Unilever - Porter's 5 Forces Analysis

Porter’s 5 Forces Model

Being a global company, Unilever has very strong competition not only from other strong multinational companies like P&G, Kraft and Nestle but also from other regional retailers. Porter’s 5 forces model is one of the most recognized frameworks for the analysis of competetive environment of an organisation. Porter’s five forces model which determine the competitive intensity and therefore attractiveness of the market where Unilever is operating . This model describes the attributes of an attractive industry and thus suggests when opportunities will be greater, and threats less, in these of industries.

Attractiveness in this context refers to the overall industry profitability and also reflects upon the profitability of Unilever. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”, from the perspective of pure industrial economics theory.

This model is based on five important elements of an organisation and uses both internal as well as external competences and threats faced by a business organisation. These five elements including;

Buyer Power

Unilever’s buyers are scattered all around the world and they are in billions. In true sense they are not so powerful to pull prices down. But on the other hand it is easier for the customers to switch to a competitor. So Unilever has to be very precautious in deciding about prices and keep the customers satisfied.

Competitive Rivalry

In consumer products business Unilever has a large number of competitors and these competitors are in reality very strong. They range from small local corner shop retailer to big giants like P&G, Kraft and Nestle. These competitors almost provide equally attractive products and services and sometimes better. These competitors have the power to attract and influence the customers by more attractive substitute, prices and marketing techniques.

  

Threat of Substitution

Continuous research and development in the consumer and household products has brought about a revolution in the consumer market and today customers like to try something new and better. This trend has reduced the customer loyalty and product lifecycle. Unilever is under continuous threat of substitute products and its competitors are already spending huge sums on R&D and new product development. Unilever has to be very adoptive and closer to its customers so as to get what exactly its customers want.

Threat of New Entry

As Unilever operates in different geographical markets so threat of new entrants varies in different markets. In well developed countries where big players like Unilever have a very strong hold and brand image, it is very hard for a new entrant to enter the market because of higher cost to set up a business. On the other hand in less developed markets, it is easier to enter as legal requirements and capital needed is not as much as in a developed market. Unilever has its presence almost in every market either through its subsidiaries, branches or franchises. But its brand image is a strong barrier in the way of new entrants.

Supplier’s Power

 Unilever has a policy of local buying and local manufacturing. Which provides itself an edge to brake power of its suppliers and make them weaker to negotiate at its own terms. Most of time Unilever has blanket agreements with its suppliers to provide for a certain period of time at a certain rate. This strategy help to prevent supplier’s from switching to other competitors and charge higher rates. Also Unilever treat its supplier’s fairly so as to create more loyalty among them like customers.

Conclusions and Recommendations

Unilever is operating in a highly competitive and volatile environment and especially current economic crisis have made it difficult for many businesses to operate profitability. Legal requirements, technical changes and change in the habits of the customers have created problems for the businesses. Because of that companies like Unilever have to be updated and cotinuos R&D is solution to many of the problems. An attractive business is one with higher margins and low competitions. So the environment where Unilever operates is with higher level of competition and low level of profit margins. In this situation best strategy is to keep customers satisfied and loyal, continuos R&D, cost control and be responsive to the competitors.