Unilever Brazil Essay Example for Free

Unilever Brazil Essay Executive Summary Unilever is assessing whether to enter the low-income NE market. Our analysis shows that there is a profitable opportunity to offer detergent powder to low-income customers living in Northeast Brazil and capture market share in a high-margin, high-growth market. We recommend that the firm keeps the existing brands but deploy a horizontal extension of the Campeiro brand adding better scent / softness and utilizing specialty distribution network, thereby marginalizing Invicto, an inferior but better-known competitor. Situation Overview NE Brazil has long lagged behind the rest of the country in terms of technology and income. However, economic reforms instituted by Finance Minister Cardoso has seen the purchasing power of the poorest Brazilians increase dramatically. These reforms, combined with tax incentives for investment in the NE has led to a 17% annual growth in detergent powder. In NE Brazil, detergent is still primarily used to supplement soap in order to make the clothes whiter and smell better. Campeiro, Unilever’s current budget offering detergent powder, competes primarily with Invicto. These products are offered at the same price ($1.7/kg) and have roughly the same market penetration (6% for Campeiro vs. 5% for Invicto) – even as consumers view Campeiro as a superior brand. The problem for Unilever is Campeiro’s brand penetration, which lags approximately 15% behind Invicto. This is because of the decentralized purchasing habits of women in NE Brazil. This situation is an opportunity because if Unilever improves market penetration, it will drive sales in this high-margin, high-growth segment of the laundry industry. By contrast, the soap industry has slower growth (6%) and lower barrier to entry, which makes it tough to sustain high margin. In addition, the market is very fragmented, with â€Å"other† producers supplying 64% of the market, making it tough to systematically beat competitors and capture market share. Therefore, at this time we do not think it makes sense to enter this market. Action Overview Strategy We will target the following market: †¢Customer: Low-income consumers in NE Brazil †¢Company: Unilever †¢Collaborators: Special store owners as low-income consumers do not shop in wholesale and get financing and advice from specialty owners †¢Competitor: Invicto †¢Context: Increasing purchasing power in NE and role of powder as fragrance / softening agents Our value proposition to this segment will be: An affordable detergent powder with a â€Å"special touch.† We will deploy the strategy as follows: Tactics †¢Products: â€Å"New and improved† Campeiro with enhanced smell and softness oSmell / softness is ranked second only to whiteness in perceived importance by consumers, but going after whiteness has potential to cannibalize OMO (see Action Rationale section for more details) oThe added fragrance should be at a level just enough to set Campeiro apart from Invicto, but far enough from Minerva to prevent cannibalization †¢Brand: Campeiro †¢Price: Same price – whole sale of 1.7 / kg †¢Distribution: Specialized distributors that can increase awareness of target audience at a lower variable cost than generalist wholesaler; specialized stores are significant influencers of target customer’s behaviors †¢Incentives: Launch new Campeiro via specialized distribution as larger campaign to influence small shop owners; give away free samples to specialized store to promote awareness to small shops; use more point-of-purchase marketing as small shop owners are more susceptible to such tactics †¢Communication: â€Å"New and Improved Campeiro† or â€Å"add something special to your clothes at affordable price† Action Rationale The proposed strategy is best suited for Unilever’s goal of finding a profitable entry into low-income NE market because: †¢Profit growth from increasing market share in Campeiro is significantly higher than Minerva soap oMargins for laundry detergent is superior to soap ($2520 per ton vs. $1250 per ton) oPowder market is experiencing a higher growth (17%) compared to that of soap (6%) o Increase New Campeiro market share by 6% would have and additional benefit of 1.38MM in year 1 and 2.21 MM in year 3, compared to 1.19 and 1.42 if we increase Minerva soap market share by 5% (See exhibit 2) ï‚ §Increasing market share in soap is already a big challenge given the fragmented market †¢Campeiro has a strong brand name – by giving it a new feature such as smell, it can separate itself from the generic Invicto and other smaller producers of â€Å"no frills† powders †¢RD cost of formulating should be low as Unilever already has a fragrance-based brand Minerva †¢Cost of matching fragrance / softness is too prohibitive for ASA and other small, regional competitors †¢Cannibalization is optimized cannibalization % is better if Campeiro targets smell / softness instead of whiteness (see Exhibit 1) †¢Campeiro is a better extension candidate than Minerva as Campeiro has a better break-even cannibalization rate (See Exhibit 1) †¢Significant barriers to entry also make it difficult for additional firms to compete at this price point †¢Using specialty store distribution makes sense as low-income NE residents tend to shop at smaller supermarkets †¢Improvement to Unilever brand image as being at the forefront of helping rural Brazil Potential Drawbacks †¢There is still risk that a fragrance / softness based brand extension will cannibalize Minerva beyond the threshold calculated, thereby decreasing profit †¢Cost of re-formulating Campeiro may be higher than expected †¢Unilever already owns a 75% market share; therefore, there is a finite additional share for Campeiro to absorb †¢Unilever premium brand equity may suffer as Unilever makes investment in lower-end products †¢Most low-income household do not own washing machines, so it would be hard to absorb additional market share currently owned by competitors’ soap brands with a powder product †¢There is always the risk that ever-changing socioeconomic and political factors will defer target segment from purchasing powder Conclusion Based on the analysis above, our team believes that the appropriate strategy to grow in the low-income NE market would be to extend the existing Campeiro brand while keeping the same price point. Distribution through specialty stores instead of wholesale will best position Unilever to grow in this high-margin, high-growth market.