Business Strategy for Unilever Refreshment Unit, Essay Example

Introduction

This essay tries to look into the business strategy used by Unilever’s refreshment unit using Porter’s Generic Strategy Framework. It will also analyze and evaluate the business strategy to determine its suitability to businesses in the refreshments sector. Fast foods and refreshment industry is growing at a fast rate after experiencing down lows during the financial crisis that hit major countries in 2008/2009. The reason for the improvement of this industry is the improvement of products and services offered to the clientele although the clients are also responsible for its improvement. This is because of the adoption of an excellent management and marketing strategy. A business strategy can be defines as a complete framework of ideas, plans, budgets, and even decisions meant to oversee the operations of a business. The main purpose of a business strategy is to enable the company to compete with its rivals as it strives to attain its vision and mission. Several businesses have different business strategies determined by the nature of the industry they are located. Unilever’s refreshment unit main offering is the ice cream. According to Mintel (2014), the industry has been struggling in Europe partly due to the financial crisis. Unilever tries to capture the attention of its consumer’s by creating power brands such as Magnum. This has enabled the company to conquer markets in Europe, Brazil, and even Indonesia.

Industry size and Scope

Unilever is a multinational food and beverage company whose headquarters is located in two parts in Europe that is Rotterdam in Netherlands and London in England. The company also specializes in the manufacture of personal care products and cleaning agents. According to revenue reports in 2012, Unilever is ranked third among companies producing consumer goods after companies such as Nestle and Proctor & Gamble. However, according to Mintel  (2014), the company is currently the pacesetter in the refreshments industry in 2014 because of its business strategy of producing power brands. Unilever is located in more than 190 countries; however, it major business is in the US and Europe. Unilever’s refreshment unit goes in accordance to the overall objective of the company and hence it tries to reach most of its consumers by augmenting its offerings. The unit offers different offerings, which include snacks and beverages. The company has enhanced its ice creams to imitate snacks and this has increased the market share for the company. For instance, Magnum is mooted as the product that enabled the company to overtake other companies in Europe and other major markets in the world. Indeed, magnum’s value is reported to have hit the 0ne billion Euros mark making it the most powerful brand among Unilever’s offerings.

Unilever leads the world ice cream sales with over thirteen billion US dollars in sales of its major brands such as Breyers, Klondike, Cornetto and Ben & Jerry’s. This is a clear indication that ice cream is the main revenue provider for Unilever. Reports suggest that ice cream alone accounts for more than fifteen percent of Unilever’s total revenue. Moreover, Unilever branches located in Rotterdam and London are reported to be the largest ice cream maker making about twenty percent of the overall ice cream sales leading rivals such as Vevey, which is a Nestle branch based in Switzerland. According to Mintel (2014), the sales of frozen products soared between 2011 and 2013, enabling the firms in the business to exploit the market. Unilever became the first company to notice this trend and exploited it fully enabling it to increase its share in the market, which was largely dominated by Nestle. There are increasing competitors in the industry; however, increasing numbers of consumers means that any firm in this particular industry is still able to make a profit. In addition to its ice cream and snack offerings, the company offers tea products such as the Lipton Yellow Label tea bags. This product accounts for 1.1 percent sales of the firm.

Analysis Unilever’s strategy for the refreshment market

A firm can employ two strategies, the corporate, and the business strategy. Corporate strategy can be defined as the overall strategy used by the management that includes the internal and external environment of the business. This strategy is devised to help the firm to position itself in the community, the country, and the corporate world. On the other hand, business units within an organization use business strategy. This strategy involves the plan of that particular unit on how to compete and conquer its market. A business strategy analyses the needs of the market, and the completion and then devises ways of beating the competition by developing core competencies and positioning the business in the market.  Formulation of an excellent marketing strategy is founded on two decision paths. One is deciding whether the business is well placed to pursue new opportunities and two is deciding to concentrate on current opportunities or concentrate on both. The purpose of the business strategy is to create a sustainable competitive strategy. This means that knowing when to apply certain decisions is very vital in designing approaches that would be able to counter the competitor’s strategies.

Unilever’s refreshment unit main strategy is the creation of power brands as opposed to the creation of cheap products. Moreover, the company bases most of its strategies on innovations. In fact, Mintel (2014) states that it is the refreshment unit are leading in innovation. The unit uses innovation to make products that cover all the consumer bases. Unilever’s refreshment unit uses three generic strategies to position itself above its competition. These include cost leadership, differentiation, and focus.

Cost leadership

The pricing strategy of the refreshment unit enables the company to compete with its rivals while offering quality products and services to its clientele. The unit designs the prices of its products after consideration of several elements such as the desired profit margin, the quality of the product and the prices of rival products. Indeed, the pricing strategy is based on internal efficiencies that enable the company to maintain its operations and the desired profit levels. The unit designs every product using the cost and return analysis method. This strategy is synonymous with situations where the products are standardized. Moreover, these products can be sold at lower prices and can satisfy the consumer’s needs. The most vital aspect of this strategy is the provision of products of the best quality at lower cost. This is the way the refreshment unit strategizes to compete in an industry with several fierce competitors. In order for the unit to achieve success using this strategy, the unit should consider the competitors pricing strategy so that it can be able to revise its prices in relation to that of the competitors.

However, the use of this strategy may be hard to achieve the desired profit margins. This is why the company designs its production systems to use fewer resources in availing the desired product.    This can be done by configuring the chain value, researching on efficient methods of production, and construction of efficient production facilities.

Differentiation

Perhaps the main element that makes the refreshment unit competitive is the use of innovation to manufacture and provide products with distinctive features and characteristics. The unit uses advanced technologies, speedy innovations, and quality service and image management. All these activities enable the company to produce differentiated products such as the yellow tea bags, and the magnum cakes. The main desire of the unit is to create value in all its operations by creating diverse products that satisfy the needs of diverse market segments. The unit creates value through fast response to arising problems, sustainable production, provision of high quality products and services, and widening its operations. Moreover, the unit emulates the company by creation of barriers for the competition by introducing perceptions that its product is unique and of impeccable quality. The unit has done this by creating power brands such as magnum. In addition, putting the experiences of the clientele above everything else has enabled the unit to achieve most of its objectives.

Focus

The refreshment unit targets all the segments by providing products according to the needs of these segments. The unit targets all social grouping, including people of all ages. For instance, its ice cream varieties include those enhanced with coffee products to appeal to the older generation of clients. Moreover, the unit has its focus on emerging markets; for instance, some years back, the unit started its operations in places such as India. Moreover, the company is striving to provide different sizes for its offerings so that it can appeal to more clients. The unit focuses all its efforts on consumer satisfaction, a fact that enables the unit to perform better than the other units and the competition. The fact that the company uses the cost leadership means that most of its products are affordable to the clients. This means that the unit has a desire of reaching all the consumers who have a fetish for refreshments. Indeed, reports show that the unit has increased its sales by using this method.

Evaluation Unilever’s strategy for the refreshment market

According to the Porters five forces analysis (Appendix 1) and the generic strategies above, it is clear that the refreshment unit’s performance is due to the strategies employed by the unit. The most effective strategy employed by the unit is the cost leadership strategy, which enables the firm to deliver its products at low costs while offering quality products. Porter’s five forces analysis presents evidence that the industry is full of competitors and substitute products. This means that the performance of the unit is influenced by several factors. However, according to the reports the firm is doing well in the market. This implies that the strategy used by the unit is working. Moreover, the analysis shows that the unit creates a perception that makes it hard for new firms to enter the market.

In appendix 2, the PESTEL analysis shows that the business environment, especially in the UK is favorable to the operations of the business. Moreover, the SWOT analysis presents several strengths and opportunities available to the firm. This means that the firm is well positioned to take over the refreshment industry if it follows through on its formulated strategies.

SWOT Analysis

Unilever is a company that operates in nearly all continents. almost all the continents and over 190 countries of the world. The company also has a diverse set of products enabling to sell to an even wider range of age groups. The following is a SWOT analysis of Unilever.

Strengths

• The company has a branch in over 190 countires. In addition to this, the company also has over 270 manufacturing locations.
• The company also portfolio of brands and diversified product range.
• Unilever currently has more than 400 brands all around the world, most of which are well knownbrand.

Weakness

Internal attributes of the organization that are harmful to achieving the objective. Unilever has the following weaknesses out of which the strong competitors like P&G, Nestle and

Strong competitors

Unilever has strong competition worldwide by multinational. E.g. P&G, Rackitt Benckiser, Nestle, etc these are also the companies that operate worldwide, have big market shares, huge product line and millions of customers.

Substitute products

As Unilever operates in more than 100 countries and there are lots of substitute products available in the local market. Because of product quality and extensive R&D company charge higher prices for its products but the local products are much cheaper.

Opportunity

• External conditions like market fluctuations present a positive opportunity that could supplement the company’s performance.
• Currently there is a great demand for health conscious products. This poses an opportunity for the company to produce more health food products.
• Emerging new markets like Iran, Iraq, Malaysia and Russia present opportunities for expansion.
• Increase in production volumes. Unilever can focus on increasing their production volumen and in turn increasing the availability of the prodec through expanding their reach. .
• The ability to relocate operations to a cheaper more affordable country.

Threat

• External conditions, such as market fluctuations, could potentially do damage to the business’s performance.
• Economic downturn represents another key threat. During the recent recession, many companies operations, which simultaneously results in a reduction of ourchasing poer and a decline in sales.
• Environmental effects pose a threat to the company if it does not put forth an effort to show they it excercises social responsibility.
• Global competition is a growing threat with the expansion of globalization
• New local products entering the market could pose a threat to Unilver’s market shares.
• Legal effects also pose a potential threat to the company as the introduction of governmental policies such as changes in tax law could substantially impact production.

In addition to the above factors within the SWOT analysis, the company also sustains the following competative advantage within in its operations.

Competitive advantage

• Unilever has a wide advantage over other countries.
• The company has advanced level advertising, promotion and marketing.
• They have attractive packages.
• Unilever operates over 270 manufacturing sites around the globe. That is how they can achieve economy of scale easily. It gives competitive advantage to company.

Unique resources and capabilities

Primary activities

These are the main activities that enable the unit to achieve its objective using its cost leadership strategy. First, the unit has excellent infrastructure that enables it to perform its activities with minimal wastage of resources. This enables the unit to produce high quality products using few resources. Moreover, the company relies on innovation to create diversified products. These products place the unit strategically in the market.

Support activities

The unit uses the network of its parent company to distribute and advertise its products. The size of the parent network enables the unit to reach a large number of consumers hence making sure that it makes the desired profits. Moreover, the unit uses online platform to gather opinions about their products while promoting the same products.

Prospects of Unilever in the refreshments industry

Suitability

The performance of the unit in the industry is provides clear evidence that the strategy used as well as the firm itself is suited to the industry.

Acceptability and Feasibility

Unilever’s products are highly rated by their users. This is according to the reports from the company’s websites as well as Mantel (2014). The company puts the needs of the customer first during the design and manufacture of the product. Moreover, the cost of Unilever’s products is acceptable in the industry by both the consumers and the rivals. However, the unit should find more ways of attracting its clientele other than cost leadership since at times it is not feasible.

Conclusion

Unilever’s refreshment unit is able to compete in the market full of competition and substitutes because of the diversification of its products using innovation and the adoption of cost leadership. The analysis and evaluation of the strategies used by Unilever’s unit using several devices show that the unit is strategically placed in the market to exploit the current and upcoming opportunities.

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