Cost Leadership Vs Differentiation Theory

INDUSTRY: Personal (Consumer) Product Industry

Unilever 

Unilever was officially formed in 1930, through the merger of Lever Brothers, a British soap

manufacturer and Margarine Unie, a Dutch margarine manufacturer. It has since become one of

the largest direct investors in the United States. Unilever is unique in that it has maintained a

dual ownership structure since its inception, governed by an equalization agreement. 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 directors and reports one set of financial statements.

• 2bn consumers worldwide use a Unilever product on any day

• $50 Billions sales.

• Products sold in more than 180 countries

• More than 50 years experience in Brazil, China, India and Indonesia

• Unilever has products for three markets, home, food, and personal care, which fall into 6

primary categories: home care (17%), spreads (12%), savory & dressings (21%),

beverages (8%), ice cream & frozen foods (16%), and personal care (26%).

• Employs over 223,000 people, and has numerous well known brands, 12 of which each

have worldwide sales exceeding €1 billion.

STRATEGY:

Most companies that hold a market leadership position do so by achieving the right balance

between differentiation and low cost. In the consumer products industry, consumers have many

choices regarding which brand they select. 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

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). 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. Company resources have been divided into two primary functions, one

responsible for brand development, innovation, and brand strategy, and the other for managing

the business, effective deployment of brands and innovations, and winning with customers.

Procter & Gamble

In 1837, Procter & Gamble was started as a soap and candle company out of Cincinnati, OH.

Procter & Gamble has since grown to become the largest consumer goods product company in

the world, with $70 billion in sales worldwide for fiscal year 2011. Corporate headquarters are

still in Cincinnati, and they maintain 39 manufacturing facilities in 23 states, as well as 105

manufacturing facilities in 41 other countries. Procter & Gamble manufacturing facilities

produce personal health care products, house and home care products, health and wellness

products, baby and family care products, and pet care and nutrition products. These products

have made Procter & Gamble “a recognized global leader in the development, manufacture and

marketing of some of the world’s most trusted, quality, leadership brands including Pampers®,

Tide®, Ariel®, Always®, Whisper®, Pantene®, Mach3®, Bounty®, Dawn®, Pringles®,

Folgers®, Charmin®, Downy®,Lenor®, Iams®, Crest®, Oral-B®, Actonel®, Duracell®,

Olay®, Head & Shoulders®, Wella®, Gillette®, and Braun®”. Procter & Gamble boasts over

300 brands being sold in as many as 160 countries. Procter & Gamble acquired many of these

brands because of a preexisting solid consumer base. Procter & Gamble is categorized in the

household and personal products industry of the consumer goods sector.

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. With their recent acquisition of Gillette, P&G now has 22 brands that each

exceeds $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. 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. 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.

P&G's business strategy focuses on large-scale operations, strong product branding, and product

innovation to develop competitive advantage. 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%). 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.

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. 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.

Procter & Gamble Vs Unilever

Our objective in this study is to take a closer look at different types of costs and study their

impact on optimal pricing, positioning, and profits in a competitive setting.

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.

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.

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.

Conclusion and Recommendation

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.

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,

• 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.

• Balance differentiation with low costs and continue reducing 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.

• Increase focused advertising, especially for higher profit line and expansion in

emerging countries.