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Unilever has an 81% market share in the Brazilian detergent powder market and has well established its name in the industry. It is looking into whether it is time to move away from its premium brands to target low-income consumers in Brazil. It is also considering product repositioning of its existing brands to forego launching a new brand. In either decision, Unilever is faced with challenges on pricing, promotion, and distribution strategies.
Pedro Pacheco Guimaraes and Pierre Chandon
Harvard Business Review (INS615-PDF-ENG)
February 01, 2004
Case questions answered:
- Conduct a Five Cs analysis for Unilever Brazil.
- Should Unilever target the North East Brazil Market?
- Evaluate the various marketing strategies for low-income segments in NE Brazil for Unilever.
- What marketing mix strategy would you recommend? Address the following issues in the recommendation. Back up your recommendations using financial analysis.
- Should Unilever target the low-income segment of consumers in the Northeast of Brazil?
- Evaluate Unilever's current brand portfolio. Is a new brand necessary to serve the low-income segment, or could Unilever reposition or extend one of its existing brands?
- If you were to introduce a new brand to serve the low-income segment, what would its positioning statement be?
- How would you design the marketing mix (product, price, promotion, and distribution) so that Unilever can create value for low-income consumers in the Northeast of Brazil?
- Should Unilever divert money from its premium brands to invest in a lower-margin segment of the market?
- Unilever already has three detergent brands with distinct positioning. Does it need to develop a new brand with a new value proposition, or reposition its existing brands, or use a brand extension?.
- What price, product, promotion, and distribution strategy would allow Unilever to deliver value to low-income consumers without cannibalizing its own premium brands too heavily?
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Case answers for Unilever in Brazil 1997-2007: Marketing Strategies for Low-Income Consumers
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PART 1: Five C Analysis for Unilever in Brazil
Unilever aims to target customers coming from a low-income household living in North East (NE) Brazil, earning at most two times the minimum monthly wage. Most of the families living in the region do not own a washing machine and thus engage in hand washing the clothes.
The women in these families attach a symbolic value to cleanliness & take great pride in making sure the family wears clean clothes daily. Hailing mostly from working-class families, their fabric cleaner requirements are quite different from the other mid-income and high-income families. They work in tough environments and wash their clothes regularly(almost five times a week). Hence there is a need for a powerful laundry soap to remove stains from the collar and sleeves.
The process of washing clothes in the region involves handwashing using a laundry soap, followed by bleach and detergents, to add a pleasant smell.
Keeping in mind the needs and washing habits of this customer segment, a product that delivers high on the following mentioned factors would give them a desirable return on their investment.
- Low price point
- Cleaning and whitening effectiveness
- Pleasant perfume
- Ability to remove hard stains
Unilever is a USD 56 billion company headquartered in London and Netherlands. The firm is a pioneer in Home Care products and started its operations in 1929. Unilever has firmly established itself as a leader in the detergent market and launched the first detergent powder OMO in Brazil.
The detergent category is the cash cow for Unilever in Brazil, providing fuel for growth in the food and personal care categories. Unilever has currently captured 81% market share in the detergent segment through its three brands: OMO, Minerva, and Camperio. The firm is also an established player in the laundry soap segment, with a 19.1% market share through its Minerva brand.
The cloth washing market in Brazil can be divided into two product categories:
1. Detergent Powder:
In the $106 million market (annual growth rate of 17%), Unilever’s OMO (priced at $3 per kg) is a market leader with an overall market share of 52%. It is followed by its second-largest brand Minerva (priced at $2.4 per kg), with a 17% market share. P&G’s Ace and other detergent powders, priced similar to Minerva, own a 17% market share.
Both Ace and Bold, acquired by P&G in 1996, are perceived as superior quality products than Minerva by their customers. While Ace differentiates itself by offering superior whiteness, it is Bold that competes directly with Minerva- both in terms of pricing and positioning in the market.
In the low-cost segment, Unilever’s Campeiro has the biggest share in the overall market. It is closely followed by Invicto, which owns 5% in the detergent powder market and is a key competitor to Campeiro. P&G’s Pop is also an entry-level detergent powder with less than 1% market share. However, it is perceived to be a better product than Invicto.
2. Laundry Soap
The laundry soap in Northeast Brazil is valued at $102 million and is growing at an annual rate of 6% every year. Priced at $1.7 per kg, Unilever’s Minerva is the only single big player in this market and owns 19% of the overall market. Bem-te-vi and Flora priced at $1.2 per kg own 11.3% and 6%, respectively, of the overall laundry soap market in the NE. The rest 63.6% of the market is co-owned by multiple small and local players.
In terms of big competition, P&G is the single biggest player after Unilever in Brazil. Entering the market in 1988, it acquired the detergent businesses of Bombril and its three brands in the year 1996. Currently, P&G owns a 17% market share in this category but is a real threat to Unilever because of its global expertise in marketing and R&D. It also has a better brand perception in both the mid and low-cost categories of detergent powder in the NortheastNortheast, which is a growing cause of concern for Unilever.
Brazil, with its population size of 170 million, is the second-largest country in Latin America. Its population is spread across two clusters: one group- 73 million, concentrated in the Southeast, and the other group- 48 million living in the Northeast.
65% of the population in the NE is a mix of African and European origins. Lifestyle, culture, and religion are all influenced by African culture. Music and humor are key elements of their culture and history.
In the last three decades, Brazil has experienced cycles of deep recession and strong economic recovery. The GDP grew by 8.1% per year during the “economic miracle” of the 70s, but only by 2.6% per year during the 80s. During Fernando’s term as finance minister in 1995, initiatives like Plano Real led to strong economic recovery during the ”95-96 period.
As of 1996, per capita income in Brazil is $4420. Given the huge differences in employment generation and regional growth between the Northeast and Southeast, the per capita income in Brazil’s Southeast cluster is $6600 and $2250 in the Northeast. Because modern Brazil’s economic and political power is firmly rooted in the Southeast, only 21% of the population lives on less than two minimum wages vs. 51% of the population in the Northeast.
The NE Brazil region, in general, lags its SE counterpart in most development indicators, including per capita income (2250 USD as against SE average of 4420 USD) and illiteracy (40% as against SE average 15%).
The sale of detergent and laundry soap products of Unilever is conducted via a wide network of generalist wholesalers, which primarily serve supermarkets and rely on secondary wholesalers to reach the smallest retail shops. Since the target customer is most likely to buy the low-cost detergent through these small retail shops, Unilever could expand its reach by partnering with specialized distributors and exchange information to incentivize them through assurances or extended benefits.
Unilever would also reap considerable benefits from building strong ties with the small retailers as the consumers look them up for advice and financing.
PART 2: Should it target the NE Brazil market?
Unilever has been operating in the detergent segment in Brazil since 1957 and has become a leader in the industry. The company now seeks to expand its market share in the detergent business, for which exploring growth opportunities in NE Brazil is advisable. Unilever’s market share in the NE Brazil detergent segment, currently at 75%, is below their national average of 81%.
The region provides immense potential to uncover value and gain market share, given the fast-growing consumption rates and the soap market’s fragmented nature. The NE Brazil region, if left untouched by Unilever, could be captured by its competitors, and therefore it is imperative to achieve the country-specific targets.
Specifically, Unilever should focus its marketing efforts towards low-income consumers in the NE Brazil region. The “Everyman” project conducted by the marketing team suggested that low-income consumers are keen to buy Unilever’s premium detergent brands but are restricted due to budget constraints.
Detergent soaps, which provide a relatively inexpensive alternative, are therefore used by most households for washing purposes. The cleaning process using soaps requires intense and sustained efforts and tends to leave a yellow tinge on the clothes. Also, the customers buy bleach to remove hard stains and a little amount of detergent to make clothes smell good.
With the overall positive perception of its premium brands among low-income consumers, Unilever should leverage their expertise in detergent production capabilities and market knowledge. It is to create a product that is deemed an effective cleanser and fits the customers’ budget constraints in the segment. The demand for such a product in the market is expected to be high. It should be capitalized upon by the firm.
Secondly, the detergent business line tailored for low-income consumers is expected to be profitable even though the margins on the associated products are low. Currently, Unilever markets three detergent products with different price points. Unilever can redesign their cost structure with correct marketing efforts to achieve the margins necessary for earning profits. Also, the market for a low-cost detergent is set to grow considerably in the coming years, which further incentivizes the firm to pursue it.
The table below provides the market projections for non-premium detergents in NE Brazil. The analysis considers the following assumptions:
- The detergent market is expected to grow by 17%, while the laundry soap market is expected to grow by 6% annually. We are also assuming that these growth rates remain constant over the period of the next four years.
- The proportion of non-premium detergents in the overall segment remains the same.
- The firm would increase its market share in the non-premium market from 48% currently to 60% in 4 years.
- Low-cost detergent products would trigger a transition from the laundry soap market to the detergent market, leading to additional sales.
- The $ conversion factor from soap to detergent transition is assumed at 0.7, considering the increase in price points and a decrease in consumption, given the cleaning effectiveness of detergent over laundry soap.
Market size projections
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