Strategic Management and Unilever
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).
Strategic Management and Unilever Essay Example
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. 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 powerTrends 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 P;G and Unilever 4 rice 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.
7 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 P;G and Unilever 5Strategic 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. 2 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 P;G and Unilever 6 producers have developed a market niche for a specific consumer need and have been successful.