Analyzing Unilever’s Business Strategy Using Porter’s Generic Competitive Strategies Framework

Discussion

It is critical to examine your company’s “external environment,” or the circumstances, entities, activities, and elements that influence the firm’s operations and decisions to thoroughly evaluate its strategy (Ayodele, Innocent & Garba, 2019). Various models and frameworks are accessible in recent years to study a company’s external environment. This paper shall elaborate on analyzing Unilever’s business strategy by making use of Porter’s Generic Competitive Strategies framework. No one could have anticipated a century ago that a corporation formed by a margarine owner and a soap maker would turn into one of the world’s most renowned and famous firms and one of the most sought employers. It employs around 155,000 people as of 2020. It has made headway toward reaching sustainability objectives and being financially successful.  The paper would further evaluate this framework by identifying its advantages and limitations to present recommendations on how those shortcomings could be overcome.

Margarine Unie and Lever Brothers merged to create the company ‘Unilever’ in 1929 (Kabi, 2021). Unilever was formed by the combination of the names of these two firms. Today, it is one of the key customer brands, with around 400 brands. It has three key sections and is well-known for its diversity. Magnum, Dove, Knorr, Lipton, Lux, Rexona, Sunsilk, and more brands have been acquired. The U-Shaped emblem of Unilever is well-known. Its new logo consists of 25 icons, each showing a new part of the business. 

Porter’s Generic Strategies framework was formed by Michael Porter, who contended that if a firm wants to attain a competitive edge over its rivals, it must either bring down the cost of its products or services or differentiate them from competing companies’ products or services in the aspects that clients will interpret as more useful. As a result, if a product or service has a higher perceived value, the corporation can raise pricing to compensate for any extra costs connected with providing that value (Islami, Mustafa & Topuzovska Latkovikj, 2020). Porter identifies three primary tactics: cost leadership, focus strategy, differentiation strategy, and differentiation focus. If a firm’s profitability is higher or lower compared to the present market average, it is determined by its relative place in a market. A sustained competitive edge is the basis for above-average profit in the long term. Cost leadership, distinctiveness, and focus are three generic methods for the generation of the above-average efficiency in a sector, dependent on the two key categories of competitive edge and the scale of operation in which a company aims to attain them (Kabeyi, 2018). Below is a diagram of Porter’s framework to help you understand the author’s point of view. 

Part A: Business Strategy of Unilever

Figure 1: Porter’s Generic Strategies Framework

1. Cost Leadership- Cost leadership is the firm’s goal of turning into the lowest-cost producer in its market. Cost advantages can come from various places, based on the sector’s edifice. The search of economies of scale, proprietary technology, supply of raw materials, and other contemplations might be among them.
2. Differentiation- In differentiation strategy, a firm aims at being distinctive in its business on some key aspects that the customers value (Bruijl, 2018). It chooses one or more behaviours that several consumers in a given industry think as vital then presents itself to meet those demands individually.
3. Cost Focus- The focus strategy is dependent on selecting a small competing company within a specific industry. A firm with a cost emphasis wants a cost edge in its target market.
4. Differentiation Focus- In the differentiation focus, a company focuses on outperforming its competitors by means of offering products, which are considered as superior by the customers to that of the rivals even though their prices are higher.

Unilever has over 400 brands and boasts that 2.5 billion people consume its goods every day (Unilever, 2020). The firm has brands in the f&b industry, beauty and personal care, and home care. Lipton, Dove, Rexona, Knorr, and Cif are some of the company’s most well-known brands. The firm sells its products in 190 nations, and the corporation claims that they could be located in seven out of ten houses on the earth, indicating that it caters to a wide clientele.

It has been observed from the findings of its case and generic strategy that Unilever works underneath the differentiation square discovered in Michael Porter’s structure by emphasizing traits and benefits of its products that differentiate them from their rival firms and by providing them including almost any nation in the world. Product advancement and change give the firm a competitive edge. This is underlined by recent developments and changes in the turnover structure that can be attributed to the firm’s many acquisitions. Unilever’s Differentiation strategy comprises creating more varied products and services than those supplied by rivals (Mahasneh, Alnahdi & Bani Hani, 2020). The diverse range of products includes functionality, durability, support, and a distinct brand image. In this regard, the case study considered how Unilever used a range of approaches to differentiate its product offerings. As a result, it has been discovered that the firm achieves a competitive edge through broad differentiation.

Heikkurinen, Young and Morgan (2019) stated that Strong customer relationships between the organization and the customer could help differentiate the company. Unilever’s operational activity include this element as well. Customers are “keeping in touch” with the firm through various social media platforms updated regularly. Unilever also urges customers to become more involved in innovation, sustainability, global poverty, and better health. It does it by counting a section on its home page stating: “Take action on issues you care about”. In this way, it motivates the users for exploring all the firm’s activities (Unilever, 2020). It is also worth noting that the firm developed a “Unilever Sustainable Living Plan” in the year 2010 to increase revenue while halving environmental costs in product manufacturing and consumption by 2030. (Unilever, 2020). It was discovered that the company might compete with the help of its ability to be environmentally friendly and sustainable, as indicated by Isabelle et al. (2020), which several executives believe is vital for the company to be successful in today’s market.

Critical Analysis of Porter’s Generic Competitive Strategies Framework for Unilever- the Advantages and Limitations

Michael Porter’s generic strategies framework could be a helpful tool for gaining some insight on how a company can get a competitive edge. Nevertheless, it may appear too simple and generic to be used in today’s society at times (Islami, Mustafa & Topuzovska Latkovikj, 2020). This framework can provide general recommendations on the strategy the company should adopt to acquire a competitive edge in the industry. Nonetheless, as the different instances have shown, it may not always accurately reflect the adjustments the company needs to make to maintain its competitive edge. According to Eling, Nuessle and Staubli (2021), Porter’s concept of premium pricing is vague, and it is difficult to comprehend what “premium price” actually means. Porter’s theory that if a corporation provides a premium product, it would not attain a higher market share related to the inherent costs of generating a product or service like such is challenged by the author. This can be refuted by citing businesses that provide high-end products or services while still being accessible to many consumers. For example, income growth among the increasing middle-class customers permits them to buy products assumed to be at the pinnacle of their segment. It is because those things are low-ticket goods that do not always cost money.

Porter’s Generic Strategies Framework

When evaluating Porter’s concept of attaining leadership approach, the points of critique can also be added. “Low overall cost position often requires a high relative market share or other advantages, such as favourable access to raw materials,” claimed Edeling and Himme (2018). When reading this statement, one might wonder how the corporation managed to gain such a large market share in the first place. Companies will reach that degree via differentiated strategy rather than cost leadership, as per Kharub, Mor and Sharma (2019). As Porter says, organizations that follow a cost leadership strategy would rely largely on up-front investments and cutting-edge equipment to succeed. This could be questioned by asking if the corporation will invest money in something that may or may not have been profitable.

As Michael Porter’s work was considered overly comprehensive and simplistic, another framework was developed to address its limits and give a broader range of options for companies seeking to gain a competitive position in the industry. This concept, dubbed “The Bowman’s Strategy Clock,” was created by two well-known economists, Cliff Bowman and David Faulkner. It consists of eight distinct strategies that the company can follow and switch among as its objectives change over time (Weston & Nnadi, 2021). Bowman’s framework is preferred over Porter’s because it reflects that a corporation can switch between several strategies depending on what is most important at the time. The illustration of this framework is provided below: 

Figure 2: The Strategy Clock

Unlike Porter’s framework, “The Strategy Clock” offers more ongoing strategy options that might better align with the organization’s current aims and aspirations. It more accurately reflects the firm’s existing or desired strategy. What’s essential is that this structure enables the company to “travel” around the clock as it emphasizes various aspects of its approach over time (Rashid, 2020). For example, the company might begin by pursuing a low-cost strategy for attracting clients and, as a result, gain a large market share. With such a high level of brand recognition, the company can pursue a differentiation strategy, upgrading its goods and requesting higher prices. If necessary, the corporation can employ a hybrid method to reduce expenses while still providing items that are seen as important. IKEA is a well-known example of a corporation that uses a hybrid strategy. The firm’s success has been built on a business model that provides elegant, Swedish house kits that clients can construct at home for a reasonable cost. As a result, the firm can combine low-cost production with modern distinction, as its products are seen as high-value while being low-cost to produce. For instance, Tesla is a major player in the electric vehicle sector that began by focusing on the high-end of the market, where buyers were willing to pay a premium price (Tesla, 2022). When examining the Bowman model, it appears to be following a Focused Differentiation strategy. It subsequently altered gears and began focusing on the mass market. It’s worth noting that the corporation had previously indicated that its long-term goal was to develop inexpensive electric family automobiles.

Business Model of Unilever

Conclusion

Hence, from the above analysis, it is to conclude that Porter’s generic strategies framework has several problems, and one of those is that it restricts early consumer needs for a firm’s goods and services. While working on a thorough analysis and examination of a certain product, the number of sales and income for a given period is kept simple. After generating a product or service for a specific market niche, many variables such as risk, credibility, and development are still at risk. Bowman’s framework appears to better solve the company’s challenge of switching between several tactics that can thrive more effectively in the marketplace. Unilever’s challenge of switching between several strategies to better compete on the market appears to be better addressed by Bowman’s paradigm. Nevertheless, Porter’s concept has been seen as a useful starting point for a business to determine what kind of strategy it must pursue at the outset of its existence. 

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