Business Model and Strategy Framework for HUL

Marketing Management: Mid-Term Project

Section C

Group 11

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Marketing Management Project

Group 11

Mid-Term Submission

Introduction..................... ........................................... ........................................... ............................2 Company Name ................................ ............................................. ............................................... ..2 Company Background ............................................. ............................................... .........................2 Major Businesses and Product Categories ............................................... .........................................2 1.

Home & Personal Care ....................................... ................................................. .................2

2.

Food & Beverages (F&B)........................................................................... ............................3

3.

Water..................................................................................................................................3

4.

Exports Business.......................................... ............................................... .........................3

5.

Beauty and Wellness (Lakme Lever Private Limited) ...............................................................3

6.

Hindustan Unilever Network ............................................... ............................................... ..3

7.

Kimberly Clark Lever Private Limited .......................................... ...........................................3

The Business Model ...................................................... .......................................... ............................4 Sustainable Living ......................... ....................................... ................................................ ...........4 Brands............................................................................................................................................4 Operations .......................................................... ...................................... .....................................4 People............................................................................................................................................5 Management.................................. ............................................... ............................................... ..5 Distribution Network ................................ ....................................... ............................................... ....5 SWOT Analysis.................................................................. ................................................ ..................6 Strengths........................................................................................................................................6 Weaknesses ............... ................................................ ........................................ ............................6 Opportunities .......................................... ............................................... ........................................6 Threats...........................................................................................................................................6 Marketing Mix............................................. ................................................. ......................................7 Marketing Strategies........................................... ................................................ ................................7 Porter’s Five Forces Model ....................................................................... ...........................................9

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Marketing Management Project

Group 11

Mid-Term Submission

Company Name Hindustan Unilever Limited

Company Background Hindustan Unilever limited or HUL is one of the largest Fast Moving Consumer Goods Company (FMCG) companies in India and completed its 80 years of operations in India on October 17, 2013. It entered the Indian market in 1888 with the launch of Sunlight soaps in Kolkata, followed by Lifebuoy in 1895. However it was only on October 17, 1933 that the Lever Brothers India Limited was formally incorporated. In 1956, this entity became known as Hindustan Lever Limited after the merger of Hindustan Vanaspati Manufacturing Company, United Traders, and Lever Brothers India Limited. Finally, in 2007, the name was formally changed to its present moniker of Hindustan Unilever Limited. At present, the company offers over 35 brands across 20 distinct product categories, including but not limited to soaps, detergents, tea, packaged foods, and water purifiers. The company employs over 16,000 people in India, with a revenue of INR 28,019 crores in the financial year 2013 – 2014. Vision: Our purpose is to make sustainable living commonplace. We work to create a better future every day, with brands and services that help people feel good, look good, and get more out of life

Mission: Our mission is to add Vitality to life. We meet every day needs for nutrition, hygiene and  personal care with brands that help people feel good, look good and get more out of life

Major Businesses and Product Categories 1. Home & Personal Care

The Home & Personal Care (HPC) business consis ts of Soaps, Detergents, Household Care and Personal Products. This is further comprised of product categories such as Ski n Care, Hair Care, Oral Care, Color Cosmetics and Deodorants. The Soaps and Detergents category is bigges t category, contributing towards ~49% of the total sales in the FY 2014. The revenue from this segment witnessed a growth of 8.0% year-on-year basis. The profitability of this segment also grew by 10.5%. Major brands in this category are Lifebuoy, Lux, Breeze, Dove, Surf Excel, Wheel, Vim, etc. The Personal Products  category comprises Skin Care, Hair Care, Oral Care, Color Cosmetics and Deodorants. This category the second biggest product category, comprising ~29% of the annual sales. In the FY 2014, the total revenue grew by ~9.2% while the profitability showed an increase of 6.1%. Some of the well-known brands in this category are Fair & Lovely, Lakme, Sunsilk, Pepsodent, Close-up, AXE, etc.

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Marketing Management Project

Group 11

Mid-Term Submission

2. Food & Beverag es (F&B)

The Food & Beverages business consists of Tea, Coffee, Process ed Foods, Frozen Dess erts, Ice Creams, Bakery products and Out of Home operations, including BRU World Café . It’s the third largest category contributing ~18% of the total annual revenue for FY 2014, with the revenues growing by ~11%. The Beverages  category revenue grew by ~12.4%, with the profits growing by ~22.4%. Major tea brands include Taj Mahal, 3 Roses, Lipton, Red Label and Taaza while BRU is leading coffee brand. The Packaged Foods category comprises products such as jams, ketchups and squashes under Kissan  brand, Knorr   brand of soup and related products,  Annapurna atta and salt, Modern  bakery products, and Kwality Wall’s  and Magnum ice-creams. The overall segment revenues grew by 10.0%, with the profits witnessing a growth of ~65.5%. 3. Water

The water purifier segment is served by the Pureit branded water purifiers. The offerings range from functional and low-cost products to superior Pureit Ultima UV + RO, which is driving the premiumisation of the category. Besides the above-mentioned product categories , other businesses of the Hindustan Unilever Limited are: 4. Exports Business

The exports business comprises of FMCG and non-FMCG segments. Unilever India Exports Limited (UIEL), a wholly owned subsidiary, is involved in the FMCG exports with the aim of increasing the market for the indigenous brands in other parts of the world. It also facilitates sourcing of goods among Unilever companies across the world. 5. Beauty and Wellness (Lakme Lever Private Limi ted)

It is a wholly-owned subsidiary that operates 225 salons across India, with 57 being owned by HUL and the rest being operated on the franchisee model. 6. Hindustan Unilever Network

Hindustan Unilever Network is the direct selling arm of the HUL. It consists of three major brands: Aviance (Personal Care), Lever Ayush (Health Care) and Lever Home (Detergents, Household Care and Toothpaste). 7. Kimberly Clar k Lever Private Limited

HUL, in partnership with Kimberly-Clarke Corporation (USA), offers Huggies  brand of diapers for infant care.

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Marketing Management Project

Group 11

Mid-Term Submission

Hindustan Unilever mainly focuses on ‘ Sustainable Growth’ in their way to do business.

The model has three key inputs: brands, operations and people. One of their key differentiator is the Unilever Sustainable Living Plan. However, the outputs of the model are threef old: sustained growth, lower environmental impact and positive social impact. HUL envisions to increase the size of their business while they attempt to reduce environmental footprint and increase positive social impact. Theyaim to inspire people to take small steps every day to make a bigger positive impact on the society, gradually. The figure given below describes their Virtuous Circle of Growth . It aptly describe s how HUL derives profits from the application of their Sustainable Growth Business Model.

Sustainable Living HUL beli eves in business being regenerative force in the syste m in which it grows. Sustainable growth is their only accepted business model. They always strive to look for sustainable ways of sourcing, manufacturing and devel oping products that gi ves them opportuniti es to i nnovate while they also improve the livel ihoods of their suppliers and workers. The Unilever Sustainable Living Plan  (USLP) has three global goal s for 2020 as follows: 1. Help more than a billion people to improve their living 2. Halve their environmental footprint of their products 3. Enhance the l ivelihoodsof people across their value chain by sourcing 100% of their raw materials sustainably

Brands Strong brands and i nnovation are an integral part of HUL’s busi ness strategy. They bel ieve in investing heavily in the brand equi ty in order to fi nd and strengthen the synergy betwee n the consumers and the product preferences. They leverage the strong brand equity by increasing its efficiency, focusing on fewer

but bigger and stable products to increase margins. They seek to produce superior products as per consumer preferences to increase profi ts. For example, the l aunch of premium products like Tresemme, Dove Elixir hair oil and Pepsodent Expert Care, to name a few.

Operations iii On any given day, mill ions of consumers use HUL products and they strive ha rd to increase their consumer base by developing innovative products that cater to different consumer tastes and preferences at different price ranges. They util ize their global distribution channel to deliver sustainable, profitable and innovative products striving to enhance the se rvice quality and add value at e very step of the value chain. Increasing the direct coverage channel is one of their key areas. Their direct coverage consists of more than 2 million outlets and more than 2500 re-distribution stockists. 4|P a g e

Marketing Management Project

Group 11

Mid-Term Submission

HUL’s flagship rural distribution programme, Project Shakti  helped them reach the remotest areas of the country, over the last few years. With around 48,000 entrepreneurs across 15 states, they serve about 135,000 villages and 3.3 million household s in rural areas.

People HUL beli eves in having the right mix of culture and values, achieved by right pe ople working in a pl ace that is fit to win. They fol low agile and diverse business with highly motivated employees striving to achieve sustainability through innovation. They nurture capabilities and leadership and choose the best tale nt in the market pl ace. They hi re the best minds of the world from the most prestigious business schools across the world. Twice in a row, they have been recognized as the No. 1 Employer of Choice and fourth ti me in a row, B-school students sel ected HUL as their Dream Employer. HUL has over 16,500 employee s including over 1,500 managers.

Management For any organization, the fundamental principle in determining an organizati onal structure is to encourage speed and flexibility in implementation and decision making process. HUL aims to achieve this with empowered managers across nationwide operations and sectors. The Board of Directors includes a panel of 8 Directors and the day to day management affairs responsibility l ies with the Management Committee which works unde r the supervision of the Board. Mr. Harish Manwani, the non-executive chairman of HUL is also the current Chie f Operation Officer of Unilever. Mr. Sanjiv Mehta is the Managing Director and Chief Executing Of ficer of HUL, also heads the South Asia cluster of Unilever.

Rural Geographic Regions of India the product which should be made by the manufactures can be delivered through by C & F unit and these unit provide stock in the hand of the merchant wholesalers. Wholesaler delivers the product or stock to the different retailers (who sales stock in breaking bulk) through by agents. The main difference in urban and rural areas distribution networks are the agent who made relation between merchant wholesalers to retailers. Retailers can sell stock in small quantity to the ultimate consumers.

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Marketing Management Project

Group 11

Mid-Term Submission

Strengths HUL has a strong presence in Indian market. Here are a list of factors which add to its strength as top FMCG player in Indian market:   

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Strong and well recognized brand value of company and its product lines in the market. Presence of diff erent variety of products to reach every segment of the market. Large experience in majority of markets wi th insights in consumer understanding and customer relationship. Well spread manufacturing units with extensive distribution and retail network. HUL’s project “Shakti” has helped it in creating brand awareness in rural area. Availability of Unilever’s global technology, competency and best practices to leverage in Indian market. Availability of wi de variety of products with Unile ver global and domestic subsidiary to o cater to changing consumer tastes and opportunities in food sector. HUL is in a strong position to take advantage of its global R&D operations for introducing innovative and new products in Indian market. Great potential to realize growth in rural India and lower strata of the society through “Shakti”. HUL can become exporti ng and sourcing hub for global Unile ver companies in various countries.

Weaknesses Despite its strong presence in the Indian market, HUL is combating with a few weaknesses.  

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HUL products are ex periencing stiff competition from international, domestic and local brands. Low pricing strategy of competitors is causing HUL to lose market for some of its products. Ex: Strong competition to Kwality Walls by Amul. Competitors with specialization in a particular product are eating up HUL’s share, like Nirma focusing on soaps and detergents. Unfavorable raw material prices due to inflation, reducing profitability.

Opportunities Changing dynamics of the Indi an market has offered multitude of opportunities for all FMCG companies including HUL. 

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Increase in consumer income leve ls and addition of new customers has increased the size of pie for all FMCG firms. Changing consumer tastes is opening up new opportunities. Opportunities in food sector and popularity of Ayurvedic products. Opportunity to expand to other Asian markets through increase of exports. Large part of rural market is still relatively untapped.

Threats In changing scenario, HUL is facing some ne w threats to its status of top FMCG Company:

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Marketing Management Project

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Introduction of spurious/counterfeit products by local manufacturers in rural areas. Sustained high inflation rates have adverse effect on HUL’s bus iness.

Diverse product categories: Cosmetics, Hair Care, Skin Care, Detergent, Tooth Paste, Tea, Coffee , Processed Food, Ice Creams, Water Purifier Products catering to di fferent segments

Promotion    

Mid-Term Submission

Aggressive attack from competition in core busine ss activities especially from pla yers like ITC has resulted in deterioration of market share. Increase in advertising to combat competition.

Products 

Group 11

Aggressive media campaigns Print and TV media CSR initiatives like Project Shakti Celebrity power for promotion

Price 

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Multiple products with different pricing levels to cater to different segments Products in various sizes – s achets, large, small etc. to provide products at different price levels

Place   

Extensive distribution network Urban and Rural market Sales from Retail, Wholesale outlets, general stores and local stores

HUL has been leveraging its strong position in the market to obtain full market coverage. Some of the marketing strategies that it has implemented are: Multiple products in eve ry product market to cover all segments: Detergent Market:

Soaps:

Toothpaste

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Marketing Management Project

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Push for market by different product packaging vii  

Different formulations of same brands Low cost sachets, mini packets

Compelling Brand Communication

Celebrities for Promotions

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Mid-Term Submission

Marketing Management Project

Group 11

Mid-Term Submission

Industry Rivalry

Threat of New Entrants Value Capture

Power of Suppliers

Power of Buyers Threat of Substitutes

Industry Rivalry: Competition is very intense in the FMCG industry. Since the customer base is small compared to the wide variety and vast supply of goods that they are getting in the market. Hence all the FMCG companies use various marketing techniques such as advertisements, promotion events and also pricing the products low to attract and retain the customers. HUL has a range of competitors from local shops to big MNCs such as Nestle and P&G. These competitors provide e qually attractive products at competitive prices and hence industry rivalry is very high. Threat of New Entrants: In less developed markets, new entrants could pose a threat since the entry cost is low when compared to that in the devel oped markets. Since the capital needed is low and the new entrants could provide cost effective local products, potential threat of new entrants is highly possible. Threat of Substitutes: There is no end to the needs and wants of the customer and no single firm could satisfy all of them single handedly. There are plenty of gods available to satisfy a single nee d of the customer, hence if the customer is not satisf ied wi th a product, he would swi tch the product from the wide range of choices. Hence a company has to i nvest in R&D to analyze the customer needs and come up wi th the new products to retain the customers. HUL needs to understand the customers and develop products to satisfy their ever-changing needs and wants and make the customers to be loyal to HUL. Power of Suppliers: Suppli ers don’t have much power, as there are numerous suppliers of raw materials and other goods. Also suppl iers have stiff competition among themselves to get the contract. HUL has blanket agreements with the suppliers to supply for a certain period of time at a specific rate. This prevents suppliers from suddenly switching to the competitors to charge at higher rates. HUL maintain s good relationship with suppliers and treats them well. Power of Buyers: Bargaining power of consumers is very high, si nce they can switch to other alternatives any time. Al so all the FMCG companies provide si milar products and hence the switching from one product to other doesn’t cost much. If the customers are not satisfi ed with the product, they would choose any other alte rnatives from the ocean of choices, he nce HUL must be very cautious and take necessary steps to attract and retain the customer base. 9|P a g e

Marketing Management Project

Group 11

Mid-Term Submission

References: i

 Company Annual Report, 2013 -2014; The company website Annual Report, 2013 -2014 iii “Hindustan Unilever: Scal ing a cos t-effici ent dis tribution and sa les network i n remote markets”, Accenture, 2012 iv “Retai l network of companies ca n help achi eve fina ncia l inclusion: Hindustan Unilever ”, Economic Ti mes, Jul 2012 v “FMCG Sector i n Indi a”, II MJobs.com, May 2014 vi  The company website vii “Brands in Action”, the company websi te viii “Porter’s Five Force Analysis”, Business World, July 2011 ii Company

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