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1. Global Strategy Advisors. . .
Challenging boundaries and beyond
February 19, 2006
Unilever
Unilever House, Blackfriars
London EC4P 4BQ, United Kingdom
Sent Via Electronic Mail
RE: Strategy Analysis
Ladies and Gentlemen:
At the request of the Board of Directors of Unilever, we provide herein our analysis of the
Personal Products Industry and a strategy analysis of both Unilever and its biggest competitor,
Procter & Gamble. The enclosed analysis also provides recommendations for Unilever to
improve its competitive advantage.
Respectfully submitted,
GSA
2. Procter & Gamble, Unilever
and the
Personal Products Industry
Global Strategy Advisors
Lee Ann Graul, Sherry Henricks, Steve Olp and Charlene Strohecker
University of Maryland, University College
AMBA 607
February 19, 2006
3. Table of Contents
1. Executive Summary i
2. Industry Analysis-Personal Products Industry 1
a. Introduction 1
b. Industry Defined 1
c. Historical Data Analysis 2
d. Major Competitors 3
e. Trends and Industry Outlook 3
f. Strategic Challenges and Opportunities 5
g. Industry Conclusions 5
3. Procter & Gamble and Unilever 6
a. Competitor Analysis: P&G 6
b. Competitor Analysis: Unilever 8
c. Strategy P&G 10
i. Business Level 10
ii. Global 11
iii. E-Business 13
iv. Corporate 14
d. Strategy: Unilever 15
i. Business Level 15
ii. Global 16
iii. E-business 17
iv. Corporate 19
e. Conclusions and Recommendations 20
4. Appendices 22
A. SIC Code 2844 and Industry Description 22
B. Global Personal Products Industry, Market Segmentation 24
C. Personal Products Industry, Five Force Analysis 25
D. Global Personal Products Industry, Market Share 30
E. Market Growth 31
F. Producer Price Index (PPI) for SIC 2844 32
G. Industry Growth Rate-Sales 33
H. Average Revenue Growth: Industry 34
4. I. Historical Data-Personal and Household Products 36
J. Household and Personal Prod. Industry, Ranking by Revenues, Profits 38
K. Company Ranking by Personal Care Revenues 39
L. Trend Line, Exports, SIC 2844 40
M. Trend Line, Imports, SIC 2844 41
N. Fastest Growing Markets 42
O. Value Chain Analysis, P&G and Unilever 43
P. P&G, RBV Analysis 51
Q. Unilever, RBV Analysis 53
R. P&G Financial Analysis 55
S. Unilever Financial Analysis 61
T. P&G SWOT Summary 66
U. Unilever SWOT Summary 67
V. History of P&G Global Expansion 68
W. History of Unilever’s Global Expansion 69
X. Dynamic Resource-Based Model of Competitive Advantage 71
Y. Unilever’s Early Use of the Internet, 2000 72
Z. Global Data Synchronization Network 73
AA. Safeway, Unilever Complete Global Data Synchronization Project 74
BB. Unilever Initiatives in Information Technology 75
CC. P&G Portfolio: Product Groups & Businesses 76
DD. Unilever Portfolio: Product Groups & Businesses 79
EE. P&G e-Business Network 84
5. Endnotes 85
5. P&G and Unilever i
Executive Summary
This paper provides an examination of the personal products industry as a whole, including a review of
the historical market share, financial performance, competition, and industry trends. Additionally, a
discussion of industry opportunities and challenges is conducted, presenting issues such as increases in
the cost of raw materials and operations, a slow recovery of growth due to the economy, changes in
government regulations, and the ever changing wants and needs of the consumer. These conditions create
the need for companies to respond quickly, develop innovative new products, and find ways to become
more efficient while reducing costs. The industry itself is an attractive one, having steady growth,
emerging global markets, and repeat purchases (consumables products), but also requires achieving
economies of scale, significant investing in R&D, and developing brand loyalty.
An examination of two major competitors in this industry, Procter & Gamble (P&G) and Unilever
reveals a very competitive industry that is not yet highly consolidated. P&G is an industry leader focused
on innovation, knowledge sharing, improved efficiencies, cost reduction, and first mover advantage – i.e.
quickly getting new ideas from conception to the shelf. Unilever is primarily focused on strong brand
recognition, expansion of its product lines through R&D, and development of alliances. Both P&G and
Unilever take advantage of economies of scale and global expansion into emerging markets.
P&G’s strategy is flexibility for quick response to market demands and opportunities, development of
strong product branding, and new product innovation. To achieve speed and flexibility, P&G has been a
leader in e-business implementation, obtaining real-time information and utilizing global knowledge
sharing externally from its users, suppliers and buyers, and internally for management and product
development. P&G also maximizes its value by investing in global markets through acquisition, joint
ventures, alliances, direct investment and direct marketing. P&G understands the importance of local
market insights and successful management of people in foreign markets and subsidiaries and has
achieved competence in these key aspects of globalization. From a portfolio perspective, P&G’s
investments and business developments have remained in or related to the consumer products industry,
maintaining its focus. P&G Chemicals and Health Sciences lab reflect the vertical integration of its
current product line.
While Unilever trails slightly behind P&G in most product segments, its similar focus on branding,
product development and quality advertising has helped it hold its position. Unilever’s biggest challenges
are in improving efficiencies to reduce costs, especially in its use of people and its time to market.
Unilever’s costs and number of employees is much higher than P&G’s. As P&G takes a proactive roll in
e-business and innovation, Unilever’s stance is a reactive one. Although Unilever seems to have
expanded globally with some success, it seems to be lacking an overall global strategy. Learning and
sharing information on a global scale is one of P&G’s strengths, but a weakness for Unilever.
Unilever has improved its focus and resource allocations, as it divested itself of non-performers,
allowing it to concentrate on performing products. Unilever needs to establish a focused strategy, and
ensure activities drive toward strategy achievement. The recent corporate restructuring should continue,
with ongoing efforts to achieve a corporate structure, which will maximize strategy achievement. The
improvements in overall communications, processes, and market introductions and management will
enable Unilever to remain competitive and grow as an industry leader. Additionally, recommendations
provided herein include an alignment of strategies, a strengthening of brand differentiation, and continued
investments in R&D, global expansion, advertising, and strategic alliances.
6. P&G and Unilever 1
INDUSTRY ANALYSIS – PERSONAL PRODUCTS INDUSTRY
Introduction
The objective of this report is to provide an overview and examination of the Personal Products
Industry – covering industry structure, competitors, past and future performance trends, and conclusions
about attractiveness for incumbents. Additional objectives include a competitor analysis, comparing
Procter & Gamble and Unilever, an examination of their strategies, and recommendations for future
growth and sustainability. Our analysis includes global operations, financial results, market share and
current initiatives. Information for these analyses was derived from library databases, internet searches
and company websites.
Industry Defined
The industry segment chosen for this analysis has been assigned the SIC code 2844 entitled Perfumes,
Cosmetics and other Toilet Preparations. Companies within this industry have referred to this market
segment as the Personal Products Industry. A complete list of the products included in this industry has
been provided in Appendix A. The SIC 2844 category, when converted to the new North American
Industry Classification System (NAICS) was further divided into 2 categories, 325620 (Toilet Preparation
Manufacturing) and 325611 (Soap and Other Detergent Manufacturing).
The global personal products market encompasses fragrances, hair care, make-up, oral hygiene,
personal hygiene, and skincare products. This highly competitive industry will “derive its future
performance relative to global consumer spending patterns and raw material prices.”1 In 2005, the
leading revenue source in this market was hair care, accounting for 25.5 percent of the global value (See
Appendix B).2 This industry has recently been affected by rising commodity costs which, coupled with
increased marketing spending, put significant pressure on operating margins and earnings in 2005.
Earnings per share (EPS) were expected to improve by 2006, as commodity costs began to stabilize.3
For an analysis of the Industry Structure, Porter's 5 Forces Model4 has been used and provided in
Appendix C. The result of this analysis reveals strong barriers to entry, moderate bargaining power of
7. P&G and Unilever 2
buyers and suppliers, considerable threat of substitutes, and substantial rivalry among existing companies.
This industry favors incumbents.
Historical Data Analysis
The CR4 analysis provided in Appendix D shows a total of only 28.7 percent of the market being
satisfied by the top four producers in the industry. Therefore this industry as a whole is not considered
highly consolidated. The market volume has shown an average growth of 2.2 percent for the four year
period, 2000 – 2004. (Actual rates are provided in Appendix E.) This reflects a slow recovery from the
downturn in the economy in the early 2000s, which followed an average 5 percent per year growth
between 1996 and 2000.5 Market growth is expected to continue to grow steadily over the next five
years, with a projected average of 2.7% between 2006 and 2009.6 The Producer Price Index also shows a
slow but steady growth over the past ten years (see Appendix F).
The total value of industry shipments has steadily increased from $19.7 billion in 1994, $22.8 billion
in 1997 to $28.8 billion in 2001.7 The market’s weighted average growth in sales for the past 5 years was
9.95% and for the past three years increased to 11.29%8 (See Appendix G for details). Over the past 3
years, the industry average EPS grew by 19.1% 9 (See Appendix H).
The industry has seen slight increases in gross margin, operating margin, and sales when comparing
the five-year industry average to the most recent one-year average. In most cases, these figures have
exceeded the S&P 500’s averages (See Appendix I). The industry average Return on Assets (ROA),
Return on Equity (ROE) and Return on Investment (ROI) have decreased when comparing the same time
periods, however they still exceeded the S&P 500 Average. The Global Strategy Advisors believe these
decreases were caused by higher operating costs (raw materials and fuel) in the past year and/or required
larger investment in assets or R&D since the Liquidity and Solvency Ratios were below average for the
same time periods. Such factors, however, will vary by company and a more in depth analysis of the
industry leaders would need to be made.
8. P&G and Unilever 3
Major Competitors
Fortune Magazine and Reuters group “personal products” together with “household products” when
analyzing industries. As of April 2005, Procter & Gamble (P&G) was the leading company in terms of
revenues and profits in the Household and Personal Products Industry, followed by Kimberly-Clark,
Colgate-Palmolive, Gillette and Avon Products (See Appendix J). The October 2005 acquisition of
Gillette by P&G10 solidifies P&G’s number one position on this list. Competitor ranking of the personal
products industry (not combined with household products) as measured by market share is led by L’Oreal
(8.8%), followed by Procter & Gamble (8.5%)11 (See Appendix D for an industry market share overview).
When competitors in the Personal Care Industry are ranked by revenues however, the top three were (1)
P&G, (2) L’Oreal and (3) Unilever (See Appendix K for rankings by revenue).
Competitive advantage in mature industries often manifests itself in cost advantage from economies of
scale or experience and differentiation advantage through brand loyalty12 – all of which are characteristic
of the personal products industry. Companies have instituted cost reduction programs (including the
creation of manufacturing efficiencies, renegotiated supply contracts, and employee and plant layoffs) to
improve margins during the last few years. Facing stiff competition from private labels, personal
products companies rely on a high turnover of products in order to improve performance, thus requiring
the investment of significant resources into R&D. Additionally, many firms view emerging markets
(such as China and India, where consumption of household products is low) as an opportunity to expand
revenues13 (For fastest growing markets in cosmetics and toiletries, see Appendix L).
Trends and Industry Outlook
The household products and personal care segments are expected to be the stronger within the US
consumer products industry – entering 2006 with a strong financial profile. These segments are
characterized as having well-supported, strong brands and superior product development, commanding
premium pricing in sectors that are less cyclical.14
Two events that dominated the landscape in 2005 for consumer product companies will also have an
impact on future performance – the continuation of raw material cost escalations, which in turn prompted
9. P&G and Unilever 4
price increase announcements, and significant mergers or pending mergers - among them, P&G’s
acquisition of Gillette. Many companies instituted cost reduction programs, but in the end, few
companies were able to fully offset raw materials cost escalation. In addition, industry competition in the
form of advertising has ratcheted upward, largely due to the strong influence of P&G in 2005.15
Changes affecting the demographics and demands of the consumer, such as the aging baby boomers
causing an increase in the demand for age-defying skin care and hair color, or animal rights activists
protesting animal testing, directly affect the industry. The growing need for compliance with more
stringent environmental regulations, and the consumer demand for natural and organic products, have also
changed how products are produced, requiring additional investment and expanded product lines.
Keeping up with changing wants and needs of the consumer in order to remain competitive in this
industry increases the need for investment in research and development. Globalization and the growing
ethnic population in the US will also continue to broaden the industry and create new market segments.
Not only the US economy, but also the global economy, will affect sales for items not considered a
necessity, such as some cosmetics, perfumes, and household items. The consumer will continue to be
influenced by price and convenience for most products. “There is a close correlation between a country’s
consumption of soaps and detergents and its standard of living.”16
Trends in how consumers shop also affect the industry. Beginning in the 1990s into the 2000s,
consumers began purchasing these types of products at mass discount centers, such as Costco and Sam’s
Club, rather than at upscale department stores.17 These macro-level factors – environmental regulations
(government), the global economy, the cost of raw materials, global competition, innovations in research,
consumer demographics, and the ever changing wants and needs of the consumer – will continue to
impact the performance of companies in this industry. Companies expected to fare well in the future are
those with strong momentum from earlier and successful restructuring actions whose cost savings are
ramping up quickly, with less exposure to specific raw materials, and with balance sheet flexibility.18
10. P&G and Unilever 5
Strategic Challenges and Opportunities
As mergers and acquisitions continue, this industry will likely become more consolidated, which,
along with strong entry barriers and substantial rivalry among existing members, will favor sustainability
for incumbents. Cost and availability of raw materials may continue to pose a threat to smaller firms
lacking adequate capital reserves to compensate for additional costs. Future performance in this industry
will be tied to global consumer spending patterns and raw material prices. Expansion into global markets
will be important for future growth. As is seen by the trends in imports and exports provided in
Appendices L and M, expansion into the global market is not new to this industry. “Low consumption of
household products in emerging markets – such as China and India – represents an opportunity for
companies to expand their revenues and escape from the stale performance of their home markets.”19
The fastest growing and emerging markets include the Pacific Rim20, Latin America, and Eastern
Europe21 (see Appendix N).
While the Asia-Pacific area is noted to be a key emerging market for this industry, one of the main
hindrances in this area has been low income.22 Products designed for areas with higher incomes may not
be suitable for emerging markets; thus companies desiring to expand into this region will need to invest in
development of products that can be priced more affordably. A global expansion study would be
recommended to determine which countries would provide the best opportunity.
The expanding US Market for natural and organic personal care products is an opportunity for
industry to provide products for a growing consumer want and need. Most US Consumers are willing to
pay, and are used to paying, a higher price for natural and organic products. If the personal products
industry can find ways to produce natural and organic products at reasonable costs, the profit margins on
such products are expected to be greater than their non-organic counterparts.
Industry Conclusions
The attractiveness of the Personal Products industry includes such elements as steady growth in
consumer demand and repeat purchase of the products, since most are consumables. Some larger current
producers are achieving economies of scale, brand loyalty, and first mover advantage. Other smaller
11. P&G and Unilever 6
producers have developed a market niche for a specific consumer need and have been successful. The
challenges in this industry include taking advantage of economies of scale in order to compete on price
with current companies, keeping up with changes in customer preferences and government regulations
(e.g., labeling, chemical handling, and environmental impact), and the investment in R&D required to
stay ahead of the competition with new product innovation.
PROCTER & GAMBLE AND UNILEVER
Competitor Analysis: P&G
William Procter (a candle maker from England) and James Gamble (a soap maker from Ireland)
founded Procter & Gamble Company when, through a series of events, the two strangers traveled to the
United States, met and married sisters. At their father-in-law’s urging, Procter and Gamble pledged
$3,596.47 each, and formed the Procter and Gamble Company in 1837.23 The Company, headquartered in
Cincinnati, Ohio, has reported revenues of $56.8 billion for the fiscal year ended June 2005.24 This
revenue comes from sales in over 160 countries, balanced worldwide with one half from the domestic
market and one half from the international market.25
Today, P&G markets more than 300 brands, of which 22 are $1B sales producers, 26 and has Market
Development Organizations in 80 countries, leading teams to build brands organized in seven
geographies: "North America, Western Europe, Northeast Asia, Latin America, Central and Eastern
Europe/Middle East/Africa, Greater China and ASEAN/Australasia/India".27 Their products are sold
primarily in grocery stores, discount stores, through mass merchandisers, membership club stores, and
high frequency stores (neighborhood stores in developing countries).28 The Company and its 110,000
employees are organized into three global business units, P&G Household Care (33% net earnings), P&G
Family Health (30% net earnings), and P&G Beauty (37% net earnings).29 These global business units are
distributed into five segments, Health Care, Baby and Family Care, Snacks and Coffee, Fabric Care,
Home Care, and P&G Beauty30 (See Appendix O, Value Chain Analysis, for an overview of P&G
structure and primary activities). The business segment being examined in this report, P&G Beauty;
encompasses personal cleansing, antiperspirants or deodorants, cosmetics, colognes, hair care, feminine
12. P&G and Unilever 7
protection, hair color, and skin care, includes five $1Billion brands, and achieved double digit growth for
2005, with a net profit margin of 13%, ROI of 12%, and ROE of 42% on 7.257M Sales31,32 (See
Appendix Q, Financial Analysis, for a P&G company overview).
P&G’s competitive advantages arise from several key factors, one of which is innovation. Spending
$2B annually on R&D and deploying approximately 7,500 researchers in technical centers around the
world, P&G is a leader in innovation.33 They have 29,000 patents, and over the past eight years, have
introduced the #1 or #2 new non-food products in the US.34 Key to their success is knowledge sharing
and cross-borders replication of innovations, reducing costs and quickly expanding the company
knowledge and line offerings.35 Another factor contributing to their competitive advantage is their large-
scale operations and go-to-market capabilities that provide first mover advantage and limit the ability of
competitor’s to copy ideas and replicate them.36 Additionally, economies of scale and scope in
purchasing, distribution, business services and merchandising provide financial and trade advantages.
Lastly, P&G is well known for its brand management and brand leadership capabilities, which are
significant advantages for customer loyalty and market penetration (See Appendix O for P&G's RBV
Analysis). Supplementing their innovations, facilitating their rapid go-to-market capabilities, as well as
their customer and partner management is P&G's significant use of IT and tracking systems, including
CRM, EDI, and RFID, that improve R&D speed and capabilities, communications, information tracking
and sharing, and inventory management37 (See Appendix O, Value Chain Analysis, for an overview of
P&G supporting technologies and awards for excellence).
In order to sustain their competitive advantage, P&G must continue to utilize their acknowledged
strengths, as well as continue to exploit international growth, especially in emerging markets, as P&G is
currently overexposed in the US and Western Europe.38 Additionally, the company is moving away from
the commoditized household products and food businesses and should continue its focus on personal care
health and strong household businesses that provide for more profitable growth.39 P&G has also been
successful with its mergers and acquisitions strategy, such as the recent acquisitions of Clairol in 2001,
Wella in 2003, and Gillette in 2005, and should continue this strategy.40 Active portfolio management,
13. P&G and Unilever 8
using divestiture and acquisition strategies, has been shown to increase stakeholder value;41 P&G needs to
review longer held businesses and lower earners for their continued value to the organization, divesting if
needed.
P&G has been diligently participating in activities that should ensure a good future of sustainability.
Their R&D has enabled ongoing introduction of new lines, as well as expansions and adaptations of
current lines to meet local needs. Their Corporate Standards System application provides for innovative
R&D methods to reduce costs while increasing quality and enhancing go-to-market capabilities.42 They
need to successfully fold in Gillette, and have recognized $1B in cost synergies as this integration
occurs.43 Additionally, a strong focus on expansion in developing countries is being undertaken and
should provide significant growth opportunities, in conjunction with their maintenance of market share
and line extensions in developed countries. P&G needs to look at their businesses, however, and ensure
good fit and value-added, and continue activities that have been driving organic growth and increasing
EPS (2.831 basic normalized EPS; 2.662 diluted normalized EPS 2005), as well as increase free cash
flow, ROI, and profits, which their activities are focused on to accomplish (See Appendix R for financials
on P&G and Appendix T: P&G SWOT Analysis).
Competitor Analysis: Unilever
Unilever was officially formed in 1930, through the merger of Lever Brothers, a British soap
manufacturer and Margarine Unie, a Dutch margarine manufacturer.44 It has since become one of the
largest direct investors in the United States.45 Unilever is unique in that it has maintained a dual
ownership structure since its inception, governed by an equalization agreement.46 Although the company
has two legal entities as its parents, one Dutch (Unilever NV), and one British (Unilever plc), it has only
one board of directors47 and reports one set of financial statements.48
Today Unilever is present in 150 countries, employs over 223,000 people, and has numerous well-
known brands, 12 of which each have worldwide sales exceeding €1 billion.49 Unilever has products for
three markets, home, food, and personal care,50 which fall into 6 primary categories: home care (17%),
14. P&G and Unilever 9
spreads (12%), savory & dressings (21%), beverages (8%), ice cream & frozen foods (16%), and personal
care (26%)51 (See Appendix Q for Unilever's structure and primary activities).
In the area of personal care, one of the segments where Unilever competes directly with P&G,
Women's Wear Daily ranked Unilever ($9.3 billion) the third largest cosmetics company behind L'Oreal
($17.7 billion) and P&G ($16.5 billion).52 Company-wide, P&G's sales are around $70 billion and
Unilever's are around $50 billion.53 P&G's sales are nearly 40% greater than Unilever's, with
approximately 40% of Unilever's employee headcount.54 Clearly there are fundamental operational
differences between Unilever and P&G.
Unilever's competitive advantages arise from strong brand recognition, such as Dove and Bird's Eye,
strong R&D initiatives for line expansion, and leading brands in personal care, deodorant and personal
wash.55 Their renewed focus on strong line expansion (especially after reducing their number of brands
from 1600 products to approximately 400 in 2003),56 and alliances with strong corporate partners such as
Pepsi are also advantages. In order to sustain their competitive advantage, Unilever has several issues to
resolve (See Appendix Q for RBV Analysis). First, it has been a complex company, with two CEO's,
separate organizational structures (PLC and NV), and earnings reported in two venues, Euro and
Dollars.57 This complexity increased costs, and impacted opportunities for efficiency economies of scale
and scope, not to mention the potential concern in transparency in reporting.58 The 2004 figures reflected
a net profit of 5%, ROI of 6%, ROE of 37%, sales of 48,204M and net income of 2468.5M (See
Appendix S, Unilever Financial Analysis). Sales were flat in 2004, and Unilever began a major push for
elimination of non-productive lines, cost elimination, share buybacks, focus on core products and regional
activities with increased spending on R&D, marketing, and advertising, resulting in increased sales
growth in many regions.59
In 2005, Unilever initiated consolidation efforts (One Unilever) including development of one
executive group (from three), a decrease in the number of executive managers by one-third, a flattening of
the organization, and a restructuring that created global groups, such as a global brand strategy group.60
One such effort at consolidation is the 2005 sale of Unilever Cosmetics International unit to Coty for
15. P&G and Unilever 10
approximately $800 million.61 For future sustainability, Unilever needs to continue their operational
enhancements, including additional outsourcing when needed (as was done in business support services),
add line extensions with core brands while guarding against negative impacts should an extension fail,
look to mergers and acquisitions to support their growth and development, protect against exchange rate
fluctuations, and continue to expand globally, especially in India and China, the identified locations for
substantial growth.
Strategy: P&G
Business-level Strategy
P&G, with the largest product portfolio in the consumer products industry, faces significant
challenges maintaining cost efficiency and scale economies while creating innovation and
differentiation.62,63 With their recent acquisition of Gillette, P&G now has 22 brands that each exceed $1B
in annual sales, with a balance of ten- $1B brands in Beauty and Health, and twelve-$1B brands in Baby,
Family and Household lines.64 The company is divided into four pillars: Global Business Units, Market
Development Organizations, Global Business Services and Corporate Functions, each working separately
and together to bring competitive advantage to P&G.65 As competition from other major global and small
local companies are vying for market share, a sound business strategy, with a focus on flexibility and
responsiveness, is required to maintain and grow their leadership position.66
P&G's business strategy focuses on large-scale operations, strong product branding, and product
innovation to develop competitive advantage.67 P&G is the global leader in its four core categories, Baby
Care, Feminine Care (35%), Fabric Care (approximately 30%), and Hair Care (greater than 20%).68 To
achieve sustainability and continued growth, P&G's strategy is to continue to innovate and sell products
that appeal to retail trade customers and consumers, providing pricing and product that adds value for the
customer, while improving efficiencies in sales and operations with their ongoing restructuring and
technology enhancements, and quickly responding to competitive advancements.69 Their comprehensive
research network and $2B of research spending annually support their innovative focus, and they have
received awards for supply chain management (#1 in 2004), are leaders in inbound logistics, and are
16. P&G and Unilever 11
technology innovators for improving efficiencies and reducing costs, such as with bar coding and wireless
technologies.70 With their market knowledge and focus on efficiencies, they excel at "demand chain
planning," identifying their "target market's requirements and designing the supply chaining backward
from that point. 71 Additionally, P&G uses business development structures combining sales, logistics,
finance, marketing, and IT to work with trade customers for ways to add value to the consumer, including
Market Development Organizations in 80 countries, to provide focus and management for increasing
customer concentration at the retailer and country levels, growing volume in developed and developing
markets, and focusing on higher profitability lines for growth; Beauty and Health Care.72
P&G has been awarded #1 best category management and consumer marketing, another competitive
advantage, and continues to concentrate on relationship management with customers and suppliers.73 Use
of the Siebel CRM solutions has improved efficiencies and reduced costs, and needs to be further
implemented beyond the US and Western Europe.74 With ongoing improvements in resource
management, planned divesture and ongoing acquisition strategies, and continued maximization of their
product innovations, marketing, and rapid go-to-market strategies, P&G should continue to meet (and
exceed) its business goals.75
Global Strategy
P&G has made substantial investments globally, and used acquisitions, joint ventures, and alliances to
expand their market understanding and reach. Key to expansion are three competencies P&G has
developed: 1) understanding of the foreign marketplace, 2) ability to manage people in foreign markets,
and 3) skills at managing foreign subsidiaries.76 Their global strategy includes innovation, increasing
market share on base business while focusing on each business as well as on each industry, and investing
in the developing marketplace.77
P&G has gained substantial market knowledge, has innovative databases including over 100 million
consumers across 30 countries, utilizes a blend of local and expatriate managers, and provides training,
global resource centers, and partnerships and alliances for managing foreign subsidiaries, all successful
activities that promote local acceptance and a climate enabling knowledge transfer.78 Their flattened
17. P&G and Unilever 12
structure and focus on relationship management with stakeholders provides for efficient and rapid
communications throughout the value chain.79 These capabilities have afforded P&G the opportunity to
leverage insights from the local shopper, consumer, and retailer to generate cross-business unit plans and
create efficiencies across the breadth of P&G lines. 80 With their marketplace knowledge and research
centers strategically located throughout nine countries, P&G focuses on 360-degree innovation,
identifying significant opportunities and acting on them quickly.81 For example, P&G modified products
in their upper tier and launched middle tier level products in Russia, driven by their identification of the
beauty-conscious orientation of women in that marketplace.82 Other examples of their approach to
learning, knowledge transfer, and rollout based on market understanding is the learning from SK-11 store
counters in Asia. Knowledge from that rollout was then integrated into the Olay launch in Spain,83
demonstrating a reduced risk method of global expansion, where launches are first piloted on a limited
basis, then expanded upon.84
Overall, P&G has a well-developed knowledge base and global mindset, and with innovation a key
component of their global strategy, they have created the ability to implement distribution systems that
can move innovations across borders.85 P&G has been an early adopter and substantial user of
information technologies, and has been recognized by CIO Magazine for its “Corporate Standards System
application” that revolutionizes the way their employees and partners collaborate, reducing costs,
improving product quality, and getting products quickly to the marketplace.86
P&G has had success expanding globally with its strategies of acquisition, strategic partnering,
innovation, and rapid go-to-market strategy (See Appendix V for the History of Global Expansion
P&G).87 P&G has coordinated activities to provide a global network with all activities, structure and
coordination driving for a global competitive advantage. However, P&G is at risk due to overexposure in
the US and Western Europe, and needs to continue growing globally.88 It is estimated that 90% of the
world's population will be in developing countries by 2010.89 P&G has been working to expand rapidly
in these markets, and in fact, their presence in high frequency stores has grown 50% in 4 years, and in
China alone, P&G serves 2000 cities and 11,000 towns.90
18. P&G and Unilever 13
E-Business Strategy
P&G’s CEO wants P&G “to be known as the company that collaborates – inside and out – better than
any other company in the world”91 P&G’s strategy and e-business focus is three-fold: “one-to-one
communications, real-time and predictive business intelligence, and ‘virtualization’ of business
processes.”92 Sales and distribution is through retail partners – drug stores, grocery stores, and wholesale
clubs (such as Costco). P&G does not have direct selling of its products through the internet, however,
P&G does utilize the internet as a valuable resource tool for its domestic and global operations to improve
the efficiency and effectiveness of managing its supply chain, internally share R&D information, logistics
for retail partners, transportation, billing and payment, and for video conferencing and customer
information and feedback. These resources all interact electronically to provide real-time access to
information to those who need it, creating a competitive advantage. Such a system can provide real-time
information regarding costs and other metrics in order to more quickly identify problems or issues and
implement a resolution (See Appendix X For network details).
P&G has also created such centralized e-business sites for the business-to-business (B2B) side.
P&G’s website PGEDI.com provides an electronic exchange of information between P&G and its trading
partners, suppliers, current and prospective retail partners, financial institutions, and transportation
carriers. P&G fully utilized its Electronic Data Interchange (EDI) as a hub of doing business. The Web
Order Management System and Customer Portal assist partners in purchasing, managing and promoting
products by providing critical data, product information, order status and invoices 24 hours a day, every
day. There are also links to track shipments, make payments, receive invoices, and share data.
P&G has invested in Yet2.com Inc., an Internet company that has launched a web site that allows
companies to post their technologies for license or sale.93 P&G has taken a “use it or lose it” approach
since many of its patents are not being used. P&G has also invested in a marketing collaborative software
development company called Emmperative, formed in February 2001, which provides a way of sharing
significant information share data; working simultaneously on the same files; even pulling up research
collected by colleagues in other countries for various brands and re-applying it to other product
19. P&G and Unilever 14
developments.”94 Creating this central library for accessing information allows for faster turnover and
more efficient use of time and information. P&G also sells basic marketing and management techniques
on the web site. Initiatives and investments such as these, in accordance with the Dynamic Resource-
based Model of Competitive Advantage,95 are valuable resources that enable P&G to increase its
efficiency and effectiveness, and if complex enough, are difficult for the competition to easily imitate.
Such early involvement and sizable investment in e-business as a tool reinforces P&G's position as a
leader in the industry.
From an end-user standpoint, customers can visit PG.com and sign up for P&G’s monthly emailed
publication, Everyday Solutions, which offers tips, promotions, and free samples, or seek expert advice
about personal care, household, health & wellness, baby & family, or pet care. P&G also has numerous
internet sites for specific brands and products where customers can obtain information, coupons, and
samples, as well as provide feedback, such as pampers.com, charmin.com, iams.com, tide.com and many
others.96
Corporate Strategy
P&G markets over 300 products in 160 different countries. P&G groups its business into two
categories, foundation business and higher growth business. Foundation Business includes Fabric, Home,
Baby, Family care, and snacks and coffee. P&G also has a Market Development Organization organized
in seven97 geographical areas, and among others, a commercial product segment, P&G Chemicals, Health
Sciences, and P&G Europe98 (See Appendix CC for list of businesses and product group descriptions).
P&G’s portfolio includes other ventures related to its core products, i.e., P&G Chemicals, Inc. which
vertically integrates ingredients for some of its products and P&G Health Science which is a research lab
for product development.
P&G divested its juice business in August 2004, acquired Wella in 2003, and most recently, acquired
Gillette.99 Internationally, in 2005 P&G acquired a Pharmaceuticals business in Spain, a Fabric care
business in Europe and Latin America, and increased ownership in its Glad venture with the Clorox
Company. P&G continues to both look for acquisition opportunities that are related to its core business
20. P&G and Unilever 15
and develop new products, and they do it well. “In a rapidly globalizing world, focusing on core expertise
and collaborating with partners in innovative ways are the keys to growth”100 which is exactly what P&G
is doing. P&G is aware of their core products and business foundation, but also understands that the
development of new products through innovation, research and development is the key to maintaining its
competitive advantage. P&G should continue its current successful strategy.
Strategy: Unilever
Business-level Strategy
Most companies that hold a market leadership position do so by achieving the right balance between
differentiation and low cost.101 In the consumer products industry, consumers have many choices
regarding which brand they select. With twelve brands that each exceeds €1 billion in annual sales,102
Unilever's market leadership cannot be sustained if costs are significantly higher than a competitor's
products. Similarly, without adequate differentiation, brand loyalty could be difficult to maintain.
For Unilever, the current business-level strategy would be characterized as a differentiation strategy,
where the emphasis is on branding, advertising quality and new product development. Unilever holds the
world number one position in five of six food segments, and two of six segments in Home & Personal
Care (skin and deodorants).103 Unilever holds the (world) number two position in two of the six Home
and Personal Care segments (Laundry and Daily Hair Care) and is number three or less in Household
Care and Oral Care.104 Company resources have been divided into two primary functions, one
responsible for brand development, innovation, and brand strategy ("Categories"), and the other for
managing the business, effective deployment of brands and innovations, and winning with customers
("Regions").105 Their commitment to R&D and innovation is clearly stated through their mission
statement ("Add vitality to life") and their corporate purpose ("Vitality Innovation").106 The alignment of
company resources with its strategy is an important component for sustaining a competitive advantage.107
With its resources aligned and a commitment to funding its significant R&D spending, Unilever should
be well positioned to sustain and improve their current standings. Perhaps the greatest risk to sustaining
their competitive advantage is the high SG&A costs of Unilever's current organizational structure.
21. P&G and Unilever 16
Global Strategy
Unilever’s global presence has deep roots, beginning with the founding companies (See Appendix W
for a history of Unilever’s global expansion). At various stages throughout the course of Unilever’s
history, there is evidence that the firm was driven by nearly all five global expansion imperatives -- the
growth imperative, the efficiency imperative, the knowledge imperative, the globalization of customers,
and the globalization of competitors108 -- in its efforts to globalize. However, Unilever’s progress in
exploiting global presence may in fact be hampered by the lack of an overarching global strategy.
With 223,000 employees in over 150 countries,109 Unilever is proud of its deep roots in local cultures
and markets worldwide, which enables it to bring its wealth of knowledge and international expertise to
local consumers. In doing so, Unilever labels itself as a “multi-local multinational”110 and truly believes
that it is creating value through global expansion by adapting to local market differences and tapping the
most optimal locations for activities, resources and product launches.
In an effort to “win Latin America,” Unilever embarked on a number of transformational initiatives,
with the goal of “One ULA” (Unilever Latin America) and a regional approach based on four
cornerstones -- strategic leadership; innovation, market share and brand health; excellence in reaching
consumers and customers; and implementing common processes, systems and shared services. In three
countries in this region, Unilever is the market leader for four out of six primary HPC categories.111
With 44 operating companies in the Asia/Africa region, and brands sold in 98 countries, Unilever is
the market leader in most priority categories in countries where it has a presence (key markets include
India, South Africa, Indonesia, Thailand, Vietnam and the Philippines). In this region, Unilever places
emphasis on: serving and delighting consumers; deepening partnership with customers; and building
relationships with local communities.112
Unilever’s current expansion plans call for a focus on the developing and emerging markets, where the
company enjoys a long-established presence, has established consumer intimacy, and prides itself on
affordability. Thirty-five percent of Unilever’s turnover is in developing and emerging markets, products
are tailored to different income levels, and Unilever’s distributions systems reach deep into these areas.113
22. P&G and Unilever 17
Unilever is aiming for “seamless global development,”114 with system-wide automation and data
synchronization, among other things, to make this possible. Further, in at least one of its brands, it has
opted to consolidate its advertising accounts into one global agency network -- an example of centralizing
key business functions -- which, though cost effective, runs counter to being sensitive to local markets,
and “global box-ticking can’t match intuitive knowledge of local markets.”115 However, despite all the
references that Unilever has made to global strategy and its acknowledged global presence, the company
has not articulated an overarching global strategy that clearly outlines the alignment of all functions in the
value chain to that strategy. While it has taken steps to adapt to local markets, and capture economies of
global scale and global scope, as Trevor Gorin, press officer for Unilever has stated, Unilever needs to
“counter threats in specific markets” and transplant learning's from one place to another.116 Unilever
needs to take the next steps in ensuring global competitive advantage, by evaluating the “optimality of its
global network for each activity in its value chain,”117 along each of three dimensions: activity
architecture, locational competencies and global coordination. 118
E-Business Strategy
Unilever’s e-business strategy continues to evolve, from its early membership in a B2B marketplace,
to participation in the GDSN, the implementation of RFID technologies,119 and the creation of an online
buying system for making certain types of purchases from suppliers.120 The firm’s e-business strategy
focuses primarily on the use of the internet and information technologies (IT) to achieve operational
efficiencies in dealing with suppliers and in utilizing its distribution network. The firm’s e-business
strategy is progressing, but its IT initiatives are not unique or rare within this industry, nor are they
inimitable. Unilever has made significant advances – most notably its alliance with Safeway, however,
according to the Dynamic Resource-based Model of Competitive Advantage (DRMCA) (See Appendix
X), Unilever will need to continue to add new and industry-leading IT resources to build and sustain a
resource-based advantage. 121
Many of the products in the personal products industry fall under the category of “experience goods”
– that is, the qualities and characteristics of those products are only recognized after consumption.122 As
23. P&G and Unilever 18
such, those products by and large do not lend themselves well to e-commerce – purchases by consumers
via the internet. However, as early as February 2000, Unilever was making plans to invest heavily in
electronic commerce, in an effort to slash costs, radically change its supply chain, and reach out to
consumers. The company recognized that it could achieve significant savings by using the internet to
“buy everything from raw materials to cardboard.”123 Unilever also began using the internet to target
consumers of its products by advertising selected products on websites catering to specific consumer
markets (See Appendix Y for Unilever's early use of the Internet).124
Unilever and P&G are members of Transora,125 a B2B marketplace consisting of 49 companies.126
Transora merged with UCCnet to form 1SYNC, which offers a cost-effective data pool with solutions and
services that support user needs, and helps the industry maximize the value of data synchronization.127
Unilever, as a member of Transora, was part of an enterprise-wide effort in 2004 to test the GDSN – an
internet-based supply chain initiative launched to streamline communication of product information128
(See Appendix Z). Furthermore, in June 2004, Safeway and Unilever heralded the success of their joint
Global Data Synchronization initiative; the first time that product information had been “synchronized
between the leading supply side and demand side data pools” (See Appendix AA). 129 Other examples of
Unilever’s forays into e-commerce and information technologies include: the implementation of radio
frequency identification (RFID) tags,130 the Unilever Private Exchange (which provides secure links
between operating companies and suppliers’ and customers’ systems and to external electronic
marketplaces),131 Ariba, Unilever’s online buying system (which “enables purchases of non-production
items to be made at volume-negotiated prices from selected suppliers”)132 and ISIS, Unilever’s supply
management information system (which helps local, regional and global supply managers to gather and
analyze information quickly, and make appropriate sourcing decisions)133 (For additional information
about Unilever’s utilization of information technology, see Appendix BB).
24. P&G and Unilever 19
Corporate Strategy
Corporate strategy addresses the scope of the firm's activities, including the portfolio of businesses that
a firm chooses to engage in, the locations or geography it will cover, and the amount of vertical
integration it employs.134 Unilever's strategy is to have strong customer relationships at the local level,
everywhere they do business, and to be seen as "a truly multi-local multinational".135 Unilever's activities
are spread across six primary business categories, including home care, spreads, savory & dressings,
beverages, ice cream & frozen foods, and personal care,136 and are sold in 150 different countries.137 As
previously mentioned, Unilever is number one or two in all but three segments in which they compete. In
the segments where they are not number one or two, they face intense competition and weak consumer
spending, particularly in Europe.138 Further, the business is in an area that is relatively mature and
segmented.139 It is in cases like this where companies might benefit from a divestiture of low-growth,
under-performing business units in order to free up resources to focus on higher growth, higher profit
opportunities.140 (For additional details see Appendix U: Unilever SWOT Summary).
A decision to divest the brands that are under-performing would not be foreign to Unilever; over the
last several years the brand count has been reduced from over 1,200 to around 400 as part of an overall
restructuring campaign.141 With a stated focus on developing and emerging markets, particularly in the
area of personal care,142 divesting the European frozen foods units would free up resources, provide cash
for additional debt reduction, and help reduce their high SG&A costs. Such a move would better position
Unilever for sustained profitability, however, should Unilever wait too long before executing this
divestiture, they risk a reduction in the value of the business due to further brand depreciation.143
Another option for the cash that would be generated through the divestiture of low-growth businesses
would be to seek out potential acquisitions that offer growth or complimentary products, and would help
consolidate a market. Consolidating markets can help provide sustained competitive advantage by
reducing the overall level of competition.144
25. P&G and Unilever 20
Conclusions and Recommendations
This comparison clearly shows why P&G is a leader in the industry. Unilever can learn from P&G
and further develop itself as a leader. Taking into consideration the analysis provided, Global Strategy
Advisors believe that there is considerable opportunity for Unilever to strengthen its profitability and
sustainability; however it will require strong discipline and careful analysis in terms of pursing
appropriate acquisitions and divestitures, cost reduction programs, product and brand differentiation
initiatives, and alignment of strategies. Unilever must remember to base its strategies and activities on
three fundamental questions: Who are our target customers? What value do we want to deliver to these
customers? How will we create this value? Based on the results of our analysis presented in this report,
we recommend the following plan of action for the next 5 years (with annual reviews of progress to date):
• Align Unilever resources to strategies; align strategies to optimize all value chain components.
Regional Unilever strategies are individually strong; develop an overarching global strategy that
provides consistent direction and ensures global synchronization and pooling of knowledge and
best practices. E-Business strategy progressing; continue to invest in IT and internet solutions to
achieve global efficiencies in negotiations, electronic transactions, and communications related to
suppliers, distribution networks, and retailers/customers. Look for opportunities for vertical
integration: cost savings and increased efficiencies can be created with this modification in the
Unilever portfolio.
• Strengthen consumer research and brand differentiation. Continue consumer research efforts to
ensure an understanding of the global marketplace. Continue consumer research to ensure that
products and brands are meeting target customer needs, while identifying new opportunities.
Utilize partnerships and alliances for market understanding and product development.
• Continue investments in R&D initiatives for increasing line extensions and new products;
develop fallback plans should line extension efforts fail, and pursue increased efficiencies and
cost reduction strategies.
26. P&G and Unilever 21
• Balance differentiation with low costs and continue reducing SG&A costs. Market leadership
cannot be sustained if your costs continue to exceed that of your competitors’ products. Seek
opportunities to out-source, where economically feasible and ROI is highly probable.
• Aggressively pursue acquisitions and divestitures. Sell off under performing businesses or slower
performing brands (European frozen foods businesses, for example). Identify potential
acquisitions that would help consolidate markets and thereby enhance Unilever’s market
leadership. Use proceeds from divestitures to acquire businesses. Identification of optimal
acquisitions is beyond the scope of this paper; a market analysis is required to identify best
acquisition options that would complement existing brands and product lines, and promote market
consolidation.
• Exploit and expand global presence. Conduct (or contract for the development of) in-depth global
expansion study to identify risks/benefits of potential regions and focus on markets with growth
opportunities. Exploit markets where consumption of household products is low; identify
locations where first mover advantage is possible, and where that competitive advantage can be
sustained. Explore increasing global research centers, but only when alliances/investments are
aligned with Unilever strategies and where projected ROI will enhance pursuit of goals of
profitability and sustainability. Seek alliances that may produce ways to increase speed-to-market
and leverage global opportunities while increasing protection against exchange rate fluctuations.
• Continue to pursue strategic corporate alliances for R&D, when such alliances fit with and add
value to Unilever’s strategies and where ROI justifies cost.
• Increase focused advertising, especially for higher profit line and expansion in emerging
countries.
27. P&G and Unilever 22
APPENDIX A: SIC CODE 2844 AND INDUSTRY DESCRIPTION
2844 Perfumes, Cosmetics, and Other Toilet Preparations
Establishments primarily engaged in manufacturing perfumes (natural and synthetic), cosmetics, and
other toilet preparations. This industry also includes establishments primarily engaged in blending
and compounding perfume bases; and those manufacturing shampoos and shaving products, whether
from soap or synthetic detergents. Establishments primarily engaged in manufacturing synthetic
perfume and flavoring materials are classified in Industry 2869, and those manufacturing essential
oils are classified in Industry 2899.
• Bath salts
• Bay rum
• Body powder
• Colognes
• Concentrates, perfume
• Cosmetic creams
• Cosmetic lotions and oils
• Cosmetics
• Dentifrices
• Denture cleaners
• Deodorants, personal
• Depilatories, cosmetic
• Dressings, cosmetic
• Face creams and lotions
• Face powders
• Hair coloring preparations
• Hair preparations: dressings, rinses, tonics, and scalp conditioners
• Home permanent kits
• Lipsticks
• Manicure preparations
• Mouthwashes
• Perfume bases, blending and compounding
• Perfumes, natural and synthetic
• Sachet
• Shampoos, hair
• Shaving preparations: e.g., cakes, creams, lotions, powders, tablets
• Soap impregnated papers and paper washcloths
• Suntan lotions and oils
• Talcum powders
• Toilet creams, powders, and waters
• Toilet preparations
• Toothpastes and powders
• Towelettes, premoistened
• Washes, cosmetic
Retrieved February 7, 2006, from
http://www.osha.gov/pls/imis/sic_manual.display?id=614&tab=description
28. P&G and Unilever 23
APPENDIX A, pg 2: GLOBAL INDUSTRY RANKING BY SIC
Current Industry: 2844 - Perfumes, Cosmetics and Other Toilet Preparations
Source: Business & CO Resource Center, Toiletries and Cosmetics." Encyclopedia of Global Industries. Online Edition.
Thomson Gale, 2006.
Elf Aquitaine Paris La Defense $124,532.10 M Sales
Nestle S.A. (NSRGY) Vevey $63,563.20 M Sales
Sunstar Inc. (4913) Osaka $59,038.00 M Sales
Procter and Gamble Co. (PG) Cincinnati, Ohio $56,741.00 M Sales
Unilever London $53,674.00 M Sales
E. Merck Darmstadt $49,882.00 M Sales
Johnson and Johnson (JNJ) New Brunswick, New Jersey $47,348.00 M Sales
Abbott Laboratories (ABT) Abbott Park, Illinois $19,680.00 M Sales
Pharmachim Holding Sofia $19,563.40 M Sales
Sanofi-Aventis (SNY) Paris $19,024.70 M Sales
L'Oreal SA (LORLY) Clichy $18,317.00 M Sales
Wyeth (WYE) Madison, New Jersey $17,358.00 M Sales
Christian Dior S.A. Paris $17,219.90 M Sales
LVMH Moet Hennessy Louis Vuitton S.A. (LVMHF) Paris $17,108.00 M Sales
CP and P Inc. Atlanta, Georgia $16,083.00 M Sales
Hayel Saeed Anam Group of Cos. Taiz $12,157.90 M Sales
IPP Ltd. Dar es Salaam $11,549.50 M Sales
Colgate-Palmolive Co. (CL) New York, New York $10,584.20 M Sales
Gillette Co. Boston, Massachusetts $10,477.00 M Sales
Kao Corp. (KCRPY) Tokyo $8,723.80 M Sales
Unilever United States Inc. New York, New York $8,000.00 M Sales
29. P&G and Unilever 24
Appendix B: Global Personal Products Industry, Market Segmentation145
Global Personal Products Market
Segmentation: % Share, by Value, 2004
Oral hygiene
Haircare
12.30%
Make-up 25.50%
13.30%
Fragrances
Skincare
13.70%
18.70%
16.50%
Personal Hygiene
The leading revenue source in the personal products market is hair care, which accounts for
25.5% of the global value.
30. P&G and Unilever 25
Appendix C: Personal Products Industry, Five Forces Analysis
PERSONAL PRODUCTS INDUSTRY FIVE FORCES ANALYSIS
(Industry Attractiveness Analysis from the Perspective of Major Incumbents )
I. Barriers to Entry and/or Mobility
Factor Yes Comment/Support No
( ) ( )
Large firms do not have a cost or performance Large firms do indeed enjoy economies
advantage in your segment of the industry. For of scale in this industry – and
example, costs do not decline significantly with advantages of size, scale and diversity
volume. (No economies of scale) of products.146
There are no “experience curve” economies in this This industry encompasses a wide
industry. (This is different from economies of scale. variety of products and brands; industry
The existence of experience effects in an industry leaders have been masterminds in
means that incumbents are able to have lower costs due developing innovative products147 –
to past learning and experience, and that it would be which suggests that they benefit from
difficult for less experienced firms to gain the same experience curve economies – in many
level of performance without going through the same aspects of their businesses, to include
learning process.) product development, distribution
networks and supply chain.
There are no proprietary product differences in the Patents abound in this industry. 148
industry. (For example, existing companies’ products
are not protected by patents)
There are no established brand identities in the These segments are characterized as
industry. (Lack of brand equity for incumbents) having well-supported, strong brands,
and superior product development,
commanding premium pricing in
sectors that are less cyclical. 149
Not much capital is needed to enter the industry. (For Industry entry requires capital to either
instance, used equipment might be available, as in the acquire an existing company or to
airline industry, to start operations) construct facilities and purchase all
manufacturing (and R&D) equipment.
Newcomers to the industry will be able to access Incumbent companies establish
existing distribution channels. contracts with firms in their distribution
channels, and enjoy an advantage
(particularly the industry leaders) due
to size.
Newcomers to the industry will have little difficulty in While human resources may be
obtaining the necessary inputs and resources (e.g., available, establishing partnerships
skilled people, materials, or suppliers) to start business with suppliers and distributors will take
operations. time. Incumbent firms have the
advantage.
The industry rate of growth is high. “Global personal products market grew
by 3.4% in 2004 to reach a value of
31. P&G and Unilever 26
$152.4 billion.” 150 Market is forecasted
to have a value of $182.9 billion in
2009 – an increase of 20.1% since
2004.151 Highest growth area expected
in the Asia-Pacific region, due to
current low penetration of personal
products in large markets (China,
India).152
The industry has well-defined product standards or Product standards are fairly well-
specifications, which newcomers can implement. defined; many FDA regulations govern
this industry, to include prohibiting
manufacturers from making therapeutic
claims based on the vitamin content of
skin care products. Some U.S. states
have instituted regulations limiting the
use of volatile organic chemicals
(VOCs) as a result of pressure to reduce
the use of VOCs for environmental
reasons. 153 Government regulation,
intervention, consumer concern over
animal rights and environmental
concerns have affected the industry for
more than 100 years.154
Newcomers to the industry will be able to obtain the Planning and establishing personal
necessary licenses and permissions to start operations. products manufacturing facilities
involves permits and adhering to
environmental and government
regulations.
The industry offers newcomers one or more potential There are many different market
point of entry. (Incumbents haven’t attempted all segments and niches where a new
possible viable strategies in the industry) entrant might specialize, however
competition is fierce, with leaders
regularly introducing new products.
The industry has no history of retaliation by No evidence of retaliation by
incumbents against new entrants. Industry economics incumbents against new entrants,
(e.g., low fixed, high variable cost, low level of however industry leaders are goliaths!
consolidation) is such that incumbents don’t typically
react to new entries.
Note: The greater the number of NO checks, the more attractive the industry to incumbents.
32. P&G and Unilever 27
II. Bargaining Power of Buyers
Factor Yes Comment/Support No
( ) ( )
The buyer industry is more consolidated than my Buyer industry will continue to grow,
industry. as companies continue to expand
globally. Many products in this
industry are fundamental to health and
cleanliness, and of use to people of all
ages. Product lines target males and
females.
Buyers buy in large quantities. A draw here – consumers buy in small
quantities; distributors (Wal-Mart, etc.)
purchase in large quantities.
My product is a small part of the buyer's cost of inputs. Yes, for consumers as well as
distributors.
The buyer does not face any significant costs in No significant costs associated with
switching suppliers. (That is, my buyers can easily switching suppliers.
purchase from my competitors.)
Does the buyer need a lot of important (technical) While some products are becoming
information to inform its purchasing decision? (In such more sophisticated (anti-aging
situations, buyers tend to be more knowledgeable about products; products with vitamins;
what they are buying.) natural products), technical information
is not required in making purchasing
decisions.
The buyers can vertically integrate backwards into your Many firms are vertically integrated in
business. this industry – large multinational firms
are engaged in every aspect of the
production process.155 It is difficult for
buyers to vertically integrate backwards
into these businesses.
III. Bargaining Power of Suppliers
Factor Yes Comment/Support No
( ) ( )
The supplier industry is more consolidated than my Supplier industry is not any more
industry. consolidated than personal care
industry.
My business is not important to the suppliers. Business is important to suppliers.
The quality of inputs is critical to my finished Many firms in industry are vertically
product. integrated156; quality is of prime
concern in each step of production
chain.
33. P&G and Unilever 28
My inputs (materials, labor, supplies, services, etc) Each market has its own unique
are unique or differentiated. That is, I cannot switch preferences and needs; one-size-fits-all
suppliers quickly and cheaply. approach will not work when supplying
global markets. Therefore, supplies,
services must be differentiated.157
I don't have many supplier alternatives. There are many, many personal care
contract manufacturing suppliers for
this industry.158
My suppliers can vertically integrate forward into my There are many different components
business. and ingredients, from raw materials
(cultivation of plants and flora used in
fragrances), through the final
production stages159 and packaging and
distribution. It would not be easy for
suppliers to vertically integrate
forward.
IV. Threat of Substitutes
Factor Yes Comment/Support No
( ) ( )
My customers have one or more substitutes available See appendix D – top four firms make up
to them.(For example, high fructose corn syrup is a only 28% of market share; substitutes are
substitute for sugar in many industrial applications.) readily available.
At least one of the substitutes performs well and While brand loyalty exists for some
could pose a threat to my business. firms, substitute products perform well
and can pose a threat.
My customers will not incur much costs or critical Little costs incurred in switching for
uncertainties in switching to a substitute. consumers; distributors/retail giants will
need to renegotiate contracts (to possibly
include transportation). Proximity of
manufacturing plants to distributors/retail
stores is an advantage (lower
transportation costs).
V. Rivalry Among Existing Competitors
Factor Yes Comment/Support No
( ) ( )
My industry is not growing rapidly or the industry is “Global personal products market grew
in the decline stage of its life cycle. by 3.4% in 2004 to reach a value of
$152.4 billion.” 160 Market is forecasted
to have a value of $182.9 billion in
2009 – an increase of 20.1% since
2004.161 Highest growth area expected
in the Asia-Pacific region, due to
34. P&G and Unilever 29
current low penetration of personal
products in large markets (China,
India).162
The industry is fragmented and exhibits boom-and- This industry is not fragmented; leading
bust cycles. firms in this industry are not small,
relative to the size of the industry.163
The industry has excess capacity, or the industry is Excess capacity not evident; industry is
cyclical with intermittent excess capacity. not markedly cyclical.
The industry suffers competition from companies Not the case.
based in low-cost locations.
There are high exit barriers. Investment in facilities, R&D,
distribution networks is substantial,
making exit pricey.
Major competitors in my industry are of comparable Leading firms (those with comparable
size. levels of differentiation) are similar in
size.
There are no significant product differences and brand Industry is characterized as having
identities among the major competitors. well-supported, strong brands, and
superior product development,
commanding premium pricing in
sectors that are less cyclical. 164
My competitors are mostly specialized in my line of Some industry leaders specialize in
business and are not diversified. limited segments, however most
provide a variety of brands and
products, some of which span multiple
industries.
Overall Ratings of the Five Forces
Yes Comment/Support No
Force
(# (#
(Relative to the Power of Checks) Checks)
Incumbents)
Barriers to entry/mobility 4 8
Bargaining power of buyers 3 4
Bargaining power of suppliers 1 5
Threat of substitutes 3 0
Rivalry among incumbents 2 6
Total No. of Checks 13 23
Note: The greater the number of NO checks, the more attractive the industry is to incumbents.
35. P&G and Unilever 30
Appendix D: Global Personal Products Industry, Market Share - % Share by Value,
2004165
Global Personal Products Market Share: % Share, by
Value, 2004
L'Oreal, 8.80%
Procter &
Gamble, 8.50%
Unilever, 7.80%
Colgate-
Palmolive,
Other, 71.20% 3.60%
The leading player in the personal products market is L’Oreal, which accounts for 8.8% of the global
value.
The four-firm concentration ratio (CR4) is calculated by adding the market share of the four largest firms
in the industry. The top four companies in the Global Personal Products industry represent 28.8% of the
market share. A CR4 of 40% or higher represents a consolidated industry; industries that reach that ratio
begin to exhibit oligopolistic behavior.166 While this industry is becoming more consolidated, particularly
as industry leaders merge with or acquire other firms, it would not be characterized as an oligopoly.
P&G’s acquisition of Gillette in 2005 will very likely change this picture in Datamonitor’s 2006 reports.
The following CR4 table shows the total of less than 80% and is therefore not considered highly
consolidated.
Company %share
L'Oreal 8.8
P&G 8.5
Unilever 7.8
Colgate-Palmolive 3.6
TOTAL 28.7
Source: Datamonitor, 2005, May.
37. P&G and Unilever 32
APPENDIX F: Producer Price Index (PPI) For SIC 2844
The following was obtained from the US Bureau of Labor website.
A family of indexes that measure the average change over time in selling prices received by domestic
producers of goods and services. PPIs measure price change from the perspective of the seller. This
contrasts with other measures that measure price change from the purchaser's perspective, such as the
Consumer Price Index (CPI). Sellers' and purchasers' prices may differ due to government subsidies, sales
and excise taxes, and distribution costs.
Series Id: PDU2844#
Industry: Perfumes, cosmetics, and other toilet preparations
Product: Perfumes, cosmetics, and other toilet preparations
Base Date: 8003
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
1993 165.3 165.9 166.7 167.2 167.2 166.9 166.7 166.7 167.0 166.9 166.9 166.8 166.7
1994 167.2 167.0 166.1 165.9 167.7 166.0 164.6 168.4 166.2 167.4 165.1 166.8 166.5
1995 168.5 165.2 167.9 167.2 168.2 167.3 167.4 165.1 166.6 166.1 167.4 168.0 167.1
1996 169.2 170.0 167.6 167.8 168.6 168.4 168.7 168.2 167.9 168.3 168.4 168.5 168.5
1997 168.9 169.1 168.8 168.8 169.1 169.1 168.8 168.5 168.7 168.8 168.9 169.1 168.9
1998 169.4 170.0 170.6 170.9 172.3 172.4 172.4 172.1 171.8 172.1 172.4 172.5 171.6
1999 172.5 172.6 173.8 172.9 172.8 176.0 176.0 175.4 175.6 176.2 176.7 176.6 174.8
2000 176.5 176.5 176.4 176.7 177.6 177.5 177.3 178.2 178.9 179.1 179.1 179.0 177.7
2001 179.6 179.4 179.2 179.4 179.4 179.4 179.1 179.0 178.9 179.3 179.0 178.8 179.2
2002 179.3 180.3 180.2 180.4 180.1 180.8 180.8 180.7 180.7 180.7 180.6 180.7 180.4
2003 181.0 181.0 181.9 181.9 181.9 181.8 181.7 181.7 181.8 181.9 181.9 181.9 181.7
38. P&G and Unilever 33
Appendix G: Industry Growth Rate - Sales
Note: this source did not include Unilever in its categorization of Personal & Household Prods. Industry.
source: http://www.investor.reuters.com/
Data as of 2/9/2006
72 companies
3 Yr. Sales
Growth 5 Yr. Sales
Name TTM Sales $ Rate% Growth Rate%
MktCap Weighted Average 44,319.94 11.29 9.95
McKesson Corporation 85,876.80 17.22 17.01
The Procter & Gamble Company 61,675.00 12.14 7.27
Mitsui & Co., Ltd. (ADR) 32,205.62 12.27 45.65
Colgate-Palmolive Company 11,396.90 7.03 4.83
39. P&G and Unilever 34
Appendix H: Average Revenue Growth: INDUSTRY
Name Revenue M Revenue Growth Rev Growth, 3 yrs
Industry Average $44,319.9 11.0% 11.3%
1. McKesson Corporation $85,876.8 15.8% 17.2%
2. The Procter & Gamble Company $61,675.0 10.4% 12.1%
3. Mitsui & Co., Ltd. (ADR) $32,205.6 18.2% 12.3%
4. Colgate-Palmolive Company $11,396.9 7.7% 7.0%
5. Avon Products, Inc. $8,149.6 5.2% 9.5%
6. Newell Rubbermaid Inc. $6,479.8 -2.1% -0.5%
7. The Estee Lauder Co. $6,362.9 9.4% 10.4%
8. Shiseido Co. LTD. (ADR) $5,396.2 2.5% 2.7%
9. The Clorox Company $4,508.0 5.4% 2.9%
10. Ecolab Inc. $4,465.9 11.2% 21.7%
EPS
Name EPS EPS Change (1yr) EPS Growth (3yr)
Industry Average 3.5 14.0% 19.1%
1. Mitsui & Co., Ltd. (ADR) 19.6 61.3% 26.4%
2. Pillowtex Corporation 15.6 203.9% NA
3. The Clorox Company 3.0 26.2% 23.8%
4. The Procter & Gamble Company 2.6 14.7% 19.9%
5. McKesson Corporation 2.5 -124.4% NA
6. Grupo Casa Saba, S.A. (ADR) 2.5 6.8% 12.5%
7. Colgate-Palmolive Company 2.4 4.2% 3.6%
8. Alberto-Culver Company 2.3 47.2% 13.6%
9. USANA Health Sciences, Inc. 1.9 54.4% 137.2%
10. Blyth, Inc. 1.8 18.1% 15.4
Name Gross Margin Operating Margin Net Profit Margin
Industry Average 47.8% 15.4% 9.7%
1. China Techfaith Wireless Comm. Tech. Ltd 61.8% 47.6% 48.5%
2. Pillowtex Corporation 4.6% 35.3% 33.0%
3. The Yankee Candle Company, Inc. 57.8% 24.1% 14.2%
40. P&G and Unilever 35
4. Playtex Products, Inc. 52.2% 19.7% 9.5%
5. The Procter & Gamble Company 51.0% 19.4% 12.6%
6. WD-40 Company 48.6% 18.6% 11.0%
7. Parlux Fragrances, Inc. 57.9% 18.4% 11.4%
8. Colgate-Palmolive Company 54.4% 18.2% 11.9%
9. USANA Health Sciences, Inc. 37.0% 17.5% 11.9%
10. DAC Technologies Group 35.7% 16.9% 9.5%