning agents and detergents. This report analyzes the opportunity to target the low-income segment in the Northeast of Brazil the company has. It presents the argument for the actions the organization should take, discusses Unilever’s brand portfolio, and addresses the aspects of repositioning. Moreover, the paper provides a Marketing Mix, discussing the details of the new product’s formulation, packaging, promotion, and distribution. Finally, the report features personal thoughts on the presented case and possible recommendations.

It is possible to say that Unilever should target the low-income segment of consumers in the Northeast because they represent a large and unengaged market that has a distinct customer base. The case study reveals that there are almost 50 million customers coming from economically disadvantaged backgrounds in the area, which is a significant population segment the company can work with (Guimaraes and Chandon 3). Moreover, low-income customers tend to use soap and laundry detergents frequently, although less than 30% of them have washing machines (Guimaraes and Chandon 3). It is evident that doing laundry is a significant part of the community’s life, as it is considered a recreational activity.

Notably, the Northeastern region is one of the most appropriate segments for targeting the country. The reason for it is that the consumers value the perceived power of the detergent, its smell, and the ability to remove stains (Guimaraes and Chandon 4). At the same time, they do not consider the product’s impact on color fading and packaging as significant factors affecting its quality. These preferences can be considered beneficial for Unilever because the consumers from the low-income segment may be interested in the products the company already offers, which means that it does not need to develop a new brand.

The detergent market is notable in the area, too, as it has shown more than 15% of growth and is expected to grow more (Guimaraes and Chandon 5). Unilever is one of the strongest competitors in the market, which means that it has all the resources needed to target the segment.

At the same time, it is vital to mention that the population of the Northeast region has a relatively low level of income. It comprises only $2,250 per capita, which is similar to the income of individuals living in Peru or Jamaica (Guimaraes and Chandon 3). Notably, the population’s level of income is not the same throughout the whole country. For instance, the case study reveals that the Northeast region shows a poorer level of performance and lags other areas of Brazil on all development indicators. In addition, 40% of the individuals living in the area are illiterate; more than 50% of the population lives on less than two minimum wages (Guimaraes and Chandon 3).

It means that potential customers have low purchasing power. Thus, the company should pay attention to the strategies it utilizes to ensure that the products are not overly expensive for local consumers. Otherwise, it will not be feasible to target the low-income segment of consumers in the region. All in all, it is possible to conclude that expanding to the local market is beneficial for the organization because the area is still untapped. Moreover, low-income customers in the Northeast of Brazil may be highly interested in Unilever’s products. However, as mentioned above, the firm should develop its strategies carefully and only present the products that will be popular among local consumers to be successful in the market.

Unilever is an England-Netherlands-based company that is present in more than 150 countries, having more than 300,000 employees (Guimaraes and Chandon 5). In 1996, the organization had more than 1,500 brands that included 45 detergent brands. The company’s most successful brand is Omo, which was launched in 1957 as the first detergent power in Brazil (Guimaraes and Chandon 5). In 1996, the organization started to operate in three dimensions, including personal care, home care, and food. At the same time, detergents remained the most profitable category Unilever Brazil presented, supporting the development of other segments due to a high level of profit (Guimaraes and Chandon 5). In 1996, the company had a more than 80% market share in the detergent powder segment in the country with three brands, including Minerva, Omo, and Campeiro; these figures remain the same.

Omo could be considered one of the most popular and favorite brands among Brazilian customers across all categories. It had a more than 50% market share; its price for retailers was $3 per kg (Guimaraes and Chandon 6). Minerva, in its turn, was the only brand the company sold both as laundry soap and detergent powder. It had less than 20% share in the market and its retail price comprised more than 80% of Omo’s one; it constituted around $1,5 per kg (Guimaraes and Chandon 6).

Finally, Campeiro was the cheapest brand Unilever presented, as its cost was less than 60% of that Omo had. However, its market share was only slightly above 5% (Guimaraes and Chandon 6). More detailed data on these three brands are presented in Figure 1 below.

It is possible to say that creating a new brand is not necessary for the company; moreover, it may be counterproductive for the organization considering its desire to reduce its brand portfolio (Shah 371). Repositioning one of the existing brands seems the most feasible solution because it may help Unilever to reduce the potential costs associated with establishing a new brand for the low-cost market of the Northeastern region of Brazil specifically. In addition, it may lead to a positive perception of the altered product (Zhang et al. 1235). The most feasible decision, in this case, is to work with the already existing Unilever brand that is not present in Brazil.

For the local consumers, it will seem like the new product is presented on the market, but for the organization, there will be no need to develop a new formula and spend additional funds on it. The product that can be repositioned is Bio Presto because it is a detergent that is not present in the country (Guimaraes and Chandon 14). The new name for the product will be Lavando because it is a word local communities are familiar with. The detailed information about the product, its price, and its promotion and distribution methods will be discussed in detail in the following section of the paper.

The product should be designed in reference to the features consumers value in detergents. As mentioned above, they include presenting an excellent ability to remove stains, high cleaning power, and pleasant smell. The company should concentrate on these three features in developing its product. The analysis presented above shows that the organization should reposition its existing product and present it in the local market. Although the name of the detergent powder will be changed to Lavando, the formulation of the product will remain the same. Lavender has all the characteristics the customers of the region value. It has high cleaning power, is effective for stain removal, and has a pleasant smell due to the fragrances in its formula. The product will be supplied with several types of fragrances, they will include the smells of flowers, fruits, and berries.

The packaging of the product will not be different from that of other Unilever’s products and will be made of cardboard. The company will not focus on eco-packaging, as it may be associated with higher costs, and the local customers do not list packaging as one of their values. The packaging will have blue packaging similar to the one Campeiro has because this way, it will be easier for consumers to recognize it. Depending on the fragrance of the product, the packaging will have decorations of flowers, fruits, or berries.

It may be feasible to produce the product in two packaging formats, for instance, packs of 500 g and 1 kg. It will be more beneficial for customers to buy bigger packages because they will have a lower cost per kg. The price for both formats will be low, and the price for kg will be similar to the one for Campeiro, as it is the cheapest detergent on the market (6). For example, Unilever can set the price for the new product at 125% of Campeiro’s price. The recommended retail price will also be set; it will be suggested that retailers should add not more than 15% to the initial price.

The objectives of the promotion will be to attract customers and increase their interest in the new product and Unilever’s items in general. It will be crucial to help consumers to feel connected to the brand and understand that Lavoro is a useful and affordable product for them. The primary message the organization will use is “?ansado de lavar � moda antiga? Lavar com Lavaro!” (Tired of washing in an old way? Wash with Lavoro!). A simple message has been selected because it should be understandable for consumers and convey the idea that doing laundry with the new product is easy and effective.

The company will utilize several strategies to promote the new product and deliver its message. First, the company will offer free samples in stores to customers after the launch of the product, asking them to try Lavaro and share their opinions. Such an approach will help Unilever to enhance the customer’s interest and motivate them to purchase bigger packages of detergent. Second, the organization will offer discounts for retailers in the first three months after the launch. It will help Unilever to motivate stores to promote the product during this period because this way, retailers will be able to gain higher profit from sales. Third, the company will also offer benefits for the consumers directly.

During the first month after the launch, customers will receive an additional 100 g of the detergent with each small package and 200 g with 1 kg packages. All of these strategies will allow the local population to test Lavaro and become more loyal to the brand.

It is vital to mention that the company will use advertisements to promote Lavaro as well. Unilever will create a short video in which individuals from the Northeastern community will take part. In the video, the group of men and women, dressed simply, will wash their clothes using Lavaro. At the beginning of the video, dirty clothes will be presented to show how the detergent can remove stains. At the end of the advertisement, the clothes will be clean. Along with this advertisement, the company will use posters with Lavaro and the company’s slogan.

Distribution

It will be important for the company not to focus on selling Lavaro in supermarkets and large retail chains because they may be unpopular among low-income customers. Instead, Unilever should distribute the product to small local shops, where many individuals from the area buy food and cleaning products. This way, the company will support local businesses while also promoting their product through the most appropriate channel considering potential customers’ purchasing power. It is crucial to mention that distributing Lavaro to the local stores primarily may be associated with several challenges for the organization.

First, the company already has contracts with large retailer chains because it is one of the leading firms in the market. It means that collaboration with local suppliers may be associated with additional costs for Unilever and may be less feasible from the financial perspective compared to working with bigger stores. Second, the company may encounter difficulties due to the problems the Northeastern region may have, including decreased availability of transportation methods and the lack of electricity infrastructures.

The presented case study is significant because it addresses one of the challenging decisions many organizations have to make today. On the one hand, it is feasible for companies to expand their share of the market and distribute their products to new locations. On the other hand, populations of some areas, such as the Northeast of Brazil, may encounter economic difficulties, due to which their purchasing power and potential interest in new products may be decreased.

The case provides the opportunity for reflecting on the issues large companies may encounter. If Unilever decided to sell Lavaro to large retailers only, which would be easier for the company, it would likely be ineffective because the local population buys the majority of products from small local stores. Moreover, it would force smaller retailers to compete with larger ones and place an unnecessary burden on them. At the same time, if the organization decided to work with local shops only, it would potentially encounter the challenges presented above. It would be difficult for the company to deliver its products to sales points; moreover, other problems could arise because local retailers may have less organized inner systems compared to larger ones. It means that there is no particular decision that would not be associated with challenges.

However, the approach described in this paper may be considered the most feasible one compared to the existing alternatives. I would recommend the case to others because it offers an excellent opportunity to learn how to make decisions on the organizational level while considering all significant aspects that may affect the outcomes. The case has helped me to analyze the benefits and disadvantages of targeting low-income segments. In addition, it has shown me the aspects the companies should pay attention to while deciding to establish a new brand or reposition an existing one.

Guimaraes, Pedro, and Pierre Chandon. “Unilever in Brazil 1997-2007: Marketing Strategies for Low-Income Consumers.” 2004.

Shah, Purvi. “Culling the Brand Portfolio: Brand Deletion Outcomes and Success Factors.” Management Research Review, vol. 40, no. 4, 2017, pp. 370-377.

Zhang, Chrystal et al. “Investigating the Effectiveness of Repositioning Strategies: The Customers’ Perspective.” Journal of Travel & Tourism Marketing, vol. 33, no. 9, 2016, pp. 1235-1250.

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Unilever in Brazil 1997-2007: Marketing Strategies for Low-Income Consumers

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Unilever is a solid leader in the Brazilian detergent powder market with an 81% market share. Laercio Cardoso must decide (1) whether Unilever should divert money from its premium brands to target the lower-margin segment of low-income consumers, (2) whether Unilever can reposition or extend one of its existing brands to avoid launching a new brand, and (3) what price, product, promotion, and distribution strategy would allow Unilever to deliver value to low-income consumers without cannibalizing its own premium brands too heavily.

This case deals with the question of whether marketing and branding create value for really poor consumers. It can therefore be used in an MBA, executive education or undergraduate core course on marketing management to illustrate the value of marketing and the marketing approach, or in a brand management course to explore the frontiers of branding. This case can also be used in a consumer behaviour course to examine the motivations and decision-making process of low-income consumers. Alternatively, it can be used in a global marketing or global strategy and management course to study the way multinational companies adapt their strategy to compete in emerging countries.

• Media support
• Low-income consumers
• New product introduction
• Break-even analysis
• Advertising
• Distribution

Unilever in Brazil (1997-2007): Marketing Strategies for Low-Income Consumers (Spanish)

By   Pedro Pacheco Guimaraes ,  Pierre Chandon

Unilever in Brazil (1997-2007): Marketing Strategies for Low-Income Consumers (Portuguese)

Pierre Chandon

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Unilever—A Case Study

This article considers key issues relating to the organization and performance of large multinational firms in the post-Second World War period. Although foreign direct investment is defined by ownership and control, in practice the nature of that "control" is far from straightforward. The issue of control is examined, as is the related question of the "stickiness" of knowledge within large international firms. The discussion draws on a case study of the Anglo-Dutch consumer goods manufacturer Unilever, which has been one of the largest direct investors in the United States in the twentieth century. After 1945 Unilever's once successful business in the United States began to decline, yet the parent company maintained an arms-length relationship with its U.S. affiliates, refusing to intervene in their management. Although Unilever "owned" large U.S. businesses, the question of whether it "controlled" them was more debatable.

Some of the central issues related to the organization and performance of multinationals after the Second World War can be illustrated by studying the case of Unilever in the United States. Since Unilever's creation in 1929 by a merger of British and Dutch soap and margarine companies, 1 it has ranked as one of Europe's, and the world's, largest consumer-goods companies. Its sales of $45,679 million in 2000 ranked it fifty-fourth by revenues in the Fortune 500 list of largest companies for that year.

A Complex Organization

Unilever was an organizational curiosity in that, since 1929, it has been headed by two separate British and Dutch companies—Unilever Ltd. (PLC after 1981), and Unilever N.V.—with different sets of shareholders but identical boards of directors. An "Equalization Agreement" provided that the two companies should at all times pay dividends of equivalent value in sterling and guilders. There were two head offices—in London and Rotterdam—and two chairmen. Until 1996 the "chief executive" role was performed by a three-person Special Committee consisting of the two chairmen and one other director.

Beneath the two parent companies a large number of operating companies were active in individual countries. They had many names, often reflecting predecessor firms or companies that had been acquired. Among them were Lever; Van den Bergh & Jurgens; Gibbs; Batchelors; Langnese; and Sunlicht. The name "Unilever" was not used in operating companies or in brand names. Lever Brothers and T. J. Lipton were the two postwar U.S. affiliates. These national operating companies were allocated to either Ltd./PLC or N.V. for historical or other reasons. Lever Brothers was transferred to N.V. in 1937, and until 1987 (when PLC was given a 25 percent shareholding) Unilever's business in the United States was wholly owned by N.V. Unilever's business, and, as a result, counted as part of Dutch foreign direct investment (FDI) in the country. Unilever and its Anglo-Dutch twin Royal Dutch Shell formed major elements in the historically large Dutch FDI in the United States. 2 However, the fact that all dividends were remitted to N.V. in the Netherlands did not mean that the head office in Rotterdam exclusively managed the U.S. affiliates. The Special Committee had both Dutch and British members, and directors and functional departments were based in both countries and had managerial responsibilities without regard for the formality of N.V. or Ltd./PLC ownership. Thus, while ownership lay in the Netherlands, managerial control was Anglo-Dutch.

The organizational complexity was compounded by Unilever's wide portfolio of products and by the changes in these products over time. Edible fats, such as margarine, and soap and detergents were the historical origins of Unilever's business, but decades of diversification resulted in other activities. By the 1950s, Unilever manufactured convenience foods, such as frozen foods and soup, ice cream, meat products, and tea and other drinks. It manufactured personal care products, including toothpaste, shampoo, hairsprays, and deodorants. The oils and fats business also led Unilever into specialty chemicals and animal feeds. In Europe, its food business spanned all stages of the industry, from fishing fleets to retail shops. Among its range of ancillary services were shipping, paper, packaging, plastics, and advertising and market research. Unilever also owned a trading company, called the United Africa Company, which began by importing and exporting into West Africa but, beginning in the 1950s, turned to investing heavily in local manufacturing, especially brewing and textiles. The United Africa Company employed around 70,000 people in the 1970s and was the largest modern business enterprise in West Africa. 3 Unilever's total employment was over 350,000 in the mid-1970s, or around seven times larger than that of Procter & Gamble (hereafter P&G), its main rival in the U.S. detergent and toothpaste markets.

A World-wide Investor

An early multinational investor, by the postwar decades Unilever possessed extensive manufacturing and trading businesses throughout Europe, North and South America, Africa, Asia, and Australia. Unilever was one of the oldest and largest foreign multinationals in the United States. William Lever, founder of the British predecessor of Unilever, first visited the United States in 1888 and by the turn of the century had three manufacturing plants in Cambridge, Massachusetts, Philadelphia, and Vicksburg, Mississippi. 4 The subsequent growth of the business, which was by no means linear, will be reviewed below, but it was always one of the largest foreign investors in the United States. In 1981, a ranking by sales revenues in Forbes put it in twelfth place. 5

Unilever's longevity as an inward investor provides an opportunity to explore in depth a puzzle about inward FDI in the United States. For a number of reasons, including its size, resources, free-market economy, and proclivity toward trade protectionism, the United States has always been a major host economy for foreign firms. It has certainly been the world's largest host since the 1970s, and probably was before 1914 also. 6 Given that most theories of the multinational enterprise suggest that foreign firms possess an "advantage" when they invest in a foreign market, it might be expected that they would earn higher returns than their domestic competitors. 7 This seems to be the general case, but perhaps not for the United States. Considerable anecdotal evidence exists that many foreign firms have experienced significant and sustained problems in the United States, though it is also possible to counter such reports with case studies of sustained success. 8

During the 1990s a series of aggregate studies using tax and other data pointed toward foreign firms earning lower financial returns than their domestic equivalents in the United States. 9 One explanation for this phenomenon might be transfer pricing, but this has proved hard to verify empirically. The industry mix is another possibility, but recent studies have suggested this is not a major factor. More significant influences appear to be market share position—in general, as a foreign owned firm's market share rose, the gap between its return on assets and those for United States—owned companies decreased—and age of the affiliate, with the return on assets of foreign firms rising with their degree of newness. 10 Related to the age effect, there is also the strong, but difficult to quantify, possibility that foreign firms experienced management problems because of idiosyncratic features of the U.S. economy, including not only its size but also the regulatory system and "business culture." The case of Unilever is instructive in investigating these matters, including the issue of whether managing in the United States was particularly hard, even for a company with experience in managing large-scale businesses in some of the world's more challenging political, economic, and financial locations, like Brazil, India, Nigeria, and Turkey.

The story of Unilever in the United States provides rich new empirical evidence on critical issues relating to the functioning of multinationals and their impact. — Geoffrey Jones

Finally, the story of Unilever in the United States provides rich new empirical evidence on critical issues relating to the functioning of multinationals and their impact. It raises the issue of what is meant by "control" within multinationals. Management and control are at the heart of definitions of multinationals and foreign direct investment (as opposed to portfolio investment), yet these are by no means straightforward concepts. A great deal of the theory of multinationals relates to the benefits—or otherwise—of controlling transactions within a firm rather than using market arrangements. In turn, transaction-cost theory postulates that intangibles like knowledge and information can often be transferred more efficiently and effectively within a firm than between independent firms. There are several reasons for this, including the fact that much knowledge is tacit. Indeed, it is well established that sharing technology and communicating knowledge within a firm are neither easy nor costless, though there have not been many empirical studies of such intrafirm transfers. 11 Orjan Sövell and Udo Zander have recently gone so far as to claim that multinationals are "not particularly well equipped to continuously transfer technological knowledge across national borders" and that their "contribution to the international diffusion of knowledge transfers has been overestimated. 12 This study of Unilever in the United States provides compelling new evidence on this issue.

Lever Brothers In The United States: Building And Losing Competitive Advantage

Lever Brothers, Unilever's first and major affiliate, was remarkably successful in interwar America. After a slow start, especially because of "the obstinate refusal of the American housewife to appreciate Sunlight Soap," Lever's main soap brand in the United Kingdom, the Lever Brothers business in the United States began to grow rapidly under a new president, Francis A. Countway, an American appointed in 1912. 13 Sales rose from $843,466 in 1913, to $12.5 million in 1920, to $18.9 million in 1925. Lever was the first to alert American consumers to the menace of "BO," "Undie Odor," and "Dishpan Hands," and to market the cures in the form of Lifebuoy and Lux Flakes. By the end of the 1930s sales exceeded $90 million, and in 1946 they reached $150 million.

By the interwar years soap had a firmly oligopolistic market structure in the United States. It formed part of the consumer chemicals industry, which sold branded and packaged goods supported by heavy advertising expenditure. In soap, there were also substantial throughput economies, which encouraged concentration. P&G was, to apply Alfred D. Chandler's terminology, "the first mover"; among the main followers were Colgate and Palmolive-Peet, which merged in 1928. Neither P&G nor Colgate Palmolive diversified greatly beyond soap, though P&G's research took it into cooking oils before 1914 and into shampoos in the 1930s. Lever made up the third member of the oligopoly. The three firms together controlled about 80 percent of the U.S. soap market in the 1930s. 14 By the interwar years, this oligopolistic rivalry was extended overseas. Colgate was an active foreign investor, while in 1930 P&G—previously confined to the United States and Canada—acquired a British soap business, which it proceeded to expand, seriously eroding Unilever's market share. 15

The soap and related markets in the United States had a number of characteristics. Although P&G had established a preponderant market share, shares were strongly contested. Entry, other than by acquisition, was already not really an option by the interwar years, so competition took the form of fierce rivalry between incumbent firms with a long experience of one another. During the 1920s and the first half of the 1930s, Lever made substantial progress against P&G. Lever's sales in the United States as a percentage of P&G's sales rose from 14.8 percent between 1924 and 1926 to reach almost 50 percent in 1933. In 1930 P&G suggested purchasing Lever in the United States as part of a world division of markets, but the offer was declined. 16 Lever's success peaked in the early 1930s. Using published figures, Lever estimated its profit as a percentage of capital employed at 26 percent between 1930 and 1932, compared with P&G's 12 percent.

Countway's greatest contribution was in marketing. During the war, Countway put Lever's resources behind Lux soapflakes, promoted as a fine soap that would not damage delicate fabrics just at a time when women's wear was shifting from cotton and lisle to silk and fine fabrics. The campaign featured a variety of tactics, including washing demonstrations at department stores. In 1919 Countway launched Rinso soap powder, coinciding with the advent of the washing machine. In the same year, Lever's agreement with a New York agent to sell its soap everywhere beyond New England was abandoned and a new sales organization was established. Finally, in the mid-1920s, Countway launched, against the advice of the British parent company, a white soap, called "Lux Toilet Soap." J. Walter Thompson was hired to develop a marketing and advertising campaign stressing the glamour of the new product, with very successful results. 17 Lever's share of the U.S. soap market rose from around 2 percent in the early 1920s to 8.5 percent in 1932. 18 Brands were built up by spending heavily on advertising. As a percentage of sales, advertising averaged 25 percent between 1921 and 1933, thereby funding a series of noteworthy campaigns conceived by J. Walter Thompson. This rate of spending was made possible by the low price of oils and fats in the decade and by plowing back profits rather than remitting great dividends. By 1929 Unilever had received $12.2 million from its U.S. business since the time of its start, but thereafter the company reaped benefits, for between 1930 and 1950 cumulative dividends were $50 million. 19

Many foreign firms have experienced significant and sustained problems in the United States. — Geoffrey Jones

After 1933 Lever encountered tougher competition in soap from P&G, though Lever's share of the total U.S. soap market grew to 11 percent in 1938. P&G launched a line of synthetic detergents, including Dreft, in 1933, and came out with Drene, a liquid shampoo, in 1934 both were more effective than solid soap in areas of hard water. However, such products had "teething problems," and their impact on the U.S. market was limited until the war. Countway challenged P&G in another area by entering branded shortening in 1936 with Spry. This also was launched with a massive marketing campaign to attack P&G's Crisco shortening, which had been on sale since 1912. 20 The attack began with a nationwide giveaway of one-pound cans, and the result was "impressive." 21 By 1939 Spry's sales had reached 75 percent of Crisco's, but the resulting price war meant that Lever made no profit on the product until 1941. Lever's sales in general reached as high as 43 percent of P&G's during the early 1940s, and the company further diversified with the purchase of the toothpaste company Pepsodent in 1944. Expansion into margarine followed with the purchase of a Chicago firm in 1948.

The postwar years proved very disappointing for Lever Brothers, for a number of partly related reasons. Countway, on his retirement in 1946, was replaced by the president of Pepsodent, the thirty-four-year-old Charles Luckman, who was credited with the "discovery" of Bob Hope in 1937 when the comedian was used for an advertisement. Countway was a classic "one man band," whose skills in marketing were not matched by much interest in organization building. He never gave much thought to succession, but he liked Luckman. 22 This proved a misjudgment. With his appointment by President Truman to head a food program in Europe at the same time, Luckman became preoccupied with matters outside Lever for a significant portion of his term, though perhaps not to a sufficient degree. Convinced that Lever's management was too old and inbred, he dismissed about 15 percent of the work force soon after taking office, and he completed the transformation by moving the head office from Boston to New York, taking only around one-tenth of the existing executives with him. 23 The head office, constructed in Cambridge by Lever in 1938, was subsequently acquired by MIT and became the Sloan Building.

Luckman's move, which was supported by a firm of management consultants, the Fry Organization of Business Management Experts, was justified on the grounds that the building in Cambridge was not large enough, that it would be easier to find the right personnel in New York, and that Lever would benefit by being closer to the large advertising agencies in the city. 24 There were also rumors that Luckman, who was Jewish, was uncomfortable with what he perceived as widespread anti-Semitism in Boston at that time. The cost of building the New York Park Avenue headquarters, which became established as a "classic" of the new postwar skyscraper, rose steadily from $3.5 million to $6 million. Luckman had trained as an architect at the University of Illinois, and he was very involved in the design of the pioneering New York office.

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• Cultural Change In Organizations Example: Unilever Brazil

In the following cultural change in organizations example, you will learn more about the concept of the culture change journey . It’s important to recognize that every organization whose leadership chooses to embark on such a journey has different intentions and approaches toward cultural transformation . There is not just one way but many ways to successfully work with your culture.

Unilever Brazil had an incredible legacy built over 80 years; however, in 2004–05, after decades of strong growth, revenues slowed and the business needed renewal.

In early 2008, Kees Kruythoff, the newly appointed chairman, along with the Unilever Brazil board, launched a transformational effort to reignite growth.

They recognized a need not only to address strategic challenges and manage operations but also to address the organizational culture . They had five big thoughts:

THE PROCESS

Unilever Brazil developed a shared understanding among senior leadership that t he concept of a linear process can be outdated and ineffective . Truly dynamic work with culture change is very much in the moment and allows for human dynamics.

The company conducted a Cultural Values Assessment every six months for the duration of the culture change journey .

Disciplined attention was maintained for 36 months. The company emphasized that leaders create culture, and it encouraged board members to reflect on their personal values and the culture they desired to create at Unilever Brazil. The board led the executive team through the same process. Then the executive team led all 250 managers through the process as well.

The company established rituals and meaning , (i.e., regular, consistent practices and time for reflection on key espoused values).

Needs were continually reframed (e.g., when there was an overemphasis on safety, company leaders taught the need for risk taking and vulnerability).

THE OUTCOME

Revenue grew by 3% in 2008, 7% in 2009, and into the double digits by the second quarter of 2010. Revenue growth was also driven by increases in market share, not price.

Entropy, the degree of unproductive focus, fell from 37% to 19% and then to 10% in 2010. Entropy in the top team fell from 31% to 8%.

Instead of a culture characterized by caution, short-term focus, internal competition, and consensus, employees now experience a business with long-term perspective, shared vision, teamwork, and a strong orientation toward customer satisfaction and the development of leaders.

If you’re reading this series, we know you are a leader who understands and cares about the way your organization’s culture supports its people and its purpose—for that, we thank you! Check out the other articles in this series:

• Culture Change in Organizations Begins Within
• Organizational Culture Transformation—A Journey, Not a Destination
• Culture Change Case Study: Volvo IT
• Changing Corporate Culture Case Study: Old Mutual Group
• Key Learnings in Culture Transformation
• Growing Your Desired Culture: Leadership Commitment
• Growing Your Desired Culture: Roles for Supporting Culture
• Growing Your Desired Culture: Defining and Growing Your Culture
• Growing Your Desired Culture: Structural Alignment
• Growing Your Desired Culture: Follow-Up and Learning

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Unilever in Brazil Harvard Case Solution & Analysis

Home >> Business Case Studies >> Unilever in Brazil

Problem Statement:

The management of the company wants to analyze and decide about whether the firm should change their marketing strategies of detergent brands to consumers categorized as low income or not. As of now, the company has already acquired 81% of the share in the business of the detergent industry. Nevertheless, many competitors believed that Unilever, being a multinational company should not enter into the low income market as there are so many small scale companies and local entrepreneurs who survive by covering this segment of the market.

unilever in brazil case solution

If the company decided to enter in the low income market then there is a need to evaluate certain questions related to marketing, branding and positioning of the product. To answer this, the management of the company needs to examine its current marketing and branding strategy. Along with that, ideal brand positioning and marketing mix should be recognized for consumers in low income segment.

After the extensive and detailed study done by the management of the organization, the company recognized that people in Northeastern Region of Brazil would love to buy OMO, which is Unilever's Flagship brand but with their low income levels, they failed to afford the brand.

Market Analysis:

Unilever in brazil:.

The history of Unilever in Brazil is long and old. The company has been successful in terms of profitability in the country. After establishing its business in Brazil, in 1929, the firm launched its first sunlight soap. Later on in the year 1957, the first detergent in the country of Brazil had been launched which led Unilever to the height of success. After the launch of the first detergent, the company acquired 52% of the share in the business. With a combination of other two brands of Unilever Minerva and Campeiro, the total market share of the company becomes 81%.

By analyzing and evaluating the potential growth in the Brazilian market, Robert Davidson was looking to explore growth opportunities in the marketing of detergents to low income consumers who lived in the northeastern region of Brazil. One of the Unilever's brands Campeiro is segmented like an affordable prices detergent but still out of reach from low income consumers of Northeast containing only 6% in the market share. In addition to that, the company is facing a threat from its major competitors especially Proctor and Gamble which is planning to launch detergents in the low income segment, as well.

Brazil is a country situated in South American that covers almost half of the area bordering the Atlantic Ocean. The county further divides into two segments that are north and south area. As far as the detergent and soaps markets are concerned, they are far different from each other as washing of clothes is different in both regions. The reason behind this variation is the education level of consumers. Individuals in north-eastern region are not literate as compared to individuals in the southern area. Cultural difference is another factor which differentiates consumers in two regions.

Consumer behavior in Low Income North-eastern Brazil:

Before entering in the market, it is important to understand the consumer behavior to better implement marketing strategies. Marketing to low income consumers is an important task but is often over-looked by companies. Consumers in the North-eastern region have completely different view point then consumers in the southeastern region. First of all, low income consumers wash their clothes more frequently than the south-eastern consumers because they have fewer clothes than high income people. This is an opportunity for Unilever to target consumers who consume a considerable amount of detergent five times a week. Other than that, women in the north-eastern region enjoy washing clothes as it is the only source for them of being social. On the other hand, women in the south-eastern region view washing clothes as a daily responsibility.

Competitors:

At the time of the case, P&G had quite recently begun the acquisition of local brands and moved them to its global brands. In spite of the fact that P&G Brazil is a moderately new and relatively small contender, its access to P&G's R&D and marketing knowledge makes it an imposing one. The overwhelming position of Unilever in the SE improves the probability hence, P&G will surprise attack in the NE region.

Local contenders are less challenging because of several reasons. They don't have capabilities and resources to contend with Unilever regarding marketing expenditure. They have a tendency to be preservationist, conveying mediocre quality items at low costs. Then again, the Nirma encounter in India indicates that even local contenders with few resources can turn into a true threat once they take advantage of their cost structure and client knowledge

The key point here is that the low income segment is extensive and large. Then again, one of the reasons why less multinational organizations target customers with low income is that managers handling marketing activities simply don't have the foggiest idea about this segment of consumers. Moreover, advertising managers frequently don't even attempt to comprehend this segment. Yet it is vital to understand product attributes along with end benefits that are vital for low-salary purchasers when purchasing detergents.

Product attributes:

The basic purpose of the low-income consumers is the requirement of detergents that just clean-up clothes i.e. making clothes white and stain free. Another attribute which attracts the LI consumers are the quantity of foam produce from the detergent. While consumers in the Southeastern region prefer less detergent which remove stains because they use bleach to accomplish this task.

End benefits:

Regularly, Low-Income customers think more about expense than higher-income consumers. They are extremely well-informed about costs and make little impulse buying. Obligations in budget keep them from stock-piling or purchasing in extensive amounts, regardless of the possibility that this might mean an easier unit cost. Price shoppers believe that all brands are the same and that price is the only thing that matters. Examples of this category are purchasers of private Labels (store brands) in Western Europe or the US. These shoppers could afford to purchase a more exorbitant brand yet pick the private Label, not because it is less expensive or more helpful, but since they accept that national brands don't include much value. Low-Income shoppers, then again, love national brands due to enthusiasms, functionality and emotional value that they add to the product.

North-East Market Attractiveness:

Unilever ought to focus on the low wage market in the NE of Brazil for some reasons. In Brazil, Unilever recently has a market share of 81% with their detergent portfolio, so they need to discover new routes for business development. There is additionally a passage risk by one of their primary rivals P&G which could take the first mover advantage and target consumers in low income before them. A fruitful business strategy for a low wage market in Brazil might be utilized as best practice to add profitable experiences for particular market requirements for other low pay markets as far and wide as possible. In addition to that, there are 48 million potential low income consumers in the North East of Brazil. The business is fundamentally gigantic. There are two methodologies which must be embraced, keeping in mind the end goal to achieve this business. First, re-structuring the value chain for a rural market should be done to achieve competitiveness and accessibility in the segment. In the meantime the organization needs to tailor the offer to unique needs of the business, create a particular marketing mix to create awareness and acceptability to capture value.......

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