The Performance Of Unilever

The Performance Of UnileverIn 1999, Unilever implemented what they considered to be an ambitious dodging named Path to Growth which they believed achieved a lot in terms of steel focus, global buying, operating margins and capital efficiency (Cescau Rivers, 2007b). However, according to the then Group honcho Executive Patrick Cescau, the schema failed to transform growth performance (Cescau Rivers, 2007b, 1). Consequently, adjustments were made to the strategy between 2005 and 2006, aimed at reorganizing and streamlining Unilevers organization and to add aw arness of the Unilever brand (Johnson Scholes, 2006).In terms of innovation, Unilever delivered bigger and better innovations, rolled out faster and to to a greater extent food markets (Unilever, 2009, 5). The tremendous success in fast and effective rollout of innovations was enhanced greatly by the 1 organizational structure (One Unilever) introduced into the business as a result of the adjustments made to Path to Gro wth (Unilever, 2009a). For example, the Dove Minimising Deodorant has been rolled out across 37 markets and Clear Shampoo across 37 markets. The success in this bea has alike been reward by the business publication Fast Company which of late recognized us as the fourth most innovative company in advertising and merchandising.In terms of constitute saving, the business foc procedured on discontinuing and cutting out activities that failed to add value. The restructuring was one such activity. In 2009 alone, Unilever, achieved comprise savings of 1.4bn, which was better than expected and also improved working capital by 1.9bn (Unilever, 2009a.Despite these and other successes including mergers and acquisitions, ope symmetrynal and sustainability and corporate responsibility, Unilever also failed to achieve some of their targets. For example, in two key markets, India and Spain, we took longer to respond to changing market dynamics and to the intense level of competition especiall y from low-cost local competitors (Unilever, 2009a, 6). In the processed and packaged goods industry in which Unilever operates, this is a significant failing as the battle for market shargon is fierce (Ehlers Estes, 2007). Companies primarily achieve this primarily by cost leadership strategies, therefore the need for Unilever to wait on their cost cutting drive cannot be overestimated.Another significant challenge is their inability to develop their brands to top quality status. In their own estimation, product quality is acquiring better, but we need more of our products to show superiority and there is ample scope to sharpen our communications and to set the innovation bar even higher(prenominal) (Unilever, 2009a, 6).Financial PerformanceTo put Unilevers performance into context, let us look at some of their financial ratios for both the financial year ended 31 December 2009 and ratio averages for a basketball team year period which admits 2006 to 2009.Figure 1 Sales Growth (%) of Unilever, Processed Packaged goodishs Industry and SPs 500. Data writer Yahoo FinanceFigure 1 shows Unilevers performance comp atomic number 18d against its competitors and the SPs 500 benchmark which has been widely regarded as the best single gauge of the large cap US equities market since the index was first published in 1975 (Standard and Poors, nd). The chart on the left shows the close to 5% decrease in growth of Unilevers gross revenue speckle the industry average recorded an increase between 2008 and 2009. This reveals that the competition is making inroads in regaining lost market sh be during the period of the scotch downturn. The five year average for Unilever is still showing a positive although it is significantly below industry average.Figure 2 below shows the earnings per share sic for the last three long time for Unilever.Figure 2 Earnings per share for Unilever (2007 2009) Data source Yahoo FinanceThe earnings per share ($) shows the service credited (predicate) to each share held by Unilever for the last three years (McLaney, 2006). Despite a recovery from 2008, the 2009 EPS has fallen again and to levels below 2007s.Figure 3 shows the equipment casualty/Earnings ratio compared with competitors and the SP benchmark.Figure 3 P/E ratio (2009) Source Yahoo FinanceThe price earnings ratio is the number of years that it would take at the current share price and rate of earnings, for the earnings from the share to cover the price of the share (McLaney, 2006, 58). This is one of the most important measures investors use to assess a company. Unilever is once again operating below industry average and way below a benchmark of companies in the stock market. This implies that investors are less confident of growth in prospective earnings (McLaney, 2006, 58) of Unilever compared with industry average and the benchmark of leading companies.In terms of profitability, Figure one shows the position.favourableness Ratios %UnileverIndustrySPG ross margin30.4038.50Net margin9.209.8010.505 yr Gross margin48.6046.8037.805 yr Net margin10.109.5011.30ROCE15.6015.009.30ROE30.6029.8020.50 submit 1 Profitability Ratios Source Yahoo FinanceGross margin figure for 2008 2009 was unavailable for Unilever. The net margin which shows the proportion of profit left for Unilever after all expenses have been taken into account is around the industry average for the period 2008 2009. The 5 year average positions for both gross and net margins are favourable for Unilever, compared to its competitors. Its 5 year gross margin is also significantly better than SPs 500.The return on capital employed (ROCE) and return on impartiality (ROE) positions are also marginally better than the industry average and significantly better than SPs 500. While the ROCE is a measure of profit as a contribution of total assets less current liabilities, the ROE looks at matters more specifically from the shareholders work outpoint, and reports on profit earn ed by shareholders after all charges have been accounted for (McLaney, 2006). evade 2 below shows the liquidity and gearing positions of Unilever and comparisons with other companies. adapt and LiquidityUnileverIndustrySP 500Debt/Equity Ratio0.830.811.37Interest Coverage48.3021.0027.10Current Ratio0.901.201.40Quick Ratio0.600.801.20Table 2 Gearing and Liquidity. Data source Yahoo FinanceThe Debt/Equity Ratio as with all Capital Gearing ratios is concerned with the relative sizes of the funds provided by shareholders on the one hand, and by loan creditors on the other (McLaney, 2006, 56). The higher the ratio, the riskier the business is concerned to be. In this case, the ratio is around industry average and less than the benchmark of top companies, so it should not cause too concern. The interest coverage shows that Unilever can comfortable conform to interest payments as they fall due way above the industry average.In terms of liquidity, the current ratio is a measure of whether t he current assets are able to meet current liabilities obligations as they fall due. This does not appear to be the case if payment is requested immediately (which a ratio of at least 11 result be able to do). In practice however, it is unrealistic to expect to ask for their payments at once unless the business was in serious problems. Therefore, although lower than the competition the current ratio and the quick ratio (which looks at the most liquid of assets, normally excluding inventory) should not cause panic although ship canal to increase it must be looked at.Brand AwarenessAccording to Unilever, brands and innovation are at the heart of everything we do. We develop our products to keep pace with changes in consumer lifestyles and to draw in to people at all income levels. Success means getting bigger and better innovations into the market faster, supported by the very best marketing (Unilever, 2009, 8). These statements are indeed backed up by initiatives undertaken in the last few years in the UK to increase brand consciousness. Some of these initiatives will be soon exposit.According to Mathiesen (2009, 19), a recent running play for Lynx for Men, one of Unilevers mens deodorants, resulted in a 56% increase in (prompted) brand sensibleness in the UK. This campaign was done through with(predicate) mobile marketing. The campaign sought to achieve the following objectives (Mathiesen, 2009)To enhance awareness of the Lynx brandTo market to the 16-24 year old manful who are traditionally hard to reach through traditional advertising methodsTo promote the Lynx brand as attractive to women and modernThe success is not only evidenced by the 56% promoted awareness, according to Mathiesen (2009), 86% could recall the Lynx advert and 44% of people felt more positive intimately Lynx after gulling the add.Not only are Unilever working on improving product branding, they have most significantly moved to increase the company brand image. In March 2009, Un ilever UK and Ireland began putting the corporate branding on its product brand advertising including TV, posters and press (Unilever, 2009b), starting with Flora. This move was influenced by research which showed that consumers in the UK and Ireland have relatively low awareness and knowledge of our company, compared to some of our competitors. They are open to the idea of us promoting Unilever more overtly and see this as a sign of honesty and transparency. For a company as large as Unilever, it is surprising that a lot of people who use a lot of their products on a daily basis do not know the name of the company. The same could not be said of its competitors like draw near or Kraft, for instance. In an industry as competitive as the processed and packaged goods industry, where the extent of competitive rivalry is very high, brand awareness is a vital source of achieving and sustaining competitive advantage (Porter, 1998b).Brand TheoriesIndeed, the importance of Unilever focusing on promoting brand awareness is supported by relevant theory. MacDonald and Sharp (2003, 1), citing Rossiter and Percy (1987) described brand awareness as creation essential for the communications process to occur as it precedes all other steps in the process. Without brand awareness occurring, no other communication effects can occur. In other words, a consumer is likely to buy a brand if they are made aware of it. MacDonald and Sharp (2003, 1) also go on to discuss memory theory where brand awareness is position as a vital first step in building the bundle of associations which are attached to the brand in memory (citing Stokes, 1985).Brand awareness is very important when a consumer is making what are usually very quick purchase decisions. According to MacDonald and Sharp (2003), where a customer can identify certain brands, he or she spends very unretentive time looking at unfamiliar brands. Consequently, an unfamiliar brand name or one that is not aggressively promoted risk s being ignored, irrespective of the quality of the product. veritable(a) after a consumer has formed a consideration set and chosen the few brands from which she will make her purchasing decision, consumers decide to purchase only familiar, surface established brands (Keller, 1993). The decision is usually made very quickly as well. According to Dickson and Sawyer (1986), it takes approximately 12 seconds on average for a consumer to thought process product alternatives and make a alternative from unalike brands.MacDonald and Sharp (2003, 2) also explained that brand awareness affects customers perception of quality. They cited Hoyer and Brown (1990) who found in a consumer choice study that over 70% of consumers selected a known brand of peanut butter from among a choice of three, even though another brand was objectively better quality (as determined by blind taste tests) and even though they had neither bought or used the brand before. This result is even more surprising con sidering the subjects were given the opportunity to taste all of the brands. Just being a brand dramatically affected their evaluation of the brand (MacDonald and Sharp, 2003, 2). Therefore, Unilever has tremendous opportunities to follow the popularity of their tremendous brand image for most of their products to the corporate brand image. With effective marketing strategies they can generate enough consumer trust and loyalty to dominate good shopping trolleys of families. This is because in the industry that Unilever operates in and the kind of products it offers, consumers (buyers) have high bargaining powers. There is also low switching costs which means that a consumer may decide to switch from competitors deodorants to Lynx for the simple reason that the consumer has been used to buying Knorr stock.Recommended Strategy for UnileverVisionWe work to create a better future every day. We help people feel good, look good and get more out of life with brands and services that are g ood for them and good for others. We will inspire people to take small everyday actions that can add up to a big difference for the world. We will develop untried ship canal of doing business that will allow us to double the size of our company while reducing our environmental impact (Unilever, nd).SWOT AnalysisBased on an internal analysis of Unilever, their strengths and weaknesses were identified. The opportunities and threats confront Unilever were also determined by undertaking an external analysis. The internal analysis included a review of its financial performance, its marketing function, employees, operations, precaution, and management information (including technology and RD) which helped to pinpoint Unilevers strengths and weaknesses (Lynch, 2005). The external analysis used the PESTEL and Co. framework which stands for Political, Economic, Socio-Cultural, Technological, Ethical, Legal and Competition. From this analysis, the opportunities and threats facing the busin ess were identified.StrengthsGlobal companyEconomies of scaleGood profit marginsCompetitive pricesStrong brand image for productsInnovationDeveloping and emerging marketsWeaknessesRoom for improvement in enhancing brand awarenessNegative sales growthCompany still not a household nameLiquidityOpportunitiesFocus on sustainability and corporate responsibilitySpeed of technological developmentLow switching costsThreatsLow consumer confidenceLow consumer spendingVolatile political climate in developing and emerging (DE) marketsGlobal economic downturnFierce competitionFigure 4 SWOT AnalysisIn terms of Unilevers strengths, as was seen from the financial analysis above, they made good profit and their level of gearing is in line with competitors. They maintain a very strong presence in the developing and emerging markets with nearly 50% of their revenues approach from areas such as India and China. However, they need to increase their brand awareness although they are doing it with targe ted advertising campaigns.In terms of opportunities, Unilever are well positioned to exploit the opportunities that result from being seen as a company that takes its environmental responsibilities seriously. For example, to meet their aim of growing their business while reducing their environmental impact, our Code of Business Principles and other available and business polices are knowing to ensure that we consistently maintain high social and environmental standards an d we have established processes to track performance in these areas. Our strategy benefits from the insights of the Unilever Sustainable Development Group, comprising five external specialists in corporate responsibility and sustainability that guide and critique the development of our strategy (Unilever, 2009a)In terms of threats facing Unilever, the threat of political volatility especially in emerging markets are mitigated by Unilevers already strong presence there. There have lie with of operating in these m arkets for a good number of years, therefore, they can cope with the volatility. However, the economic downturn has proved constraining to not only Unilever but its competitors. This has also adversely affected consumer confidence and consequently consumer spending which companies like Unilever depend on for their success. Competition is fierce due to low profitability, fairly equal market share and undifferentiated products (Ehlers Estes, 2007).To be successful in the processed and packaged goods industry, there must exist high brand awareness, effective cost management to be able to charge low prices and the commitment to meet ethical standards. Unilever have the strengths to achieve these and are well on their way to overcome weaknesses relating to brand awareness. Once brand awareness increases and the economic conditions become better then this should impact positively on their business as consumer spending and confidence returns. strategical Options and ChoiceBased on the SWO T analysis above Unilever are faced with different strategic growth options which are provided below, based on Ansoffs matrix (Johnson Scholes, 2006)Market penetration of existing products into existing marketsMarket development of existing products into new marketsNew product development introducing new products into new marketsDiversification new products into new marketsStrategic Option 1 (Market penetration of existing products) is recommended with details as followsMaintain and sustain competitive advantage in the DE markets where which is expected to continue to growFocus on enhancing brand awareness in the developed markets like the UKDevelop cross selling and other initiatives to increase usage by existing customersThe rationale behind this strategy is that with such fierce competition, Unilevers rivals will unsurprisingly be doing all they can to increase their market share and that will include offering products at low prices. Unilever, by employing the market penetrat ion strategy, will effectively be doing business as usual, while employing cost cutting measures designed to bolster profits. This strategy is less risky especially in an environment of a global economic downturn (Johnson Scholes, 2006).It is also recommended that the strategy be achieved through organic growth as opposed to other activities like mergers and acquisitions which have high potential for failure. In terms of competitive strategy, it is recommended that a combination of cost leadership and differentiation be employed. Although Porter argues for a single generic strategy (1998b), this is not always the best option because customers will require different thing from the same product. For example, for the success of the Lynx brand is because it combines low price with perceived coolness. This combined generic strategy has great chance of success as it enables Unilever to be price competitive while also using obtained brand loyalty to keep customers from rivals.Choosing the right strategy is important. However, more important is the successful proceeding of the strategy. This will involve effective deployment of Unilevers resources (those used in the internal analysis above) to achieve set objectives. Communication is also key to ensure that those responsible for implementing the strategy buy into it sufficiently to be motivated enough to implement it successfully (Johnson Scholes, 2006). Finally, it is important that once implemented the strategy should be monitored regularly with a view of making changes or enhancing it as required to achieve set objectives.