Unilever's Power Brands Strategy focuses on fewer core brands

MKTG/263
IBS Center for Management Research
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Unilevers Power Brands Strategy
This case was written by Aditya Shankar Mishra and R Muthukumar, under the direction of Vivek Gupta, IBS Center for
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Management Research. It was compiled from published sources, and is intended to be used as a basis for class discussion
rather than to illustrate either effective or ineffective handling of a management situation.
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2011, IBS Center for Management Research. All rights reserved.
To order copies, call +91-08417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
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www.icmrindia.org
MKTG/263

Brand-building is like a relationship; you need to work at it all the time, it just doesn't float
along. If you're not constantly working at it, seeking to understand what the other side in the
relationship wants and thinks, that relationship will disappear.1
-Sir Niall FitzGerald, Co-Chairman, Unilever, November, 2002
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Unilever plans to continue following its current strategy of playing off customer preferences for a
good deal over a prestigious brand.2
-Paul Polman, Chief Executive Officer, Unilever, April, 2010
INTRODUCTION
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In the late 1990s, fast-moving consumer goods company, Unilever with 1600 brands, found itself
under tremendous pressure to find a balance between size and growth. Over the years, the
company had grown significantly in size and it had begun to face a marketing attack from small,
more agile companies. Unilever also faced threats from the increasing power of retailers, brand
proliferation activities, and decreasing concentration on more profitable customers.
In September 1999, the then co-chairman of the Unilever Group, Sir Niall FitzGerald (FitzGerald),
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initiated a five-year growth plan called the Path to Growth strategy. An important part of that
growth plan was the Power Brands strategy. The objective of the Power Brands strategy was to
concentrate on fewer, core brands and to bring down the number of brands from 1,600 to a more
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manageable 400. The intention behind this move was to increase operational efficiency, reduce
brand clutter, and increase promotional activities for the Power Brands. Unilever also wanted to
encourage users to migrate from small brands to the Power Brands and it chalked out an ambitious
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growth plan for these brands.

As a result of this strategy, strong regional brands were also forfeited, so that global power
brands could be created. The pressure for greater efficiency led Unilever to focus more on global
brands. It began getting rid of those brands which were not market leaders. However, during 2000-
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2005, Unilever found to its dismay that this strategy failed, especially in the developing and
emerging markets. The company failed to deliver growth, with sales, earnings, and profit margins
all falling well short of targets.
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BACKGROUND NOTE
Unilever was established in 1930 when the Dutch margarine company Margarine Unie3 merged
with British soap maker Lever Brothers4 (Refer Annexure I). These companies needed the same
raw materials (e.g. oilseeds), both were involved in large-scale marketing of household products,
1
Amanda Hall, Unilevers Brand Guardian, Supplement, Campaign (UK), November 22, 2002
2
Toby Sterling, Unilever Reports 33 Percent Rise in Q1 Profit, Bloomberg, The Associated Press, April
29, 2010
3
Margarine Unie grew through mergers with others margarine companies in the 1920s.
4
Lever Brothers was founded in 1885 by William Hesketh Lever. Lever established soap factories
around the world and had plantations in many Third World countries. In 1917, Lever began to diversify
into foods by acquiring fish, ice cream, and canned foods businesses.
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and both were using similar distribution channels. They had operations in over 40 countries. After
Unilever was formed, it grew mostly through mergers and acquisitions. The acquisition of
Thomas J Lipton (1937) and Pepsodent (1944) were important acquisitions for the company in
the initial days of its operations. Horizontal and vertical integration was also a part of its growth
strategy during the 1960s and 1970s. As a consequence, by the early 1980s, Unilever had emerged
as a diversified conglomerate. Major acquisitions during the 1980s included Brooke Bond in
1984, which greatly strengthened Unilevers tea interests, and Chesebrough Ponds Inc in 1987,
which brought it a major additional stake in the US personal product market besides strengthening
its position in the world skin care market.5
Unilever produced and marketed some of the world's best known brands, like Bertolli, Blue
Band, Hellmanns, Knorr, Lipton, and Slim-Fast. In 2005, its portfolio had several leading
global brands (Refer Exhibit I), 12 of which earned annual revenues of more than 1 billion6.
Knorr was the companys biggest brand and was sold in over 100 markets.7 Unilever continued
to build and expand its fast-growing international businesses around the world. Megabrands such
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as Lipton, Surf, Dove, and Knorr were the key strengths of its international business, with
market-leading local brands, such as Annapurna in India and Klondike and Popsicle in North
America, driving strong local market growth. A strong brand name and market leader status
enabled the company to sustain its high sales growth.8
Unilevers reputation and its efficient functioning were based on five key strengths. First was its
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strong capability in branding and marketing. The company made efforts to understand local
markets and their consumer behaviour and how to market to them. Second, it grew inorganically
by acquiring high potential firms. Its ice cream and other foods businesses were built up patiently
and gradually through the acquisition of one local firm after another. Effective measures were
taken to absorb acquired firms and integrate their businesses with those of Unilever. In the 1980s,
Unilever's ability to identify acquisition targets and to absorb the capabilities of the acquired
companies became one of its principal competitive advantages. Unilever's research capabilities
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were its third strength. The research laboratories in Britain, the Netherlands, the United States, and
India were major sources of innovation. From gum health toothpaste to household cleaners, and
from insect pollination of oil palms cloning to pregnancy tests, Unilever was responsible for major
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innovations. Fourth, Unilever had a say in issues for which it concerned, because of its worldwide
presence and reputation. In emerging markets, Unilever was able to influence how policies were
interpreted. Its corporate reputation for integrity and competence was a positive point in this
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respect. Finally, and most importantly, Unilever had extraordinary strengths in management. It
recruited some of the best available graduates from each generation, not only from its home
countries, but from many other countries also. Its early localization policies opened up the most
senior positions for other nationals also. Unilever managers were given extensive training and their
career development was also watched over carefully.9
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By the late 1990s, Unilever was reeling under the pressure to balance its size and growth. Over the
years, the company had grown to become a behemoth and it was facing a marketing onslaught
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from small, more agile companies. Unilever, which had a whopping 1600 brands across various
categories, realized the need to take a relook at its brand portfolio. The top management under
FitzGerald thought that the large number of brands was the main reason for the lack of growth
momentum. Besides this, there were other issues in the global market which were acting as
stumbling blocks in Unilevers Brand Growth Path. Large retailers like Wal-Mart had changed the
power equations in the market and the power had gradually shifted from the manufacturers to the
5
Unilever, http://www.corporatewatch.org/?lid=257, June 07, 2010
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1 = 1.39398 USD as of October 18, 2010
7
Market Watch: Global Round-Up, Datamonitor, August 2005
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9
Geoffrey Jones, Unilever: Transformation and Tradition, Research & Ideas (Harvard Business School),
November 28, 2005
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distributors. Retailers had begun to aggressively market their private labels. Shelf space had
become scarce and retailers had begun to stock only large brands. This situation forced large
corporations like Unilever to concentrate only on their big brands. Moreover, the companies used
brand extensions as a preferred approach to launch a new product. However, the huge number of
brands and their extensions only created confusion in the minds of customers. Also, customers
began to opt for low-priced private labels rather than the extended brands as they realized that the
reputed brands no longer provided meaningful differentiation in terms of features.
Unilevers management began to think in terms of having a limited number of large brands which
could be extended to multiple categories. Moreover, in Unilevers case, twenty percent of the
brands contributed 80 percent revenues. Hence, a larger marketing budget was allocated on these
big brands.10 The result of all this thinking was the much hyped Power Branding strategy which
was the core strategy in Fitzgerald's Path to Growth agenda for Unilever. Under this strategy,
Unilever planned to prune its brand portfolio from 1600 brands to a core 400 Power Brands.
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POWER BRANDS STRATEGY
Unilever began implementing the Power Brands strategy in September 1999. Power branding
referred to building multi-product, multi-category brands which had global reach. The idea behind
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this strategy was to build global brands which endorsed multiple products in various categories.11
The plan had four major objectives. The first was to increase operational efficiency and reduce
brand clutter. This was done by reducing the number of brands from 1600 to 400. This reduction
helped Unilever make its brand portfolio more flexible and easier to handle. The second was to
increase promotional activities for the Power Brands and thus to offset the loss which could
occur from brand rationalization (reduction of brands). The allocation of the marketing budget was
focused on these Power Brands and that helped in terms of increasing the sales revenue from
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them. The third objective was to encourage consumers to migrate from smaller brands to the
Power Brands. This was done by positioning these Power Brands in such a way as to replace the
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smaller brands. For example, Lux, a Power Brand, began gradually taking the place of other
brands in the soap category. Finally, Unilever had ambitious growth plans for its Power Brands.
Unlike earlier, where it had had different brands for multiple segments, it started making the
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Power Brands the cult brands for every segment in that particular product category. The Power
Brands were chosen on the basis of size, brand strength, uniqueness, and growth potential.12
As a part of the Power Brands strategy, Unilever announced in 2009 that it would concentrate on
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fewer but stronger brands over the next five years. The company hired consulting firm
PricewaterhouseCoopers to sell ten of the firms 70 food brands.13 The concentration on
innovation and brand development on a focused portfolio of 400 leading brands was part of
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Unilevers growth strategy, called The Path to Growth, which aimed at accelerating growth in
revenues and improving margins.
In February 2000, the company announced a series of other linked initiatives (e.g. organizational
changes, restructuring) to align and streamline the entire organization in accordance with these
growth ambitions. Top-level changes were also made, with the companys top management being
split into two separate global units food and home, and personal care. Unilever started selling off
those subsidiary businesses which were making less than average profits, and decentralizing
10
B. Harish, Marketing Funda: Power Brand Strategy, Marketing Practice , July 31, 2007
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12
13
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control of the subsidiaries, with the corporate HQ in Europe just monitoring profit levels and
subsidiaries taking control of local level strategies. Decisions regarding the selection of Power
Brands and the brands which the company wanted to remove were taken most often only at the
subsidiary level.
In keeping with its strategy to concentrate on fewer, core brands, Unilever trimmed 27 businesses
in the year 2000 for a consideration of approximately $642 million.14 Some of the businesses
which the company sold were the European Bakery Business, the Benedicta culinary business in
France, and various other small businesses and brands. Brands like Oxo and Bachelor's Cup-A-
Soup were sold in favor of the Bovril and Knorr brands in the UK.15 As part of its year-old
strategy to narrow its focus on 400 power brands, Unilever rearranged its three fabric-care master
brands, Wisk, All, and Surf, in 2001. Its plan was to increase the marketing budget of All to more
than double, add line extensions to these powder detergents, and roll out a detergent tablet under
the Surf brand and a second Wisk tablet.16 Unilever continued its selling. In 2002, Unilever
sold at least 19 of its food brands including cleaning firm DiverseyLever and cooking oil firm
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Mazola.17
The companys determined stand to cut down on the number of brands through which it presented
its products to the world had considerable implications. Single brands then covered either a wider
geographical area (a whole continent or the entire world rather than just a few countries) or a much
wider range of products (satisfying the needs of more than one class). As a result, the value of each
brand became even more vital.18
BUT ALL WAS NOT WELL!

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Unilevers Path to Growth strategy aimed at re-structuring the brand portfolio to concentrate on
core brands, bringing about considerable improvements in the supply chain and innovation, having
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a closer consumer focus, and building an agile organization. Between 2000 and 2004, the strategy
involved reducing brand numbers, closure of factories, and job losses. However, it failed to deliver
growth and sales, earnings and profit margins fell well short of targets. The companys revenues
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declined from 48,760 million in fiscal 2002 to 40,366 million in 2004. Operating profit declined
from 5091 million to 3573 million in the same period. 19Further, the company had been
experiencing overall revenue reductions since fiscal 2002, with losses being made in every sub-
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division within the food and Home and Personal Care groups20.
The Power Brands strategy proved a failure in developing and emerging markets till the year
2005. The primary reason for this was that Unilever had miscalculated the utility of the small
brands, especially in emerging economies like India and other Asian countries. Although there
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were similarities in terms of competition, the markets in the developing and emerging countries
differed significantly from the global markets. Retailers were not that powerful (compared to
Europe and the US) and there was no private label competition. The withdrawal of the smaller
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brands proved to be a costly mistake for Unilever in these markets. Though the smaller brands did
not contribute significantly to its profitability, they still held a lot of strategic importance. They
acted as a flanker brand21 for large brands, filling in the gap left by the larger brands and thus pre-
14
15
Unilever: Brand Shake-out May Lose the Regional Touch, Datamonitor, September 28, 2000
16
Christine Bittar, That's All, Folks - Unilever's Marketing Strategy, Brandweek, b-NET, May 14, 2001
17
18
Richard Heath , Brand Vitality: Unilevers Approach to IP Protection, Businessweek, June 23, 2009
19
20
21
New brand introduced into a product category by a company that already markets an existing brand in
that category. The flanker may be a different size, flavor, or type of the existing product but is a logical
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empting competition. Smaller brands were accepted well locally and when these brands were
withdrawn, Unilever lost its presence in the smaller markets. The brand rationalization also pulled
down the distribution because many brands substituted for other brands in various markets. The
reduction in small brands by Unilever also strengthened many of the regional brands of its
competitors. Another measure under the power branding strategy that failed was the migration
effort of smaller brands to Power Brands. The pruning of smaller brands was started with the
assumption that the users of the smaller brands would migrate to the Power Brands. This
assumption too failed miserably. The best example was the failed migration effort from Rexona
to Lux. Rexona was the low-cost brand targeted at price-sensitive customers but the Lux
brand was positioned as a premium brand to cater to high-end customers. Because of the higher
price of Lux, customers of Rexona refused to switch over to Lux. Thus, the users of the
smaller brands of Unilever moved away from the companys products to competitors brands.22
ONE UNILEVER: THE REVIVED POWER BRANDS STRATEGY?
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The Power Brands strategy aimed to make the firm more efficient and its brand portfolio more
manageable. Although Unilever saved about 4 billion ($4.9 billion) in costs over five years
(2000-2005),23 it witnessed a 31% fall in profit in 2004, to 1.9 billion (1.3 billion). Moreover,
according to analysts, Unilevers Power Branding strategy failed to deliver its stated goal. In 2004,
underlying sales grew by just 0.4%, and leading brands sales by 0.9%, falling far short of the target
of 5% to 6% growth.24 CO
In 2005, Unilever appointed Patrick Cescau (Cescau) as its new Chief Executive Officer. Cescau
continued the Power Branding strategy under the new corporate restructuring strategy called
One Unilever with the emphasis being on unification of the corporation. The Anglo-Dutch
company announced an end to its 75-year practice of having two chairmen, one in London and one
in Rotterdam. Cescau became the groups chief executive, presiding over a streamlined operating
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team.25 Management layers were removed to make communication more immediate and to speed
up decision-making. The aim of the One Unilever scheme was to simplify the business and
generate savings by bringing national operations together so as to have a single management team
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in each country. Cescau believed that the combination of the restructured organization and the
One Unilever program would improve the firm's effectiveness and allow it to build on local
strengths while exploiting its power as a global operation.
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Unilever started focusing on three areas of growth: developing and emerging markets, personal
care, and healthy-living products.26 The company planned to invest more in marketing and
advertising.27It modified the Power Brands strategy in developing and emerging markets by
reviving popular smaller brands like Rexona. Cescau started concentrating on emerging economies
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as the contribution of Unilevers sales from these countries was also on rise. Unilever had
launched some products especially for emerging markets and then launched these in other parts of
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extension within the product category, such as Surf Excel for the Premium segment, RIN for the middle
segment, and Wheel for the lower segment.
22
23
Path to No Growth, Economist, Vol. 372, Issue 8394, September 25, 2004,
24
Beth Carney, Unilever's Many Woes, The European Food Giant Reports a Big Quarterly Loss, a
Management Realignment, and Other Moves Aimed at Getting it Cooking Again, Bloomberg, February
11, 2005
25
Beth Carney, Unilever's Many Woes, The European Food Giant Reports a Big Quarterly Loss, a
Management Realignment, and Other Moves Aimed at Getting it Cooking Again, Bloomberg, February
11, 2005
26
Mark Ritson, Fewer Brands Means Better Results, Marketing, August 8, 2007
27
Brand Strategy, Centaur Communications, March 2005
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the world. For instance, Clear28 was developed and launched first in emerging markets before it
was introduced in the US and. Europe. Emerging markets where Unilever had historically been
strong were given priority. To ensure that the products met the needs of local consumers in these
markets, nearly one-third of the company's home and personal products brand development
resources were based in the developing world.29
Once these changes came into effect, the new Power Branding strategy started paying off.
Unilever posted its best annual results in five years on Feb. 7, 2008, with sales up 5.5%, to $15
billion, and net profits of nearly $8 billion.30 Developing countries accounted for nearly 45% of the
revenues, up from 38% three years earlier31. In 2009, the share of developing and emerging
economies went up further to 50%.32 Cescau's new approach made it possible for Unilever to roll
out small regional brands such as Clear quickly in high-growth markets. The company put more
resources behind the product and improved the formulation with inputs from labs around the
world.33
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Unilever reported a 33 percent rise in first quarter net profit in the calendar year 2010, as the
company boosted sales by lowering prices and improved margins by cutting costs. It registered a
net profit of 973 million ($1.28 billion) compared to 731 million during the same period a year
earlier. Sales rose 6.7 percent to 10.1 billion.34 Chief Executive Paul Polman35 said, The margins
were helped by lower commodity costs and lower overhead. The company actually increased
advertising spending.36 He also said, Unilever plans to continue following its current strategy:
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playing off customer preferences for a good deal over a prestigious brand.37 The Power Brands
strategy led to a significant growth in the companys market share in most areas. By product type,
Unilever's ice creams and personal care products showed the strongest growth, better than 7
percent each. The company launched new products under the mother brands Magnum,
Cornetto, and Breyer's and new Dove and Vaseline products. By geography, sales volumes
grew 12 percent in Asia and Africa, the company's largest region, followed by a 6.3 percent
growth in the Americas and 4.0 percent in Europe.38
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28
A personal care brand (anti dandruff Shampoo) of Unilever.
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30
Capell Kerry, Unilever Lathers Up, An Ambitious Restructuring Program, Marketing, and a Dandruff
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Shampoo May Take the Consumer-goods Company All the Way to the Top, Business Week, February
15, 2008
31
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15, 2008
32
Introduction to Unilever,
http://www.unilever.com/aboutus/introductiontounilever/?WT.GNAV=Introduction_to_Unilever, June
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28, 2010
33
15, 2008
34
29, 2010
35
In January 2009, Paul Polman, the then executive vice president and zone director for the Americas at
Nestl, was appointed as CEO of Unilever.
36
29, 2010
37
29, 2010
38
29, 2010
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Exhibit I
Unilevers Power Brands
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Adopted from http://www.unilever.com/aboutus/, April 28, 2010
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Annexure I
Formation of Unilever
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Adopted from http://www.unilever.com/aboutus/, April 28, 2010
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References and Suggested Readings:
1. Amanda Hall, Unilevers Brand Guardian, Supplement, Campaign (UK), November 22,
2002
2. Toby Sterling, Unilever Reports 33 Percent Rise in Q1 Profit, Bloomberg, The
Associated Press, April 29, 2010
3. Unilever, http://www.corporatewatch.org/?lid=257, June 07, 2010
4. Market Watch: Global Round-Up, Datamonitor, August 2005
5. Geoffrey Jones, Unilever: Transformation and Tradition, Research & Ideas (Harvard
Business School), November 28, 2005
6. B. HarishMarketing Funda: Power Brand Strategy, Marketing Practice , July 31, 2007
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7. Unilever, http://www.corporatewatch.org/?lid=257, June 07, 2010
8. Unilever: Brand Shake-out May Lose the Regional Touch, Datamonitor, September 28,
2000
9. Christine Bittar, That's All, Folks - Unilever's Marketing Strategy, Brandweek, b-NET,
10.
May 14, 2001
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Richard Heath , Brand Vitality: Unilevers Approach to IP Protection, Businessweek,
June 23, 2009
12. Path to No Growth. Economist, Vol. 372, Issue 8394, September 25, 2004,
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13. Beth Carney , Unilever's Many Woes, The European Food Giant Reports a Big Quarterly
Loss, a Management Realignment, and Other Moves Aimed at Getting it Cooking Again,
Bloomberg, February 11, 2005
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14. Mark Ritson, Fewer Brands Means Better Results. Marketing, August 8, 2007
15. Brand Strategy ,Centaur Communications, March 2005
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17. Capell, Kerry Unilever Lathers Up, An Ambitious Restructuring Program, Marketing, and
a Dandruff Shampoo May Take the Consumer-goods Company All the Way to the Top,
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Business Week, February 15, 2008

18. Toby Sterling, Unilever Reports 33 Percent Rise in Q1 Profit, Bloomberg, The
Associated Press, April 29, 2010
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MKTG/263

IBS Center for Management Research

2011, IBS Center for Management Research. All rights reserved.

Unilevers Power Brands Strategy

growth plan for these brands.

BUT ALL WAS NOT WELL!

ONE UNILEVER: THE REVIVED POWER BRANDS STRATEGY?

Unilevers Power Brands

References and Suggested Readings:

16. Market Watch: Global Round-Up, Datamonitor, August 2005

Business Week, February 15, 2008

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