Published by MBA Skool Team, Last Updated: February 27, 2022
Porter’s Five Forces Analysis of Unilever covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry.
Unilever Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.
Let us start the Unilever Porter Five Forces Analysis:
The threat of new entrants in the Unilever Porter Five Forces Analysis can be explained as follows:
Unilever, a multinational company based in London, England, was started in 1929. Unilever owns around 400 brands, including toothpaste, cleaning agents, ice cream, food, condiments, water and air purifiers, pet food, etc. The threat of new entrants in the Fast-Moving Consumer Goods for one segment is relatively easier but having a huge legacy of many brands is extremely difficult. The main reason is the requirement of high capital and resources. These products are easily scalable and are mass-produced. The company has high brand equity and is located in more than 190 countries. The cost of switching in this industry is very low. The company is the market leader in many segments; therefore, it would be very difficult for the new entrant to get market share. Another issue that a new entrant would face would be following the rules and regulations of the country it is located in. Legal requirements could be another problem that a new entrant could face.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Unilever:
Unilever is present in various segments; therefore, every sector has its own set of market leaders.
The switching cost in various FMCG products is very low; therefore, the threat of substitutes is always very high. Unilever is the market leader in many segments; therefore, new substitutes could hamper its leadership position. Each and every brand under Unilever have to differentiate their product. The differentiation could be based on the product, price, quality, or packaging. Most of their brands are well-known and service-oriented rather than just being an FMCG company. Another issue that could take place is that Unilever might have more than one product in the same segment. There is a great chance that one brand could cannibalize the other. Therefore, it is extremely important for the company to place its brand at two different price levels. There is also a possibility of cheaper knock-offs being placed on the same market shelf as the market leader; this could hamper the sale to a certain extent.
Bargaining Power of Customers:
In the Unilever Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Customers of Unilever come from every walk of life. The company provide goods to mass merchandisers, grocery stores, drug stores, E-commerce retailers, and distributors. Unilever is located in 190 countries with a huge customer base of around 2.5 billion people using the products. The cost of switching is almost zero, therefore it is easy for the customer to switch over to other products. Unilever also tries to increase their sale by providing the customers with interesting discounts and offers. To entice more customers, the company has to continuously innovate in terms of product or packaging to keep themselves relevant in the market. The customers do not have much bargaining power as they cannot influence prices, instead they simply can switch customers.
Successfully, Unilever has a strong brand equity and many of their products are etched in the minds of their customers.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Unilever:
Unilever has 56000 suppliers all over the world, which is present in over 150 countries. The company also presents awards to its top-performing business partners. Usually, in FMCG products, the distribution system plays a very crucial role in the sales of the company. There is a possibility of forward integration as the amount of research and development in this sector is very low. The suppliers provide all the raw materials and technology required for manufacturing and packaging the materials. The switching cost is also very low. As a result, the chances of them influencing the prices are very low. If there are some issues with the suppliers and the suppliers had increased the prices, the company costs would increase drastically, then Unilever could easily replace the suppliers as and when required. It is extremely important to have an efficient supply chain in the FMCG company for the smoothing manufacturing and distribution of all the products. The company should make sure that the raw materials received should be standardized and up to quality. Therefore, it is of utmost importance for the suppliers to be compliant with the regulations of the company.
The impact of key competitors in the Unilever Porter Five Forces Analysis is as follows:
The main competitors of Unilever are Procter and Gamble, Johnson and Johnson, Colgate-Palmolive, Dabur, and many more. Unilever has many companies which are against it and that each firm has a wide variety of sectors under it. Since the products have very little differentiation, the cost of switching is also very low, almost zero. There are many companies mainly in this Fast-Moving Consumer Goods industry with low switching costs. The presence of many companies prevents a monopolistic kind of environment and supports healthy competition. To remain relevant in this industry, Unilever can launch new products from time to time. If there is no product launch, then at least the packaging has to be renewed to make it more attractive. Advertisements also play a crucial role in placing the product in the customer's mind. Discounts, sales, and various offers also increase sales.
Another way to make the company more visible is to hop onto the trends and post witty tweets or Instagram posts.
To conclude, the above Unilever Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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