The case study is referred to Unilever the best selling company for the fabric cleaning industry in Brazil (81 % marketshare). The company is considering the expansion of its market share conquering the low-income segment at the Northeast. Laercio Cardoso, a native Brazilian was chosen to lead this project. He is not having a clear picture of the detergent market, but he is having the knowledge of competing with lower budgeted but very threatening local brands because of his experience working for Unilever in Pakistan. After a series of studies and surveys, Laercio Cardoso had to decide whether it would be beneficial to target the low-income segment and which way would be the most effective and profitable one (taking into account the effects in all Unilever’s Brands and the image of Unilever).
The biggest concerns for Unilever are:
Differentiation or not of its existing marketing strategy.
The effectiveness of the existing low-priced brands and the usefulness of a new one along with the effects on the existing ones.
The ideal positioning and marketing mix of a brand targeting the low-income consumers.
Consumer behavior
The consumers in Brazil should be divided in two main categories, the residents of the SE and the residents at the NE region with considerable geo-demographic, psychographic and behavioral dissimilarities (table 1.) that constitute and mold their consumer behavior.
Table 1. NE and SE geo-demographic, psychographic and behavioral differences.
Southeast
Northeast
Income, buying force
Contemporary techniques, Washing machine usage 67%
Obsolete techniques, Washing machine usage 28%
Illiterate level
$6600
$2250
Mixed European
0.3
0.65
Economy
·Where the economic and political power is firmly rooted
·Predominantly rural
·Depending on agriculture
Culture, lifestyle
·European influences
·Famous of its coffee plantations
·African influences
·Music, humor, socialization are key elements
The unequal distribution of income in those two segments along with the other geo-demographic and behavioral dissimilarities are leading to major differences in the washing technique (table 2.).
Table 2. Washing technique differences.
Southeast
Northeast
Methods
Contemporary techniques, Washing machine usage 67%
Obsolete techniques, Washing machine usage 28%
Perception of necessity of bleach usage for fat stain removal
73%
18%
Portion of consumption (detergent / Laundry soap)
More laundry soap consumption
More detergent consumption
Cloth washing frequency
3.9 times per week
5 times per week
The most significant aspect of Brazilian consumers is the motivation behind the detergent consumption. The influences, internally are based on their own perception (exhibit 5) and externally their social influences, this psychological motivation has self-image/ego purposes (Maslow’s hierarchy of needs) as cleanness for the NE residents has a symbolic value. Firstly creates pride (despite their poorness) and secondly is a matter of how a mother is showing its dedication to the family. Those parameters are showing the link of NE consumers with their preference groups, as they consider their post buying satisfaction (cleanness) as a commitment-link to their psychological membership group. Finally the washing procedure itself seems like a mean of socialization (they consider it as pleasure) with their preference group using cleanness for gossip purposes showing in this way the involvement of the subculture (external / social influences).
Decision making process.
The problem recognition is identical in both regions. For the NE the information is coming mainly externally from the close social environment, the television advertisements (since they are heavy users) and the local small outlet owner’s recommendations. During the evaluation process of the options, the NE customers are deciding partly according to their financial ability (a NE woman admits that she would like to use Omo, but it is too expensive), and secondly using the evaluation criteria, mentioned on exhibit 5 either by recalling them from personal experience or external influences. Heuristics like the brand loyalty and the perceptive superiority of Unilever’s products (as we can understand from the Unilever’s market-share and exhibit 5) are effecting the final decision along with technological influences (washing machine usage). An important demographic aspect that is also affecting the product choice for the NE is their level of literacy, since the recognizability and color distinctiveness of the package is affecting the final decision. The post-purchase evaluation is also based on the anticipations of exhibit 5 filtered by their own view (e.g. power as foam, softening power with smell).
On the other hand at the SE the decision making process seems to be more like a routine purchase (like in western countries), currying much les risk and involvement, motivated by convenience motivators (Maslow’s hierarchy of needs).
The Market – strategies
The fabric wash market can be divided in the laundry shop market and the detergent powder market (table 3).
Table 3. Fabric wash market information.
Detergent Powder
Laundry Soap
Market turnover (Annual)
$106 m (42000 tons)
$102 m (81250 tons)
Annual rate
17%
6%
Entry Barriers
High – Capital intensive manufacturing process
Low – Easy production – cheaper materials
Revenues (average)
$2520 per ton
$1250 per ton
Market Share
Unilever 75% (Omo: 52%, Minerva: 17%, Camperio: 6%), P&G: 17.5%, local brands: 8%
Fragment market. Local brands: 63.3%, Minerva: 19.1%, Bem-te-vi: 11.3%, Flora 6.0%
Specifically, the detergent powder market could be divided in three categories according its perceived – anticipated quality and perceived price (graph 1).
Graph 1. Division of the detergent powder market, according to the perceived price and quality of the brands (Source: case study exhibit 9)
All brands are following discrete branding and sharing the same strategies in packaging (distinctive colors and capacity) and distribution (Generalist wholesalers – Smaller local distributors in order to reach the small outlets leading to cost increment) The first category includes Omo and Ace, the highest quality brands from both Unilever and P&G (table 4).
Table 4. Main marketing strategies for Ace and Omo.
Omo
Ace
Targeting
Targets quality focused consumers
Targets quality focused consumers
Positioning
“Technology oriented”
High price justifying its superior quality focused on its abilities (depend on the chosen extension)
Far from the competition according to the anticipated and perceived quality/price
Closer to Minerva rather than its direct competitor (Omo)
Quality focused providing: whiteness, ability of stain removal and fabric protection.
Marketing Mix
Further differentiated marketing mix, 4 brand extensions
Price objective: Customer satisfaction/image enhancement
Avoid internal competition
Umbrella branding, 4 brand extensions
Advertisement Appeal: Demonstration – USP, lower quantity and without bleach and soap usage (habit change, apply to the NE in order to increase the detergent usage)
Advertisement Appeal: Seasonal one, subsequently links pureness and whiteness with Ace (white panel)
The second category is consisted by Minerva and Bold From Unilever and P&G respectively. The category’s characteristics are the slightly above average perceived quality in conjunction with lower than average anticipated price. Moreover both brands are sharing one competitive advantage, the ability to add softness to the fabric. Further analysis in table 5.
Table 5. Main marketing strategies for Minerva and Bold.
Minerva
Bold
Targeting
Less quality and more price sensitive customers
Less quality and more price sensitive customers
Positioning
Slightly above average perceived quality and below average perceived price
More expensive with lower perceived quality compared to Bold
Advantage in remove strains and dissolving power (exhibit 5)
Slightly above average perceived quality and below average perceived price despite of its highest price
Advantage in cleanness, whiteness, smell and softness (exhibit 5)
Marketing Mix
Pricing: Avoid internal competition
Advertisement Appeal: Slice of life, emotional value – general sense of relaxation (pictured woman), provides perfume and softness trying to enforce the general product value
The last category is clearly targeting the low-income households focused on the cost reduction and in order to maintain the lowest possible price. The perceived quality of all the three brands (Campeiro, Pop and Invicto) is extremely low and the sales are based on the inadequate financial capability of the low social class. Campeiro distinguishes significantly among the others for its anticipated quality (exhibit 5). Further analysis in table 6.
Table 6. Main marketing strategies for Campeiro, Pop and Invicto.
Campeiro
Pop
Invicto
Targeting
Low income households
Low income households
Low income households
Positioning
Below average perceived quality and price
Highest perceived and anticipated quality with the same perceived price with Pop
Below average perceived quality and price
The lowest perceived quality price in the detergent market
Marketing Mix
Package: Distinctive colors, 1kg /500gr
Price objective: Sales and market share
Price objective: Sales and market share
Advertising type: Parallel, promoting three different brand names
Advertisement Appeal: Opportunity – targets low-income households, trying to increase the very low penetration of Pop
Price objective: Sales and market share
Emotional appeal with the name to the sport familiar consumers
Laundry soap market
The laundry soap market can be characterized as a fragment market dominated mostly by local brands. Extremely price sensitive market since the main consumers are the lowest-income ones that mainly do not own washing machines. The main competitors are Unilever’s Minerva is ACE’s Bem-te-vi. Their strategies are essentially different (table 7) since Minerva is almost 30% more expensive.
Table 7. Main marketing strategies for Minerva and Bem-te-vi.
Minerva
Bem-te-vi
Targeting
Undifferentiated targeting strategy
Quality focused households
Undifferentiated targeting strategy
Lower, lowest income households
Positioning
Quality presence of Unilever, purposing to increase the Unilever’s brand name awareness
Price
Multifunctional (kills bacteria)
Marketing Mix
Package: Distinctive colors, 5 bars of 200g
Price Objective: Customer satisfaction/image enhancement
Generalist wholesalers
Local distributors for the small outlets that leads cost increment
Package: Distinctive colors, 5 bars of 200g/ 1 bar of 200g
Advertisement appeals: Unique selling proportion, Extended core product by adding parallel functions (killing bacteria)
Belonging sense of the Brazilians
Current situation of the fabric washing market
SWOT analysis
Strengths
The strengths of Unilever in Brazil at the present situation consisted mainly of the achievements due to the long-time presence on the fabric clothes market since 1929. So, Unilever having a deep knowledge of the market has established a strong brand portfolio with satisfactory, strong competitive advantages of its main products with a satisfactory price variety and has been rewarded with strong brand loyalty (81% market share) and high percentages of penetration mind awareness and brand knowledge by customers (exhibit 8).
Weaknesses
Despite of its strengths Unilever has to face some important weaknesses, internally on its existing products like not effective targeting of the lowest income segment at NE, lack of strong competitive advantage by Campeiro and poor distribution provided the inability to reach the 75,000 of small outlets that consist the highest portion of the marketplace for the low-income segment. Externally the weaknesses are the strong competition in the soap market mainly by local brands and more important the lack of data for those brands in order to establish an effective strategy.
Opportunities
First of all and most important is the increasing buying force of the lowest classes at the NE (27% during this period), moreover there is no big – international competitor (at the soap market) with the expertise and financial capabilities of Unilever, and finally there is 45m people of unexploited target group (the low income segment) which in conjunction with the other two factors, gives the opportunity for high lever of profits.
Threats
The main threats that Unilever should be aware of, and ready to face is that P & G is a very well respected company with global market knowledge strong research capabilities and may it has not yet developed in Brazil enough to have a respected market share but it is always a future threat. Furthermore the entry barriers of the soap market are relatively low, so the competition may be expanded even more since local brands have low or no administrative costs and consequently higher profit margins.
Figure 1. Swot analysis
Critical evaluation
Suggestion
The strategy that Unilever could follows for the detergent powder market in Brazil could be the lunching of a new product that would replace Camperio. It seems that Campeiro has a high brand positioning according to the NE consumers expectations and compared to its competitors (exhibit 5), but still it has a much lower penetration than its main rival Invicto (65% and 77% conversely, exhibit 8). This may be explained because according to its perceived price (exhibit 9), customers are thinking of it as a much more expensive product than Invicto and Pop and since the product is targeting to the lowest-income segment of Brazil with the highest price sensitivity, the product do not has the anticipated sales. Moreover it has been acquired from a local company in 1984 but despite the improvements, customers seem reluctant to try it, probably because they already had a bad perception about Campeiro before 1984 and it will be very difficult to reclaim this perception.
The new Brand
Segmentation
The new brand will be produced to satisfy the low-income consumers and to increase the Unilever’s market share both in detergent and laundry soap market, consequently the segment will be the whole Brazilian area.
Targeting
The new brand will target the lowest income households emphasizing to the NE segment since 53% of the households are belonging to the lowest social class while at the SE it is only 21% (exhibit 2). Evaluating the segment we can easily identify the opportunity for potential profits through the economies of scale that could be created since the total population of NE region is 47.6m and since the lowest social class is 53%, which implies 25.4m direct target group with increased rates of washing clothes (5 times a week).
Positioning
The perceived Quality and Price should be differentiated from that of Campeiro. The perceived quality and the core product’s potential benefits should be increased by developing its existing formula (further analysis on the Product section). According to the customer perception: about price it should be at least the same with the competitors because as mentioned it is a very price sensitive target group (graph 2).
Graph 2. Perceived Quality and Perceived Price of Major Detergent Brands in the NE in 1996. (Source: Index 9, and anticipated position for the new Brand)
Regarding to the new laundry soap product, it could be positioned in lower price than Minerva and a lower quality (so it will not cannibalize Minerva’s share (graph 3), gaining some of the market share that local brands are having Graph 6).
Graph 3. Anticipated customer’s Perceived Quality and Perceived Price of Major Laundry Soap Brands in the NE. (Personal perception / anticipation)
The brand positioning according to the products attributes and their importance according to the customers expectations should be as follows (graph 4). It will continue the discreet branding, following an umbrella brand strategy. The brand positioning should be focused in the “brand domain” trying to pass the feeling of belonging to the NE preference group. The new brand should not be perceived as another cheap product damaging in this way the “brand reflection” and Furthermore Unilever’s engagement to quality will empower its “brand heritage”.
Graph 4. Attribute Importance, Brand positioning and consumer expectations in the NE. (Source: Exhibit 5, Anticipated for the new Brand)
Marketing Mix
Product
Detergent
Since it is a new product, it implies increased cost for Unilever and in order to maximize the success possibilities the product development steps will be followed, focused on the
The formula of Campeiro is not the problem according to exhibit 5, so we could maintain the same formula and just add some enzymes to increase the foam generation (which is associated with cleaning power) and stronger, pleasant and different perfume to increase the “felling of softness and gentleness on fabric and hands” trying to differentiate the total brand positioning from that of Campeiro (Graph 3). In this way we could avoid the creation of a totally new formula, which would mean development costs. The packaging according to its capacity could follow the existing strategy along with lunching another one at 3 kg (Further analysis on pricing).
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The name of the Brand will have to be in Portuguese. It will be easier for consumers (especially the less literate) to identify it and memorize it in this way. A brand-name that could subsequently be linked to their important values like “cleanness” and “whiteness” could be “Verdande Branco” (true white) or just “Branco” (white) following the traditional strategy of Unilever using detergent names with one word (exhibit 6).
Laundry soap
The same brand-name should be used in order to increase the brand awareness as soon as possible. The actual product (formula) of the laundry soap will be created with main concern the sufficient quality in a low cost, because the target group of this product is the lowest income residents and we want to avoid a high price. The packaging will follow the same colours and graphs of the detergent product as well as the same brand name, in this way the awareness of the products will be helped mutually. It should also be offered both in 5 and 1-bar packages.
Pricing
Detergent
The objective of our pricing policy will be the increment of the market share. The price should remain the same because of the price elasticity that low-income consumers are showing and the low figure of NP/kg (Index 1.). The spearhead will be the competitive advantage (superior quality for its price). According to the estimating demand it could be reasonable to expect a 6% augmentation to the existing share, since customer’s perception about product efficacy is valuing it much higher than the competition (exhibit 5). A trial price of 1.6 WP could be followed for the introduction period of the detergent to quickly gain awareness. We should avoid a price lower than 1.6 not only for marginal profit purposes, but for psychological issues as well (price-quality inference).
Laundry soap
A skimming price of $1.10 (index 1) could be used to both gain share and to discourage competition (local brands) from entering the market eliminating in this way one of the most important threats. In this way the product will gain market share from the local brands as quick as possible, leaving Minerva’s share unattached (Graph 5).
Graph 5. Unexploited – targeted market share
Test marketing must precede the product launching initially in a form of in-house testing at NE households in order to test the consumer’s reaction about the actual product, and in addition a NE city could be chosen to test the efficacy of the whole marketing mix.
Promotion
Parallel promotion of both products of the new brand, the objective of the communication will be the awareness of the new brand and the highest possible penetration. The brand will exploit Unilever’s heritage, delivering the message “low price do not always means low quality”, by the slogan “Clean and proud”. Appealing directly to the customers preference group increasing in this way the general product value (figure2).
Figure 2. Product value, (adopted from Philip Kotler – Marketing Management, Prentice Hall, 2002)
The slogan will be the same at any mean of advertisement, so it will be directly connected to the brand. The packaging of the detergent will be easily identified with distinctive colours, it is important that the new package should be differentiated from that of Campeiro to avoid the emotional link. Furthermore the 3kg package should mention clearly the price benefit for the customer (Index 1, Note 1), “$0.40 benefit in the family package”. The most effective allocation of the expenditure would be 50% above-the-line, so we will continue to have the communication with the heavy television users, and 50% for below-the-line, mostly by giving incentives to the small outlets owners to encourage the trial of the new product so customers can go directly to the post-purchase evaluation and become users. Point-of sales promotion programs could also be followed to increase awareness and programs in terms of free dosages and free 50g soap bars along with Campeiro since we are sure about the quality of our product and in this way we can conserve the existing Campeiro’s customers and attract new ones with the power of “mouth-to-mouth” advertisement.
Distribution
Parallel distribution for both products should be followed. through specialised distributors at the NE region. Firstly because the target group is using traditional retail shops for its everyday transactions and by not reaching every of the 75,000 of those shops we are losing a huge proportion of the market space coverage. Secondly according to exhibit 13, the merchandising and category management is more extensive and the relationship with the retailer (and in extension with the customer) of this channel is more personal which means that both the promotional actions will be more effective and accurate, and moreover the information that retailers will provide will be more immediate, precise and timely valuable. Finally the distribution cost will be halved so the profit margin will be increased significantly.
Conclusion
Taking into count the consumers behaviour that Unilever is having as a result of their surveys, the general positive trend on the economic situation, and most important the population size of this segment, a successful exploitation of the buying force of the low-income consumers would be significant. An effective marketing strategy could help economies of scale to be created overlapping the low profit margin that low-income segments usually have and making this project not only effective in terms of prestige and market share compare to P&G but in financial terms as well.
Index
Index 1. Pricing
WP = Wholesale price/kg
FC = Formula cost/kg
PCK = Package cost/kg
PC = Promotional cost/kg
DC = Distribution cost/kg
(Figures are given from exhibit 10 and DC is given from exhibit 13, DC = 0.05 will be used as a figure because distribution channel 2 will be suggested)
WP = 1.70
Total Variable Cost of Campeiro (and budgeted for the new brand) is (exhibit 10):
FC + PKC + PC + DC = 1.50 thus the net Profit is NP = $0.20/kg*,
(The FC will be increased with about $0.05 because of the improvements in formula but the PC will be decreased with about $0.05 maybe even more because of the parallel advertising and promotion)
Omo net profit is NP = $0.60/kg*
Minerva net profit is NP = $0.30/kg*
Laundry soap
Minerva: WP = 1.70
Total Variable Cost: 1.40
Minerva net profit is NP = $0.25/kg*
New product laundry soap
Budgeted/ desirable variable cost:
FC = 0.65
PKC = 0.13
PC = 0.20
Thus Budgeted/ desirable variable cost:
VC = 1.03
If we want to maintain a net profit per kg of at least $17*
The price must be P = 1.20
And the skimming price 1.15 for a long period in order to eliminate the competition and discourage the local brands from entering the market.
Note 1. The package of the 3kg is calculated to have a $0.40 reduction of packaging cost at the whole package this is why if we take cost $0.35/kg, for 3 kg the cost will be 1.05 for three packages, but for the package of 3kg the cost will be for only one package (less raw materials, colours, shovel for the detergent etc) so the cost of a 3kg package will be about 0.65.
*We have to deduct the fixed costs as well which are not known
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